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Bad hires can be costly - do you check references?

According to a recent CareerBuilder survey on reference checking, 80% of employers said that they don't check references for new hires. That's too bad, because of those that do, nearly 3 in 10 have found a fake reference on a job application.

Bad hires are more than just a drain on productivity and morale - there are very real costs associated. One study shows that they suck up at least one day a week of a manager's time. The wrong hire can rack up a high price tag in a variety of ways - they may expose you to higher legal risks or they may turn into a malevolent disgruntled employee, exposing you to security risks.

Another survey shows that bad hires come with a steep price tag: Forty-one percent of companies estimate that a bad hire costs more than $25,000, and one in four said it costs more than $50,000.

Jay Goltz talked about the hidden costs of a bad hire in an article in The New York Times last year. He discussed some of the reasons why that bad hire can be so costly.

There is the cost of hiring and training and the hit to your unemployment tax rate (the rules vary by state, but business owners should know that when the state pays out claims to a company’s former employees, that company’s unemployment tax rate goes up). The problem is that you are not going to get a bill for your hiring mistakes that would help you reflect on the true costs. Instead, the costs will be hidden in an unemployment rate that goes up for the next three years, in wasted time that could have gone into more productive things, and in customers who get bad product or service during this period. You have hit the trifecta of wasted money.
What could it all add up to? It could easily be $40,000. The extra unemployment insurance by itself could be that much. It could easily be $200,000 if the person costs you a customer or two. Think about it: one call to a reference might have saved you $100,000."

All reference checks aren't created equally

Even those employers who do their due diligence in checking new hires sometimes make a bad job of things. Today, many rely too heavily on checking candidates out via social media, which can have its own pitfalls, or they fail to ask meaningful questions of references that will give them useful information about a potential candidate. Here are a few tools to help you in your screening process.

Reference Checking: Ask Better Questions, Get Better Data

Top 10 Guidelines for Social Media Background Checks = from employment law attorney Michael Nader

Social Media: Your "Keep Out of Court" Kit for the Hiring Process

Checking References: Top 10 Questions to Ask

Ten Critical Questions To Ask When Checking References

Guide to Reference Checking (PDF) - from the personnel Commission of the Los Angeles Community College District

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ESI-Logo.jpg Employers: ESI EAP offers discounted background checks and pre-employment screening to member employers. And if you suspect a problem with a potentially disgruntled worker, a referral to your EAP can help to defuse a potential problem. Don't have an EAP? Call 800-535-4841.
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