The Real Cost of Hiring the Wrong Employee
Carefully consider the investment you’re making before you welcome a new team member.
When Nick Locascio, club manager of The Leading Edge in Greenfield, Massachusetts, hired someone for his front desk, he had no idea how much she would cost him—emotionally and financially.
“Instead of greeting and interacting with our customers, she spent her time on Facebook, texting and chatting with friends,” he says. “At one point, I caught her watching a movie on her laptop [while] wearing earphones.”
According to Locascio, the most troublesome aspect of this particular employee was that she had a good attitude when a supervisor was around, but as soon as he or she left, she went into “lazy mode.” Locascio says he was completely unaware of the problem for the first few weeks and finally caught wind of it from various members. “I attempted to correct the behavior by giving her specific examples and explaining that her attitude had to improve. After several more complaints, it was clear that she wasn't the right fit for our club and we terminated her employment.”
Hiring isn’t exactly a science. How do you know you’re making the right decision? Is it really that important? You can quantify a poor hiring decision. Read on to find out how a “bad apple” affects the bottom line and how you can take steps to control the costs.
More Than a Learning Curve
According to David Couper, career coach and owner and founder of Transitions Coaching, in Los Angeles, hiring the right employees is important because of the morale and motivation costs associated with dismissals.
“The learning curve for a new person can be anything from months to years, depending on the job,” he says. “So there is a huge loss if the person leaves. You can also wreck a great team with [the wrong person]. [A bad employee] can bring down the positive attitude necessary for a great health club with backstabbing, negativity and poor work attitude.”
Couper recalls hiring someone who was a good worker but a bad team player. This caused the rest of the team to be unhappy, which had a negative effect on motivation and productivity. Three people—all good, long-term employees—threatened to quit as a result. Luckily the employee left, but if that hadn’t happened, Couper could have been down three key players.
An Expensive Employee
Greg Szymanski, director of human resources, Geonerco Management LLC, Seattle, agrees that morale costs can be high but also emphasizes the financial implications. He believes that, in most businesses, labor costs are the number-one expense (or at least they’re in the top one or two), and a poor employee can seriously impact those costs.
Using a hypothetical situation, Szymanski breaks down the real and hidden costs of hiring the wrong employee:
- A gym owner (whose time is worth, say, $60 per hour) spends 1 day (8 hours) interviewing and selecting a new employee (8 x $60 = $480).
- The same business owner spends 3 complete 8-hour days over the next month getting the new employee up to speed (24 x $60 = $1,440).
- The employee turns out to be a hiring mistake. Over the next month, the owner spends 8 hours appeasing customers ticked off by the bad employee (8 x $60 = $480). Even so, two customers are lost because the owner cannot overcome the damage.
- The owner spends 24 hours dealing with staff issues arising from the new employee’s abrasive attitude, sloppy work ethic and overall poor demeanor (24 x $60 = $1,440).
- The owner spends a total of 16 hours agonizing over the need to fire the new hire before the person does more damage (16 x $60 = $960).
- The owner spends an 8-hour day firing the individual—making sure the employee gets “out the door” without further incident—and explaining the goings-on to other employees ($480).
“In this scenario, using completely fabricated numbers, the direct costs of the bad hire are about $5,300,” Szymanski says. “I can’t put an exact number on the effects of a bad hire, but some examples are lost customers, negative impact to the owner’s business due to unpleasant feedback, and damage to employee morale.”
For Locascio, Szymanski’s scenario doesn’t sound far-fetched. The biggest cost of hiring his “bad” employee came as loss of potential revenue: clients who decided not to join or who canceled their services because of this person’s terrible customer service skills.
“There's no way to say precisely how much she cost us, but I would estimate the amount at $5,000–$10,000 in lost potential membership and personal training sales for the short time she was employed,” he says.
In addition to the labor costs already discussed, Timothy A. Wilson, owner of T.A. Wilson & Associates, Northborough, Massachusetts, mentions the hard expenses that come right out of your cash account and pop up every time you sign an employee’s paychecks.
“There is salary, but there are also benefits (depending on how long someone works for you), insurance (unemployment, workers’ compensation) and taxes (federal, state and FICA),” he says. “This is money you won’t recover if you have to let the person go. Depending on how long the person worked for you, you may not be able to prevent [him or her] from collecting unemployment insurance, but that depends on state regulations.”
Additionally, fitness facility owners should expect to spend money on providing training for their employees. Hiring the wrong person can be costly if a training has to be repeated or if you must provide extra training.
“For example, if people don’t know how to properly use a piece of equipment, they may . . . place undue stress on it, or even [contribute to] someone getting hurt because of their lack of knowledge,” Wilson says. “Every time you have to retrain someone, that’s time and money you don’t get back.”
Slow to Hire, Quick to Fire
If you’ve hired the wrong person, recognize you made a mistake and rectify it in a timely manner, advises Wilson. “People often feel ashamed that they made a bad hiring decision, but it happens.”
The crucial thing is to prevent it from happening again. “Some individuals are good at presenting themselves as the ideal employee,” Wilson adds. “But you have to be willing to go beyond the veneer and dig deeper. Be clear about what you’re looking for in an employee, and use assessment tools.”
Couper believes that facility owners too often rush the hiring process, likening the experience to marrying someone after the first date. “Get to know someone before you pop the question. Be clear in the entire recruitment and training process. Be honest and accurate in the job description as part of the advertising. Ask for referrals from existing staff, as [those referrals] are usually better than people ‘off the street.’ During the interview, ask for specific examples of what the person has done to meet the expectations and needs described in the job [description]. Give them a test [that requires them to] actually do what they say they can do.”
For Szymanski, recruiting is an essential key to hiring the right employees. “No college football coach recruits by running an ad inviting kids to come to the school and play, then waiting to see who shows up,” he says. “The coach is out talking to players, their teachers, coaches and people in the community. Some college coaches may even test their recruits. Gym owners can mirror this by preparing for and taking candidate interviews seriously—and not dealing with them as an inconvenience. Have a standardized list of interview questions you’ll ask each candidate.”
A person who cannot accurately complete an employment application is probably someone you want to stay away from, adds Szymanski. Business references are also a must—and they cannot be family members, drinking buddies or social networking friends. “Call those references and have a list of questions, beginning with, ‘How long have you known so-and-so, and in what capacity?’” Szymanski said. “If the reference answers by saying, ‘We worked together 3 years ago and play video games on the weekends,’ that’s not a good a reference. Move on.”
Locascio believes that when hiring for front-of-house positions, like reception staff, managers must be diligent about choosing employees who are motivated—and will stay motivated—to help customers.
“I suggest looking for specific qualifications that are important to your company,” he said. “For entry-level positions, look for applicants who have at least 1 year of customer service experience at the same company. Also look for experience working in fast-paced team environments, and make sure the applicant [you choose] can demonstrate good organization and communication skills.”
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