The true cost of a bad hire extends far beyond the immediate financial impact, rippling through an organization in ways that can be difficult to quantify but profoundly damaging. When companies fail to properly screen potential employees, they open themselves up to a host of risks and expenses that can haunt them long after the problematic hire has left the organization.
At first glance, the most obvious cost of a bad hire is financial. A prominent human resource trade organization estimates that the average cost per hire is over $4,000, but this figure can skyrocket for executive and/or specialized positions. This initial investment includes recruitment costs, time spent interviewing, and administrative expenses. However, the real financial burden begins to accumulate once the employee starts working. Training a new employee is a significant investment. Just consider the average monthly compensation, and the “traditional” 90-Day Probationary period – it can easily approach or exceed five figures in paid wages alone. When this investment is made in someone who should never have even been hired in the first place, it represents a substantial waste of resources.
The time and effort spent training a bad hire is not just a financial loss; it’s also an opportunity cost. While managers and colleagues are focused on bringing the new employee up to speed, their own productivity suffers. This ripple effect can be felt across departments, as team dynamics are disrupted and projects are delayed. In some cases, the negative impact of a bad hire can persist even after they’ve left the company, as other employees struggle to pick up the slack or correct mistakes made during their tenure.
Perhaps even more concerning than the immediate financial and productivity losses are the potential legal ramifications of a bad hire. Negligent hiring and retention laws can leave companies vulnerable to lawsuits long after an employee has been terminated. If an employer fails to conduct proper background checks and hires someone with a history of violence or misconduct who then harms a colleague or customer, the company can be held liable. These legal battles can be incredibly costly, both in terms of financial settlements and damage to the company’s reputation – which with social media can spread virally.
Given these risks, the importance of thorough employee screening cannot be overstated. A comprehensive background check can reveal red flags that might not be apparent during the interview process, such as criminal history, falsified credentials, or a pattern of job-hopping. While it may seem time-consuming and expensive to conduct thorough background checks on all potential hires, this investment pales in comparison to the potential costs of a bad hire.
However, not all background screening companies are created equal. It’s crucial for employers to work with reliable background screening companies that are also consumer reporting agencies (CRAs). These companies are bound by the Fair Credit Reporting Act (FCRA), which provides important protections for both employers and job candidates. One key requirement of the FCRA is the two-step adverse action process. If an employer decides not to hire a candidate based on information in a background check, they must first provide a Pre-Adverse Action Notice, which gives the candidate an opportunity to dispute any inaccuracies in the report. Only after a minimum of five business days (and potentially longer, depending on state and local laws) can the employer then send the final Adverse Action Notice.
This process not only protects job candidates from unfair treatment but also helps employers avoid costly legal battles over discriminatory hiring practices. It’s worth noting that some states and localities have additional requirements beyond the federal FCRA, making it even more important to work with a knowledgeable and compliant background screening company.
Another critical factor to consider when choosing a background screening company is their commitment to data security. In an age of increasing cyber threats, the sensitive personal information collected during background checks must be protected with the utmost care. A data breach could not only expose the company to legal liability but also severely damage its reputation and ability to attract top talent in the future.
It’s clear that the true cost of a bad hire extends far beyond the initial financial investment. It can drain productivity, damage team morale, and expose the company to significant legal risks. By investing in thorough employee screening through a reliable, FCRA-compliant background check company with strong data security practices, employers can significantly reduce these risks. While it may require more time and resources upfront, this investment can save companies from the astronomical costs associated with bad hires in the long run. Remember, the goal is not just to fill a position, but to find the right person who will contribute positively to the organization’s success and culture.
As is often said – If you could have known, you should have known.®
Posted by: Rudy Troisi, L.P.I., President and CEO, Reliable Background Screening
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