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Updated Mar 23, 2023

How to Handle a Bad Hire

If you made a bad hiring decision, it could cost you. Follow this six-step approach to resolve the issue.

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Written By: Skye SchooleySenior Lead Analyst & Expert on Business Operations
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Your employees are the lifeblood of your company, and one bad hire can impact your organization severely. This is why it’s crucial to follow best practices when recruiting and hiring new employees. We spoke with business and legal experts to learn about the wide-ranging costs of hiring the wrong candidate. Plus, find out the six steps small business owners should take to handle bad hires. 

What is the cost of a bad hire?

There are both monetary and intangible costs associated with a bad hire. However, the total dollars and damages will depend on the specifics of your company’s situation.

Monetary cost of a bad hire

The exact monetary cost of a bad hire varies based on several factors like industry type, employee salary, recruiting resources and onboarding and training expenses. The United States Department of Labor says a bad hire can cost your business 30 percent of the employee’s first-year earnings. Some human resources agencies estimate the cost to be higher, ranging from $240,000 to $850,000 per employee. 

What’s worse, the monetary cost of a bad hire can skyrocket if the employee becomes disgruntled and engages in litigation. Then, your business would be on the hook for attorney fees and, potentially, financial damages.

Intangible cost of a bad hire

When you hire an ill-fitting employee, the cost extends beyond dollars and cents. A bad hire can affect your organization’s overall productivity, company culture and reputation. When we spoke with Jonathan Hill, chairman of recruiting firm The Energists, he detailed some of the nonfinancial consequences that may accompany the monetary costs associated with a poorly performing employee.

“There are also intangible costs — clients or customers lost due to their mistakes, the impact on the mental health and stress levels of their co-workers, and the extra time spent by other team members to redo their poor work and salvage disrupted projects are the ones that come immediately to mind,” said Hill.

According to Lindsay Teague Moreno, business owner and author of Boss Up!, an employee can become a liability for your company when they consistently fail to deliver on projects, work, attitude or respect.

“Sucking up your time and company money, bad hires can quickly compromise the health and happiness of your business,” said Moreno.  

Did You Know?Did you know
Hiring a new employee can cost roughly $4,425. However, a bad hire can cost you 30 percent of the employee's salary, an expense that typically increases with job level.

How do you know if you made a bad hire?

There are several signs that indicate you’ve hired the wrong person for the job. Keep in mind, however, that one of these signs alone doesn’t necessarily mean you’ve made a bad hire. Rather, you have to analyze each situation holistically and consider the specific details and circumstances surrounding the employee you are evaluating. That way, you can fully assess the extent to which this worker is affecting your business and if a remedy is necessary.

Here are some red flags to look out for.

  • The employee is not producing the quality of work you agreed upon (after an appropriate training and learning period).
  • The employee doesn’t have the skills they claimed to have in their interview (particularly if these skills were outlined in the job description).
  • The employee is consistently underperforming and missing key performance indicators (KPIs).
  • The employee has a bad attitude, is frequently disagreeable or critical or doesn’t embrace company culture.
  • The employee is chronically tardy or absent.
  • The employee repeatedly makes the same mistakes.
  • The employee blames others for their mistakes or failures.
  • The employee consistently receives poor performance reviews. 
  • The employee sparks recurring negative customer reviews or client complaints.

When hiring a new employee, it’s critical to properly train them on their projects and duties so they are equipped with the knowledge required for success. You need to give them an adequate amount of time to adjust to their new responsibilities since there is bound to be a learning curve in the beginning. A new team member who gets off to a rough start could turn into a superstar down the line. However, even the best-trained worker can end up being a bad hire.

Charles O. Thompson, attorney and shareholder at Greenberg Traurig, said that certain issues may arise over time that could not have been predicted during the hiring process or the employee’s early tenure with your organization. 

“Employees may feel entitled, develop negative attitudes, not understand their role in the company or may not be sufficiently adaptive to the business,” said Thompson. “This may manifest itself in decreased morale in the group, missed deadlines, increasing errors or customer complaints and poor work quality.” 

If your new employee is consistently demonstrating the signs of a bad hire after their learning period ends, you’ll need to identify whether they are displaying unexpected behavior that can’t be tolerated or if the problem is with your hiring and onboarding procedures and is fixable. 

How do you handle a bad hire?

If an employee is starting to exhibit some of the red-flag behaviors highlighted above, follow this six-step approach to resolve the situation. 

1. Identify the problem and the reason behind it.

The first thing to do is evaluate and document the employee’s performance. Identify trends and assess whether the issue is due to an error in your hiring process or if it’s because of the employee’s own misdoings. Thompson said common hiring errors include rushing to fill a position, hiring based on a resume as opposed to a skill set, listing inadequate talent requisition skills or failing to check job references. If one of these internal hiring errors was made, you first need to revise your hiring process. You’ll also want to assess your training process to ensure the employee received the proper training to excel in their role. [Find out how to maximize your employee training program.]

2. Discuss the problem with the employee as soon as possible.

If the issue is stemming directly from the employee, discuss your concerns with them and allow them to correct their mistakes. It’s important to address employee performance and attitude problems as soon as possible so you can remedy them before they get out of control. 

“Many companies have implemented management with more frequent performance reviews or performance improvement plans,” said Thompson. “Many companies find that early action leads to the best chance of success, allowing an employee the opportunity to improve before they suffer irreparable reputational damage because they are not meeting the goals of the company.” 

TipBottom line
Having a good performance management process in place can help keep employees on track with individual, team and company goals.

3. Adjust employee responsibilities as needed.

If the employee is putting in a lot of effort but still can’t reach their KPIs, they may not be the right candidate for that specific role. If they are a great employee otherwise, consider moving them to another position better suited to their talents. If the issue is more serious, such as a poor work ethic or bad attitude, the employee is unlikely to be a good fit long term, regardless of how you adjust their job. [Read related article: Hiring for Attitude Over Experience: What the Numbers Show]

“Attitude and work ethic are two things you cannot teach an employee,” Moreno said. “If an employee fails to deliver a strong work ethic and a good attitude each day, it’s time to part ways. Remember, your business is not personal, and you can’t keep it going if you let the wrong people hang out at your place of business all day.” 

4. Look for a replacement employee.

If a new hire isn’t working out, Hill recommends reviewing other qualified candidates in your applicant pool before terminating the employee. However, don’t contact anyone for interviews until you’ve made an official decision to dismiss the current hire. It’s still beneficial to have possible replacements in mind so repeating the recruitment process isn’t too much of a time-suck. 

5. Terminate the employee.

If you’ve analyzed the employee’s performance and behavior, discussed the issues with them and are still seeing poor results, the ultimate solution is terminating their employment. When firing these staffers, be kind, honest and direct. Make sure you comply with the applicable federal, state and local laws to avoid committing wrongful termination.

“Best practices should be used in terminating any employee,” said Thompson. “Those could include managing against objective criteria, a careful assessment of the employee’s performance, documentation of the performance and inclusion of human resources and management in the decision-making process.” 

FYIDid you know
When terminating an employee, you may want to provide them with a termination-of-employment letter.

6. Reassess and modify your hiring practices.

During the employee’s tenure, you should have identified the reason behind why the worker wasn’t a good fit for the role or your company. If that reason was because of organizational flaws, such as an inaccurate job description or biased interviews, you will need to make some changes to your recruitment and hiring process. This step is crucial to ensuring you don’t continue to make poor hiring decisions in the future.

Can you fire a bad hire?

All 50 states are at-will employment states, as is Washington, D.C. This means an employer can terminate an employee or an employee can quit a job, for any reason without warning. Still, you need to be mindful of complying with discriminatory protections, like Title VII of the Civil Rights Act of 1964 — which prohibits employment decisions based on race, color, religion, sex or national origin — the Americans with Disabilities Act and the Age Discrimination in Employment Act of 1975. 

In addition to antidiscrimination laws, some states have exceptions that say an employee cannot be fired for following public policy or if there are implied contracts and implied-in-law contracts. Statutory exemptions may apply as well: 

  • Public policy exemption: You can’t fire an employee if it would violate a state or federal statute or the public policy doctrine of the state. For example, an employee cannot be fired for performing an action that complies with public policy or for refusing to perform an act that violates public policy. This applies in every state except Alabama, Florida, Georgia, Louisiana, Nebraska, New York and Rhode Island.
  • Implied contract exemption: You can’t fire an employee if there is an implied contract between you two. However, this is difficult to prove. This exception applies in every state except Delaware, Florida, Georgia, Indiana, Louisiana, Massachusetts, Missouri, Montana, North Carolina, Pennsylvania, Rhode Island, Texas and Virginia.
  • Implied-in-law exemption (covenant of good faith): The definition of this exemption varies from state to state, but essentially, it means you can’t fire an employee if there is an implied-in-law contract between both of you — for example, firing a tenured employee so they can’t receive benefits. This applies in Alabama, Alaska, Arizona, California, Delaware, Idaho, Massachusetts, Montana, Nevada, Utah and Wyoming.

To reduce the potential for legal ramifications when terminating a bad hire, Hill recommends protecting your business by including a probationary period in your employee handbook.

“A probationary period gives you a window in which to evaluate whether new hires are a good fit for your company and lets the employee know their long-term employment with the company isn’t guaranteed if they’re not effective in their role,” said Hill. “A 60-day probationary period is a good amount of time to give a new hire a chance to be successful without allowing them to negatively impact your business.”

Source interviews were conducted for a previous version of this article.

author image
Written By: Skye SchooleySenior Lead Analyst & Expert on Business Operations
Skye Schooley is a dedicated business professional who is especially passionate about human resources and digital marketing. For more than a decade, she has helped clients navigate the employee recruitment and customer acquisition processes, ensuring small business owners have the knowledge they need to succeed and grow their companies. In recent years, Schooley has enjoyed evaluating and comparing HR software and other human resources solutions to help businesses find the tools and services that best suit their needs. With a degree in business communications, she excels at simplifying complicated subjects and interviewing business vendors and entrepreneurs to gain new insights. Her guidance spans various formats, including newsletters, long-form videos and YouTube Shorts, reflecting her commitment to providing valuable expertise in accessible ways.
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