With Cost Per Hire Rates High, Is It Really Worth Risking a Bad Hire?

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Experts say that replacing an employee can cost anywhere between six months of their annual salary and two times that salary. Running thorough background checks that include professional and educational verifications can help your business avoid these costs.

How much does it cost to hire someone? Getting a specific answer to that question depends on who you ask and which sources you trust. But the general answer is the same no matter who you consult: hiring a new employee is not cheap.

The True Cost of Hiring an Employee

There is a reason that high employee turnover rates are seen as a bad thing, and it’s not just that they make a business look like an unwelcoming place to work. According to the SHRM (the Society for Human Resources Management), the cost of replacing a salaried employee at your company is between six and nine months of their salary.

Some sources suggest that this estimate is actually lowballing cost per hire rates. Some professionals will testify that replacing an employee can cost as much as double that person’s annual salary. This estimate tends to hold true in cases in which you are filling an executive position (like hiring a CEO) because it is more difficult to find someone with qualifications for those jobs. In addition, since those hires are so high-stakes for your business, they tend to require more time for interviewing, screening, and consideration.

It costs money to market a vacant job opportunity to the world. It costs money to lose the productivity of a long-term experienced employee. It costs money for your managers to take time out of their busy schedules to peruse resumes and conduct job interviews. It costs money to run background checks on top candidates. It costs money to onboard new employees, from training them to waiting for them to reach max productivity.

Minimizing Risk with Hiring Decisions

With the cost per hire rate as high as it is, it’s simply not worth it to take the risk of making a bad hiring decision. While companies sometimes do cut corners during hiring processes to save money or preserve time, making cuts will cost you a lot more than you save. The best practice is to be as thorough as possible when screening your applicants.

Asking the right interview questions is a part of this. So is being vigilant about sorting through resumes and picking out the best ones instead of just sorting through the first two dozen and settling for one of the best candidates in that stack.

Another vital element is the background check. Background checks are arguably a company’s most powerful tool for mitigating the risk of making a bad hire. This usefulness is thanks largely to the range of things a background check can uncover about a candidate. Many people make the mistake of thinking that background checks only concern criminal history. While criminal history is an important thing to look at in potential hires, it is just one angle that you can pursue with background checks.

One of the ways that companies risk making poor hiring decisions is limiting their background check policies to criminal history checks. Certainly, a criminal history check can help you dodge a risky hire. For instance, if an applicant has a history of assault and other violent crimes, you are going to want to know that information. If you hire that person, and their violence erupts in the workplace—potentially directed at a customer or co-worker—your business will be in danger. The costs you might face in such a scenario go far beyond the expense of hiring a new person thanks to potential negligent hiring lawsuits.

If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.” – Red Adair

Going Beyond Criminal History with Your Background Checks

When businesses cut off their pre-employment background check processes after the criminal check, they limit themselves. Just because an applicant has no criminal history that you can find hardly means that they are a good hire. It’s highly likely that more bad hires result from resume lies (and poor fact checking on the part of the employer) than from criminal history.

Consider this: about 30% of adults in the United States have criminal records. That statistic means that about one in every three people in the job market has a criminal record of some form. That number is lower than the percentage of the American population that engages in resume dishonesty: according to Steven D. Levitt, the coauthor of the book Freakonomics, more than half of all job applicants lie on their resumes.

Some of these lies can be considered minor, like a slightly tweaked job title or an employment date that extends the length of the applicant’s last job by a month or two. In other cases, resume lies can portray a candidate as qualified for a job that they have no business even applying for. For instance, the applicant might claim to have computer skills they don’t actually possess just because you listed those skills as essential in the job description. Similarly, an applicant might lie about college degrees, professional licenses, or years of work experience to improve his or her chances of getting hired.

A combination of background checks and reference checks can help you to verify all of this information and find out what’s true and what isn’t. Verifying an applicant’s educational history and work experience can help you to make sure that the person is actually qualified to perform the role you are trying to fill. By screening qualifications as well as criminal history, you can make better hiring decisions and avoid spending big to replace hasty hires.

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Michael Klazema has been developing products for pre-employment screening and improving online customer experiences in the background screening industry since 2009. He is the lead author and editor for Backgroundchecks.com. He lives in Dallas, TX with his family and enjoys the rich culinary histories of various old and new world countries. 

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Kayla Kozan

Kayla Kozan

Director of Marketing at Ideal
Kayla spent the last few years studying Marketing and Entrepreneurship on 3 different continents. Now covering the latest in predictive analytics, workplace diversity and big data. She has a keen interest in tech and discovering underrated brunch spots.
Kayla Kozan

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