How to calculate the cost of a bad hire for your business

Article

By Katie Merritt, Senior Research and Data Manager, Robert Half

Hiring decisions carry more weight than ever in today’s complex labor market. With persistent skills gaps, evolving technology demands and ongoing economic uncertainty, many businesses are taking a more selective, strategic approach to hiring—and expecting a strong return on investment from every new employee.

Hiring has also become more complex and time-consuming as employers navigate challenges tied to job seekers’ use of generative AI, including higher application volumes and possible misrepresentation. In a Robert Half survey, 67% of human resources managers say AI-generated application materials have increased time-to-hire.

Despite spending more time on hiring, nearly 1 in 3 managers report making a bad hire in the past 2 years. Our research shows inadequate assessment of technical and soft skills is often a root cause. The impact of a hiring mistake isn’t always immediate—it can build over time, reducing team productivity, slowing project execution, increasing pressure on managers and employees, and harming retention.

To understand the true cost of a bad hire, employers need to consider both the upfront investment in recruiting and onboarding and the ripple effects that can follow when a hiring decision misses the mark. We’ll explore 2 approaches to help estimate those costs and assess the broader impact on teams and the business.

How to calculate the cost of a bad hire for your business

Approach #1: Estimating investment and disruption related to a bad hire
Approach #2: Identifying the ripple effects of a bad hire on teams and the business
Next steps after estimating the cost of a bad hire
Reducing risk in a more complex hiring environment

Approach #1: Estimating investment and disruption related to a bad hire

Employers can begin estimating the impact of a bad hire by looking at the time, effort and resources invested in the employee—and the business disruption that followed once it became clear the hire wasn’t working out. These 4 steps can help guide that assessment.

Step 1: Assess the hiring effort

The hiring process typically requires a significant time investment before an offer is even extended to a potential hire. Consider these findings from Robert Half research.

1 in 4 hiring managers review more than 30 resumes, on average, for a permanent role.
Hiring managers spend a median of 15 minutes reviewing each resume.
1 in 3 hiring managers interview 15 or more candidates for a single role.
Each interview takes an average of 30 minutes.

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That time quickly adds up.

Calculating the cost of a bad hire should start with the time spent evaluating candidates. Ask:

How many resumes or applications did we review?

How much time did we spend reviewing each one?

How many candidates did we interview?

How long did each interview take?

How many people were involved in the process?

Step 2: Include onboarding and ramp-up time

Once a new employee starts, the organization needs to invest in onboarding, training and other activities to help that person adapt and succeed. Consider the investment made after the employee started. Ask:

How much time was spent onboarding and training the employee?

How many weeks passed before concerns emerged?

How much coaching or oversight was needed?

How often did others need to review or correct the employee’s work?

Step 3: Estimate the productivity impact

Next, focus on the work itself. Ask:

What tasks were delayed

What work had to be redone?

Were key deadlines missed?

Did the manager or team lose time for higher-priority work?

Step 4: Account for the cost of replacing the employee

When a new hire doesn’t work out, employers often must invest additional time, effort and resources to find a replacement. That makes the cost of replacing an employee an important part of calculating the total cost of bad hire. Ask:

Did we need to reopen the role?

How long did it take to restart the hiring process?

How much time was spent hiring, onboarding and training a replacement?

Were there other bottom-line impacts from hiring the wrong person?

While the cost of employee turnover varies widely by role, industry and seniority, the core issue is the same: Replacing talent involves more than staffing an open position; it also means absorbing lost time, regaining momentum and managing added stress on the team.

Approach #2: Identifying the ripple effects of a bad hire on teams and the business

In a Robert Half survey, 40% of managers say it can take more than a month to recognize the signs of a bad hire. During that time, performance gaps can widen, work quality and deadlines can slip, and managers may need to spend more time coaching and intervening than leading.

That’s why employers assessing the true cost of a bad hire should look beyond the cost of replacing an employee and consider the broader ripple effects across the organization. To identify those effects, evaluate the cost of a bad hire in 4 key areas:

1. Team impact

Start by looking at how the hiring decision affected the people closest to the role. A bad hire can create extra work for managers and team members, especially when others need to compensate for missed deadlines, performance gaps or incomplete work. Ask:

Did team members have to take on extra work?

Did employees spend time helping, correcting or covering for the new hire?

Did managers lose time needed for planning, coaching or strategic priorities?

2. Initiative impact

Then, assess how the situation affected important work already underway. Even when a bad hire doesn’t derail a project, it can slow progress, shift priorities, and make it harder for the team to stay focused and motivated. Ask:

Were projects delayed or deprioritized?

Were deadlines pushed back or objectives changed?

Did the team lose momentum or drive?

3. Employee turnover impact

Next, consider whether the issue contributed to additional departures. When a bad hire increases workloads, raises frustration or weakens confidence in leadership, the cost can extend beyond 1 replacement. Ask:

Did anyone leave the team after the hiring issue emerged?

If so, how many roles had to be re-staffed?

What skills, relationships or institutional knowledge were lost?

4. Business impact

Finally, consider the broader business consequences. A bad hire can affect more than 1 team when service levels, stakeholder relationships or execution in critical areas begin to suffer. Ask:

Were opportunities delayed or missed?

Did execution slow in critical areas?

Did client or customer service suffer?

Did the issue impact stakeholder confidence?

These questions can help leaders better understand how hiring risk can compound over time. One poor hiring decision can create costs on multiple fronts, including lost time, reduced productivity, missed opportunities and lower employee morale. Employers should also consider the cost of employee turnover if the hiring mistake contributes to additional departures.

More bad hire statistics A hiring mistake in a critical role, especially a leadership position, can lead to misaligned priorities, slower decision-making and delays in executing on strategic initiatives. It can also directly affect employee retention. In a Robert Half survey:

57% of hiring managers say a bad hire contributed to other employees leaving.
61% say the organization lost 2 or more employees.

Next steps after estimating the cost of a bad hire

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With a clearer understanding of how a bad hiring decision affected the organization, employers can take targeted steps to recover from the mistake and reduce the risk of repeating it. For example:

If most of the cost of a bad hire came from reviewing resumes, interviewing candidates and restarting the search, employers may want to strengthen screening, clarify role requirements or use more targeted talent sourcing.

If the greatest impact occurred after the new hire started, consider whether onboarding, skills validation or manager check-ins should be more thorough and happen earlier.

If the issue increased team workload, consider whether a flexible staffing strategy, such as hiring skilled contract talent, could provide relief and help get projects back on track.

Explore Robert Half’s data on the impacts of hiring mistakes.

Reducing risk in a more complex hiring environment

Hiring risk can’t be eliminated. But it can be managed more effectively.

In a selective hiring environment, employers need to move with both care and speed. Taking too long to hire can mean losing top candidates. Moving too quickly without a thorough evaluation process can increase the risk of choosing the wrong person—and raising the cost of a bad hire over time.

Defining the technical skills, soft skills and business outcomes a role requires before launching a search can help reduce that risk. Structured interviews, skills assessments and reference checks can also help validate a candidate’s experience.

Working with specialized recruiters can help organizations of all sizes overcome hiring challenges. In a Robert Half survey, human resources (HR) leaders say working with recruiters leads to:

Faster hiring: 46%

Reduced risk of a bad hire: 41%

Improved retention: 34%

See more tips for recruiting employees who will thrive at your company.

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Achieve better hiring outcomes with help from Robert Half. Connect with one of our experienced talent solutions professionals to find and hire the skilled talent your business needs, faster.

Follow Katie Merritt on LinkedIn.

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