26-03-21
Industry Analysis

A bad hire is estimated to have a cost almost three times more than just a wasted salary, according to the REC in their latest report.

Written By
Andy Bristow

A recent report by the Recruitment and Employment Confederation (REC) has found that only half of people think that companies are doing a "good job" at recruiting efficiently which was a remarkable yet unsurprising claim.  

Standout headlines from the report included the observation that "...finding the right match between worker and vacancy has a significant impact on productivity, whereas hiring the wrong worker can be extremely costly.” And “Previous REC research has estimated that the overall cost of a bad hire to a business can be three times higher than just a wasted salary."

The report, which estimated the recruitment sector will contribute £7.7BN to the economy this year, was written about the recruitment industry as a whole yet we can apply the generalist summary above directly to the IT market in the East of England. The challenge ahead for employers is in making their recruitment more efficient and avoiding a steady mounting of both hidden and opportunity costs for employers of IT specialists. 

Direct, hidden and opportunity costs

Recruitment costs can be divided into:

  • direct costs
  • hidden costs
  • opportunity costs

Direct costs require some thought to collate but are more obviously quantifiable from the salary and costs of internal HR and resourcing teams to actual recruitment fees themselves.  

Less obvious are the hidden and opportunity costs that some clients will be at risk of racking up this year as the skills shortage in IT creates winners and losers in the race to attract and retain talent. Hidden costs include the time it takes to hire with a slow process having wide-ranging impacts from the requirement and cost of temporary cover to the increased workload on existing members of staff having highly damaging effects on morale, candidates see this and one of the regular reasons we are given for people leaving is the increased workload often caused by the failure to rapidly replace leavers.  

Opportunity costs are the cost incurred when a commitment is made to the wrong candidate as a bad hire soaks up management and training resources rather than adding to the sum of collective parts that makes up a high performing team. 

It's not enough just to get a bum on a seat though, the quality of the hire has to be at the right level, and in IT this is vital or the companies risk compounding problems for existing staff. 

The REC report backs this up: "...finding the right candidate can positively create value for the employer. On average, businesses estimated that top performers can create around 50% more value for the company. Economists have explored how high performing workers multiply each other’s productivity - the whole is greater than the sum of its parts."

You can read the whole report with lots of insights for hiring and HR managers here: https://www.rec.uk.com/our-view/research/industry-analysis/recruitment-and-recovery