According to a survey by Monster.com of 639 small business owners in the U.S., it cost an average of $6,480 for small business owners to replace a “wrong hire” in 2015. That estimate is on the low end of the spectrum. The U.S. Department of Labor estimates it can cost on average one-third of a new hire’s annual salary to find a replacement. Others believe it’s even higher than that. According to a study by the Society for Human Resources Management (SHRM), it can cost up to five times a wrong hire’s annual salary, depending on the circumstances. The person’s position, how long that person was in that position, and the size of the company all contribute to this cost. According to SHRM, a “wrong hire” at a big company earning $80,000 per year (having been in that job over a year) could cost up to $400,000 to replace. And the “wrong hire” of a CEO in a national company can cost millions to replace.
The expense of a “wrong hire” comes right off the bottom line. That is money spent that adds no value to the business, except perhaps in shaping future hiring practices. A “wrong hire” might teach a manager what to avoid in the future; but often doesn’t even do that. Still, it would be nice if that lesson could be learned without paying such a steep price, especially since Harvard Business Review indicates that as much as 80% of employee turnover is due to bad hiring decisions. Perhaps, then, it would be helpful to know which types of people to avoid hiring and how best to recognize those flaws.
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