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The Cost of a Bad Hire: What It Really Costs Australian Businesses (And How to Avoid It)

  • Writer: TestInvest
    TestInvest
  • Jul 17
  • 8 min read

Updated: Jul 18

Hiring the wrong person isn’t just a minor setback – it can carry a staggering cost for businesses, especially small and medium-sized enterprises (SMEs). Australian business owners and hiring managers are increasingly alert to this risk.

The cost of a bad hire: What it really costs australian businesses

In fact, 86% of Australian business leaders in one survey said the negative impact of a bad hire is more severe now than in the past. For SMEs with fewer staff, a bad hire can hit even harder, as there’s “less of a ‘buffer’ between underperforming employees and their impact on the business, particularly in smaller organisations”. Below, we explore recent statistics on bad hires, break down where these costs come from, share expert insights, and look at real examples of how one wrong hiring decision can ripple through a small business.


The Financial Toll: How Much Can a Bad Hire Cost?


Several recent studies attempt to quantify the average cost of a bad hire, and the numbers are eye-opening. A 2021 Australian survey by recruitment firm Robert Half found a bad hire can cost between 15% and 21% of that employee’s annual salary on average. More recent estimates go even higher – one 2025 report notes that “a bad hire can cost a business anywhere from 30% to 150% of the employee’s annual salary” once all factors are included. In worst-case scenarios, especially for higher-level roles, the cost has been cited at up to 2.5 times the person’s salary.


In dollar terms, this often runs into the tens of thousands. CareerBuilder surveys have put the average loss per bad hire around $15,000 (approx. AUD 20k) for each wrong employee. Similarly, one Australian HR consultancy notes that employee turnover costs SMEs about $15,000 for each departure on average. It’s no surprise, then, that bad hires are recognised as a significant drain: about 10% of all employee turnover in Australia is attributed to poor hiring decisions. In other words, hiring mistakes account for a sizable chunk of people leaving companies – a costly churn that small businesses can least afford.


Where the Costs Add Up: Breakdown of a Bad Hire


Why do bad hires end up so expensive? The cost isn’t just one thing but it’s the accumulation of many direct and indirect expenses. Key areas that drive up the cost of a hiring mistake include:


  • Recruitment expenses: The money and time spent on advertising the role, interviewing candidates, and vetting applicants is essentially wasted on a hire that doesn’t work out. Small businesses often invest significant effort into finding new employees, and those upfront costs are lost when the person fails to contribute adequately.

  • Onboarding & training: Even after hiring, companies spend resources getting a new employee up to speed. Training materials, staff time for onboarding, and any formal courses or certifications represent real cost. A bad hire means these investments yield little return.

  • Lost productivity: When an employee is underperforming or struggling, it slows down the entire team. Co-workers may have to pick up the slack or fix errors. In fact, 55% of HR managers say that lost productivity is the single biggest problem caused by a bad hiring decision. One global survey found that 39% of businesses reported a measurable drop in productivity due to hiring the wrong person. This productivity loss can directly translate into lost revenue or missed opportunities.

  • Impact on team morale and culture: A poor fit can drag down team morale – colleagues may become frustrated or disengaged when working alongside someone not pulling their weight. Over 20% of HR managers in Australia said a bad hire reduced overall staff morale in their experience. If the hire disrupts the workplace culture or creates interpersonal conflict, the risk of further turnover rises (essentially, good employees may leave because of one bad one).

  • Client and customer loss: For customer-facing roles, the stakes are high – if work quality slips, clients may take their business elsewhere. It’s hard to quantify reputational damage, but losing even a single major client due to an employee’s poor service can be devastating for a small business. A dissatisfied customer might also spread negative word-of-mouth, multiplying the impact on your brand.

  • Replacement and re-hiring costs: Letting a bad hire go and finding a replacement means paying the recruitment costs all over again. This can include advertising the job (or agency fees), additional management time for interviews, and maybe legal or termination costs if the situation was complex. As Robert Half’s research points out, a bad hire is essentially “squandered hiring and training effort” that will have to be duplicated for the next hire. All told, some Australian businesses estimate that recruiting and training a new employee can run up to $50,000 in expenditures – a sum put at risk if the hire fails.


It’s clear that these factors together form a compound impact. The wasted salary paid to the underperformer, plus the productivity drag, plus the cost to replace them, etc., all contribute to the total cost of a bad hire. As one report summarised, the expenses can include “the employee’s salary that did not reflect performance or output; education and training costs; impacted productivity of the employee, colleagues and management; potential loss of revenue; and the ultimate cost to re-recruit for the role”.


HR Experts on Hiring Mistakes and Their Consequences


Experienced HR professionals and recruiters in Australia stress that the true cost of a bad hire goes beyond just the dollars – and they urge businesses to take this risk seriously. David Jones, Senior Managing Director at Robert Half Asia-Pacific, put it bluntly: “hiring the wrong talent can cost a business time, money, and damage its corporate brand.” In today’s competitive market, he notes, every hire needs to show results toward the company’s goals, so bringing the wrong person onboard is a setback companies literally can’t afford. Jones also advises that the sooner you recognise a bad fit, the better – intervening early (with additional support or reassignment) can sometimes mitigate losses, whereas immediately firing the person isn’t always the first solution unless absolutely necessary.


Australian HR leaders have also observed that current economic conditions amplify the impact of hiring mistakes. Nicole Gorton, a director at Robert Half Australia, explained that during times of rapid change or recovery, a bad hire’s cost is “magnified”. Many businesses are operating lean, so an underperformer’s impact is felt more acutely, “particularly in smaller organisations” where one person makes up a larger fraction of the workforce. Gorton adds that after the disruptions of the pandemic era, staff morale in many companies is already fragile – thus “a new employee who may not be pulling their weight can have an exacerbated impact on already fragile staff morale and productivity”. In short, a bad hire now can be more damaging than ever, derailing hard-won gains in a challenging business environment.


1 in 5 hiring managers in australia admit that a poor hire in their company resulted in significant direct financial costs

It’s not just consultants sounding the alarm; surveyed HR managers themselves acknowledge the fallout. Nearly one in five (19%) HR managers in Australia admit that a poor hire in their company resulted in significant direct financial costs. And beyond money, the majority have seen the hit to performance or culture (loss of productivity and morale were by far the top reported impacts. The consensus among experts is clear: investing in better hiring practices – from thorough reference checks to cultural fit assessments – is crucial to avoid these costly mistakes. As David Jones emphasised, the task of finding the right talent should be a priority, because the price of getting it wrong is simply too high.


Small Business Stories: Lessons from Bad Hires


The abstract costs of a bad hire become very real when you hear small business owners talk about their experiences. For example, one Australian entrepreneur, Barry, recounted how he urgently hired a salesperson for his small software company – only to find weeks later that the new hire was doing virtually no work. By the time an outside consultant stepped in and advised him to cut losses, the employee had been on the payroll for three unproductive weeks. Barry felt he had been “too trusting” and learned a hard lesson: “Bringing the wrong people into your business can waste your time, money and energy, and is to be avoided at all costs.” In his case, the mis-hire was let go after mere weeks, but even that short stint cost the business in salary paid and lost sales that never materialized during that period. The incident also drained the owner’s precious time and energy – resources that small business owners know are already stretched thin.


Barry’s story is far from unique. Many small businesses operate with tight margins and lean teams, so a single bad apple has an outsized effect. If a hire turns out poorly, a small company might lack other staff to absorb that person’s duties, leading to missed client deliverables or overburdening of remaining employees. It can also be damaging to customer relationships – consider a scenario where a frontline employee in a café or a retail shop is rude or unreliable; a few bad customer interactions could tarnish the business’s reputation locally. One Australian survey of small businesses found that 22% of owners identified “hiring the wrong or inexperienced staff” as one of the costliest mistakes they’d made. Unlike large corporations, SMEs often don’t get a second chance with a dissatisfied client or the budget to easily cover hiring mishaps, which is why the risk of a bad hire keeps many business owners up at night.


It’s also worth noting that in certain industries a “bad hire” can carry catastrophic costs beyond the typical. In highly regulated sectors like healthcare or finance, the wrong hire can lead to compliance breaches or safety issues – for example, Australian cases have shown that an unqualified employee or fraudulent hire can lead to investigations, fines, and legal expenses reaching into the hundreds of thousands or even millions. While most small businesses won’t face a $45 million regulatory fine, these extreme cases underscore the principle that hiring mistakes can have far-reaching consequences. Even on a smaller scale, the loss of trust – whether it’s a regulator, a customer, or your own team’s trust – is a serious blow to any business.


Mitigating the Risk


For Australian SMEs, understanding the cost of a bad hire is the first step toward avoiding one. The data makes it plain that the wrong hiring decision can be an expensive setback – often tens of thousands of dollars in direct and indirect costs – and can disrupt your team and business momentum. The good news is that these costs are to an extent preventable. Experts suggest doubling down on recruitment best practices: be clear on the role and needed skills, rigorously check candidates’ backgrounds, assess for cultural fit as well as competence, and don’t rush the process even when you’re desperate to fill a role. It’s also wise to have a probation period and to monitor new hires closely; as one expert noted, catching a mismatch early and either coaching the employee or letting them go can save a lot of grief down the line.


Ultimately, while no hiring process is infallible, being aware of the high stakes of a bad hire will encourage more care and due diligence in bringing people into your business. For small business owners, every team member counts in a big way. By investing time and resources into getting recruitment right the first time, SMEs can protect themselves from the costly mistake of onboarding the wrong person – and ensure their team is set up to thrive, not struggle, in the competitive market of 2025 and beyond.


Avoid the Cost of a Bad Hire


TestInvest helps you assess real software skills before you hire, so you don’t have to rely on resumes and guesswork. Reduce risk, hire smarter, and build a team that can actually do the work.

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