What is the cost of a bad hire?
Definition
The cost of a bad hire is what a hire who does not work out costs you in total, from sourcing and onboarding through lost productivity, manager time, exit and re-hiring.
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A bad hire costs you once to hire and again to undo.
You pay to find and onboard the person, you pay their salary while they deliver less than the role needs, and then you pay again to exit them and hire a replacement.
A bad hire is a hire who does not work out, whether they leave on their own or are let go. Many show up later as non-regretted or involuntary exits.
A real figure makes the case for careful hiring.
It is the number that justifies slowing a hiring process down. It also sets a fair ceiling on what a better assessment or a longer interview loop is worth paying for.
You calculate it by adding six costs.
- Lost productivity during tenure: the share of salary paid for output you did not get.
- Recruiting and agency cost.
- Onboarding and training.
- Manager and team time spent on the problem.
- Severance and exit cost.
- Re-hiring the replacement.
Formula
Lost productivity = salary for the months employed × share of output lost
Here is a worked example with round numbers.
Take an invented hire on $80,000 a year who stays 6 months and delivers half of what the role needs. Salary for those months is $40,000, so lost productivity is 50% of $40,000, which is $20,000.
Add $8,000 of recruiting, $4,000 of onboarding, $6,000 of manager and team time, $5,000 of severance and $8,000 to re-hire, and the total is $51,000.
Worked example: one bad hire
- Lost productivity$20,000
- Recruiting and agency$8,000
- Re-hiring the replacement$8,000
- Manager and team time$6,000
- Severance and exit$5,000
- Onboarding and training$4,000
Total cost of the bad hire
$51,000
The figure sets a fair ceiling on prevention.
If one bad hire costs $51,000 in your numbers, an extra interview round or a work sample that avoids even one a year is cheap. That is the practical use of the figure: deciding what a better hiring process is worth.
Track it alongside new-hire retention. Hires who leave in their first months are often the bad hires the process let through.
These are the common mistakes when costing a bad hire.
- Counting only the recruiting fee and the severance, and leaving out the months of lost output.
- Ignoring the team, who cover the gaps for as long as the problem lasts.
- Waiting too long to act. Every extra month adds salary for output you are not getting.
- Blaming the person without checking the job description and onboarding, which a pattern of bad hires usually points at.
Find out what one wrong hire costs.
Lost productivity, recruiting, onboarding, management time, the exit and the backfill: the free calculator totals it up.
Calculate the cost of a bad hireFree, no signup required.
These related terms are in the glossary too.
The cost of turnover is the full cost of replacing one leaver: recruiting spend, interviewing time, onboarding, the new hire's ramp period, manager time and any temporary cover.
Involuntary turnover is a departure the company initiated: a termination, a performance exit, or a layoff.
Non-regretted attrition is a departure the company is neutral about or relieved by, usually a poor fit or a sustained performance problem.
New-hire retention is the share of a hiring cohort still employed after a set milestone, commonly ninety days, six months or one year.
Functional turnover is a departure that leaves the organization better off, typically a low performer or a poor culture fit choosing to move on.
Employee turnover is the movement of people out of a company over a set period, counted as the employees who leave and are replaced.
Back to the HR glossary, where all 52 terms are defined.