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Cost of Bad Hiring
Human Resources » Recruitment & Staffing

Chrm Message From: Dr.Jha Total Posts: 26 Join Date: 14/01/2007
Rank: Executive Post Date: 05/05/2007 07:13:03 Points: 130 Location: United States

Hello Professionals & students,

Bad Hire can cost upto 150% of CTC of an emoloyee to a employer.

Would it surprise you to learn that it will cost at least 150% of a person’s base salary to replace him or her? Actually, the more you pay a person, the higher that percentage will be - because the more you pay this person, obviously, the more you value their contribution to the growth and success of your business.

Let’s say you have an employee with an annual salary of 5 lakhs who leaves a company. (The reasons for leaving are not important in this case: if the plan is to replace them, the costs will be the same.) It will cost a company a minimum of 5.5 Lakh to replace that person. This cost includes the savings realized because the person has left! And, all of that cost is taken away from the bottom line. There is a Turnover Cost Projection Model that identifies and calculates all the costs incurred.

The model indicates that the business costs and impact of employee turnover can be grouped into four major categories: 1) Costs due to a person leaving; 2) hiring costs; 3) training costs; and 4) Fidlling , which is very common in India

Costs due to a person leaving

At this point, costs include the following: employees who must fill in for the person who leaves before a replacement is found; the lost productivity of the employee while he is still in his position but not fully concentrating on his job; the cost of a manager or other executive having an exit interview with the employee to determine what work remains, how to do the work, why he is leaving, etc.; the cost of training the company has provided this departing employee; the cost of lost knowledge, skills and contacts of the departing employee; the increased cost of unemployment insurance; and the possible cost of lost customers the departing employee is taking with him ). The sum total of these costs can be as much as 85% of this position’s base salary or 4,2500/ if his salary is 5Lakhs Hiring costs

These costs will include items like advertising, an employment agency, employee referral award, internet posting and other forms of announcing the availability of the position. More money may well have to be offered to attract the right candidates. At the next stage, interviews conducted by management and/or hiring department staff will cost money in terms of the time they spend arranging for interviews, conducting the interviews, calling references, having discussions about the people they met, and time spent notifying candidates who did not get the job.

The time spent on these activities will also cost money in terms of lost productivity, because, with rare exceptions, these people are not employed to be full-time interviewers. Also included here are any skills, personality or assessment testing your company may utilize. Finally, there is the cost of conducting pre-employment checks such as past employment histories, drug screening, educational, verifications and (possibly) criminal background checks. And don’t forget, these assessments and reference checks may be conducted on more than one candidate for this opening. The sum total of these costs will be from 15% of this position’s base salary or approximately $8,000.00. This will increase to about 38% of the position’s base salary or Rs 1.90 Lakh .

Training costs

Now that the person is hired for the Financial Analyst position, they can’t be expected to know absolutely everything on his first day, can they? Costs to factor in for training include any new employee orientation that explains benefits, basic policies, company history, etc.; specific training for the person to do his job, such as computer training, product knowledge, industry knowledge, and the day-to-day duties to get the job done. Even though this may be informal or on-the-job training, the time it takes for various people to impart this knowledge is costing money - especially since people who are knowledgeable enough to train others are probably also highly valuable the company. Set the sum total of these costs at approximately 13% of the position’s base salary around Rs 65000/-

Fidlling : If the employee is treacherous and fidels with your intelectual property and leaves you dry and fry, then the cost goes up humangous

Adding the subtotals of each major category discussed above gives a total about 150% of the original Rs 5 Lakh base salary we used in this example. (And remember the additional cost of infidelity could be !!

Any More Views, people ??


Dr. Jha

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