Calculating the costs of hiring the wrong person

How much does it cost you to fill a vacant role with someone who’s not right for the job?

Without due consideration, the expense of recruitment will be wasted. To make matters worse, you will have the added costs of time and money to go through the process again.

Here are the things to take into consideration when considering the costs of hiring the wrong person.

Identify your direct costs

The direct costs of replacing a departing employee include recruitment costs for advertising and recruiters, plus any termination payouts.

These costs will be incurred every time you hire somebody, whether they turn out to be the right fit for your business or not. The trick is to best invest your money to make sure you can get the right person.

Recognise your indirect costs

The indirect costs are less obvious but contribute a substantial proportion of the overall expense of hiring. They are also much harder to calculate.

Loss of productivity

It is highly likely that you will lose productivity while you have a vacant position, while someone is getting used to the workplace, and when someone has decided to leave his or her job.

While you have a vacant position the tasks previously assigned to the vacant role are abandoned, or taken on by another employee whose own productivity may suffer. A new employee will take time before they become sufficiently familiar with their job to achieve full productivity. In addition, the productivity of many employees falls while they are serving out their notice period.

When you have hired the wrong person, they will likely never reach what you consider to be full productivity in their time as an employee.

In-house costs of hiring

The tasks involved in recruitment that occur in-house are numerous and varied.

The steps for hiring the right person include:

• Drafting position descriptions
• Reading resumes
• Screening applications and advising candidate
• Carrying out interviews and debriefing
• Verifying qualifications, checking references and conducting pre-employment assessments.

In addition to hiring, you will need to account for the cost of induction and training a new employee.

The cost of all these tasks can be calculated by the hourly rate of each employee involved in the process, multiplied by the number of hours they spend on recruitment, induction or training.

Termination administration

The administration involved with the termination of an employee who proved to be wrong for the business is an important but costly process.

The cost of termination administration involves:

• pay officer time to process termination pay
• exit interviewer time
• employee and line manager time to finish paperwork and return and check employer’s property
• administration time for actions such as cancelling computer access.

Hiring is a costly exercise that will be a much more expensive when you hire the wrong person. Combining the direct costs of recruitment with the indirect costs of lost productivity, in-house costs of hiring, and termination administration shows you what you’ll waste by choosing the wrong person.

It makes sense (and cents!) to invest time and money up front to ensure you attract and select people who are right for your business.