The True Cost of Hiring the Wrong Person

No business can truly afford the cost of hiring the wrong person. Employees who prove a poor match for their intended role – or for your company’s culture – are destined to underperform. And subpar performance has been shown to negatively impact everything from productivity and morale to profitability.

Basic Employment Costs

The decision to hire can be the sign of a flourishing business. But too many Canadian business owners underestimate hiring costs.

Wages and vacation pay aside, employing others means paying the employer’s portion of both EI (Employment Insurance) and CPP (Canada Pension Plan). Depending on your business model and province of operation, meanwhile, you may also be responsible for workers’ compensation, employer health tax, or QPP (Quebec Pension Plan) contributions.

These costs are mandatory whether your business is profitable or not. But they don’t begin to cover the true cost of hiring – especially if you hire the wrong person.

The True Cost of Hiring

Although it’s not always evident, there’s a very real cost (think time, money, and effort) attached to recruiting, onboarding, and training a new hire. The Government of Canada’s business help site explains that hiring an employee necessitates:

  • Establishing the requirements of the position
  • Advertising the job
  • Interviewing candidates
  • Performing background and reference checks
  • Selecting the successful candidate
  • Orienting the new employee
  • Starting a file for the employee

The actual cost of recruiting and hiring a new employee varies widely, but estimates range from an average of $4,000 to almost $19,000.

If that employee turns out to be an asset to your business, the cost is a worthwhile investment. But if the individual you hire turns out to be a poor match for your company, you may be saddled with clean-up costs and repercussions that include:

  • Regaining business lost to inept or inadequate handling of customers or sales,
  • Revision or recreation of substandard work, and
  • Repairing the morale of team members who may have been forced to pick up the slack

According to the U.S. Department of Labor, the average cost of a bad hiring decision equals roughly 30% of that individual’s salary.

How to Avoid Hiring the Wrong Person

Most small and mid-size business owners admit to having made a bad hire at some point. And a recent poll of Canadian CFOs reveals that coaching underperforming employees chews up an average of 21% of working hours – or about 8 hours out of every 40-hour work week.

It’s clear that, in many cases, a bad hire can be worse than no hire at all. So if your business is growing, consider these best practices for attracting and retaining top talent:

Establish a hiring strategy: Committing a well thought out recruitment process to paper will help you eliminate hiring biases, standardize hiring protocols, and improve candidate selection.

Take your time: Small business owners share a tendency to hire too quickly. Trust in the recruitment process you’ve created and remember that the best candidates are not only worth waiting for, they’ll save you money in the long run.

Don’t just look at the resume: The interview process is far more revealing – and ultimately useful – than an applicant’s resume alone. If you don’t know where to start, the internet is full of valuable interview advice from professional hiring managers

Do your due diligence: Rather than accepting a promising hire at face value, take the time to perform reference checks or background screening where appropriate.

Work with a recruiter: Many companies rely on professional recruitment firms to handle their hiring for them. If you’re not confident in your ability to select the right candidate – and it’s within your budget – working with a recruiter can save you time and stress.

Uncertain as to whether your business can afford a full-time employee? Remember that there are other options. Hiring freelancers or temporary outside contractors for certain roles can save your business money and help you avoid the high cost of hiring the wrong person.