Risk Mitigation, Background Screening and Making a Successful Hire

Hiring a new employee is costly and time consuming. In healthy economies shortage of qualified applicants exists and in poor economic times one can face with an abundance of applicants. Each economic condition provides unique challenges, but in both good and bad times, the cost of a bad hire can be significant. Common practice suggests that the calculable cost in employee turnover ranges between 50% and 200% of an employee’s annual salary. A recent article suggests that a better calculation might be “Total employee turnover cost + Costs of hiring new employees + Costs of training new employees.”

As part of this calculation, there are six factors, listed below, which pertain to pre-employment considerations:

• Advertising the position
• Bonus signing
• Relocation pay
• Time for interviewing
• Travel expenses
• Pre-employment assessments

(Note: Do not forget to figure in the usual background screening expenditures.)

Additionally, there are post-hire training costs:

• Training materials
• Technology
• Employee benefit set up
• Time for trainers

Certainly the above calculation is exclusive to the hiring a new employee but there is an incalculable cost in keeping a bad hire in place.

The article, The Cost of Keeping A Bad Employee,the author states, “if your company is larger than 10 people, there is a really good chance that you have at least one bad employee.”

The affect that one bad seed has on those around them is significant. A bad employee can create an environment of disharmony and can spread their ill will throughout an organization. If this process continues unabated the overall affect on the company can be devastating. Productivity could decrease, moral may disintegrate and the potential of good employees leaving the company is very high.

Another serious consequence of hiring a bad employee is the potential for fraud.

From, How Damaging Can a Bad Employee Be to Your Business?: “Theft can be as straight forward as peeling cash from a till, or as complex as hiding funds and transferring them through electronic means. Theft doesn’t just have to be of money, it can be stock or services too.”

Retail and hospitality organizations are well aware of fraud in the form of product shrinkage. It is often built into their cost of doing business. Other businesses are less aware and often caught by surprise when a fraudulent act emerges.

Overall, the cost of a bad hire is extensive. Not only is there a replacement cost but the risk of infecting an entire organization. Once a bad hire is identified they should be terminated as soon as legally possible. This may take time, but it must be done. Reassigning a bad employee to a non-essential role may be a short term fix until dismissal can be accomplished.

Fortunately, there are steps one can take to reduce the risk of hiring a bad employee. Numerous articles populate the internet on the subject and “best practices” evolve on a daily basis.

The most important aspect of a hiring process is “knowing” the applicant as completely as possible. This task requires several steps.

• Pre-Employment Assessments. A company that utilizes applicant tracking software often can implement assessments to understand the likelihood of a candidate succeeding at a given task within their potential role with a company.
• Background Screening. The cost of a thorough background check is 1% of the cost of hiring a replacement employee. Utilizing a variety of reports one can verify an candidate stated qualifications as well as illuminate any potential “red flags.”

Key components of a background check include:

• Social Security Number Trace
• County Criminal Records Check
• Driving Records Search
• National Criminal Check
• Sex Offenders Registry
• Credit Check
• Drug testing
• Employment & Education Verification

• Multi-tiered interviews. A candidate should be interviewed by anyone he or she may interact with on a daily basis. These individuals may include the hiring manager, Human Resources, supervisors, peers and subordinates. Each potential colleague will have specific and unique perspectives on the candidate’s qualifications, skills and interpersonal communication skills.

Once a candidate is in place their manager must maintain personal interaction as well as an open-door policy allowing for a relationship to develop. Knowing your employee is key to understanding their motivations. The warning signs of a bad hire are many and noticeable. It is critical to stay in touch with staff to maintain a solid working environment. In addition it is important to have an annual review process that may include 360 degree assessments, peer reviews, and post-hire background checks.

Despite ones best efforts, a bad hire could occur. However, if proper screening and hiring practices occur and a manager stays in close contact with staff, the likelihood is decreased significantly.