The Hidden Costs of Bad Hires On Small Businesses

June 6, 2016 Pete Jansons

Has your business ever been affected by a bad hire? If so, then you understand the havoc they can wreak on your business. In smaller businesses, bad hires can have more of an impact and make more of a dent than they would in larger companies. And the impact could be costly. In fact, in a 2012 CareerBuilder survey, 1 in 3 small business employers estimated bad hires cost them more than $25,000 and nearly 1 in 5 said it cost them more than $50,000.

These losses, however, aren’t always obvious and come in many forms. Consider the various ways in which bad hires can affect your small business:

  1. Employee morale. In small companies, a bad employee can have a negative impact on the entire workplace – not just his or her immediate team. Employees often have to pick up the slack of a bad hire, which can lead to feelings of resentment toward management.
  2. Increased turnover. People don’t normally think about this aspect of a bad hire, but your performers may leave your company if they feel this is the type of person you’re willing to bring on to work with them.
  3. Burnout. A bad hire experience can leave us with a “once bitten, twice shy” mentality, leading us to think everyone we bring in after the experience will fail as well. This feeling of negativity can be hard to shake and bleed into how we lead and manage our other employees.
  4. Costs related to recruiting and training. There’s a lot of time and money that goes into recruiting and training new hires. When a new hire doesn’t work out, all of that time and money not only goes down the drain, but you now need to invest more to find a replacement.
  5. Lost productivity. In that 2012 survey, lost productivity was considered among the top losses small business employers experienced when they made a bad hire. Not only do you lose out where the bad hire failed to contribute sufficiently, but productivity also slows down because other employees have to pick up the bad hire’s slack.


Ways to Avoid Bad Hires

Bad hires happen to the best of us. We can’t always see them coming, but there are steps we can take to ensure we stop making the same hiring mistakes over again.

  • Learn from past mistakes: Look back on past hiring mistakes and try to figure out what led to them. Perhaps the employee misrepresented him- or herself or exaggerated his or her qualifications during the hiring process. Or maybe the overwhelming pressure to hire quickly blinded the hiring manager to the candidate’s shortcomings. Once you understand the factors at play that led to bad hires in the past, you can create a game plan to eliminate or overcome those factors in the future.
  • Do your homework: Checking a candidate’s references can be time-consuming, but consider the time you save looking for a new employee to replace a bad hire. Not every reference will be willing to talk, but at the very least, a candidate’s references can verify dates of employment and salary, as well as the validity of the skills and experience the potential employee claimed to have during the interview.
  • Ask the right questions: When checking references and speaking to a candidate’s former employer, one great question to ask is, “Would you rehire this person if the opportunity arose?” If the answer is no, then it might be time to pass on this candidate.
  • Ask employees for help: You already trust your employees, so why not ask them to refer people they trust? Employee referrals are one of the best sources of long-lasting, quality hires. If you don’t already have an employee referral program, consider instating one and giving employees incentives for referring candidates who turn into hires. These rewards could be in the form of bonuses, gift cards or extra PTO.


Want more advice and resources for building your small business? Learn about the essential elements of a standout recruitment strategy

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