Cost of a bad hire: the formula, a worked example, and why the 30% figure is unreliable
On this page
The cost of a bad hire is what you spent to hire, onboard and pay someone who did not work out, minus the value of the work they delivered, plus the cost of exiting them, replacing them and leaving the seat empty. There is no reliable universal percentage: the much-repeated "30% of first-year earnings" is attributed to the U.S. Department of Labor, but we could not find it in any department publication (searched October 2026). Calculated with the seven-part formula below, an invented $80,000 role cost between about $49,000 and $88,000, depending mostly on how long the problem went unaddressed.
This page is the calculation. How to prevent a bad hire is in how to avoid a bad hire, and the cost of filling a role in the first place is in the cost per hire formula.
What counts as a bad hire?
Agree the definition before you calculate, or every number will be argued. A workable one: a hire who left or was dismissed within twelve months for performance or fit, or whom the manager would not rehire. Exclude people who left for reasons the hiring process could not have affected, such as a layoff or a family move. With that definition, the count of bad hires comes from the same cohort data as first-year attrition, and it feeds quality of hire.
The formula
Cost of a bad hire =
Hiring cost
+ Onboarding and training
+ (Loaded pay during tenure − Value of work delivered)
+ Extra manager and team time
+ Exit costs
+ Replacement hiring cost
+ Vacancy cost
(+ Evidenced damage, reported separately)| Component | What to include | Where the number comes from |
|---|---|---|
| Hiring cost | Ads, agency fee, recruiter and interviewer hours, assessments, checks | Your cost-per-hire data for the role |
| Onboarding and training | Courses, trainer time, travel; not equipment you reuse | Finance, L&D |
| Loaded pay minus value delivered | Salary plus benefits for the months employed, less an estimate of useful output | Payroll, plus the manager's productivity estimate |
| Manager and team time | Extra supervision, rework, covering mistakes, performance management | Manager estimate of hours per week |
| Exit costs | Severance, notice pay, HR and legal time | Payroll, HR |
| Replacement hiring cost | A second search; zero if an agency guarantee covers it | Same as hiring cost, or the agency terms |
| Vacancy cost | Overtime, temporary cover or work not done while the seat is empty | Payroll, manager estimate |
| Evidenced damage | A lost client, a fine, a write-off you can tie to this person | Finance; keep separate from the core figure |
How do you load pay with benefits?
Salary understates what an employee costs. The Bureau of Labor Statistics' Employer Costs for Employee Compensation release for June 2026 (published September 9, 2026) reports that private industry employers paid $46.89 per hour worked in total compensation, of which wages and salaries were $32.82 (70.0%) and benefits $14.07 (30.0%). Dividing the two, total compensation averaged about 1.43 times wages. Use your own benefits cost if finance can give it to you; otherwise 1.43 is a defensible national private-industry multiplier, and the example below uses it.
Worked example: one bad hire, six months in
Invented example. A customer success manager on an $80,000 salary is let go after six months. The manager estimates they worked at about 40% of a fully productive colleague over that time.
- Hiring cost: job ads $1,500 + recruiter time 30 hours × $60 ($1,800) + interviewer time 12 hours × $75 ($900) + background check $100 = $4,300
- Onboarding and training: external course $1,200 + trainer time 20 hours × $60 ($1,200) = $2,400
- Loaded pay minus value delivered: $80,000 × 1.43 = $114,400 a year; six months = $57,200; value delivered at 40% = $22,880; net = $34,320
- Extra manager and team time: manager 3 hours a week × 26 weeks × $90 ($7,020) + colleagues fixing work 2 hours a week × 26 weeks × $55 ($2,860) = $9,880
- Exit costs: four weeks' severance ($80,000 ÷ 52 × 4 = $6,154) + HR and legal time 6 hours × $90 ($540) = $6,694
- Replacement hiring cost: a second search at the same cost = $4,300
- Vacancy cost: eight weeks of overtime cover at $600 a week = $4,800
Total: $66,694, or about 83% of the annual salary. A client who did not renew during that period would be reported on a separate line, and only if the link to this hire is clear.
The "value delivered" line is the one most calculations skip, and skipping it overstates the cost. Valuing output at the person's loaded cost multiplied by the manager's productivity estimate is a conservative proxy: it assumes a fully productive employee is worth at least what they cost.
What changes the total most?
Run the same invented role with the problem resolved earlier or later. Everything else stays the same; the productivity estimate rises with tenure, as it usually does even in a poor hire.
| Invented scenario | Exit at 3 months | Exit at 6 months | Exit at 12 months |
|---|---|---|---|
| Productivity estimate | 25% | 40% | 60% |
| Loaded pay minus value delivered | $21,450 | $34,320 | $45,760 |
| Extra manager and team time | $4,940 | $9,880 | $19,760 |
| All other components | $22,494 | $22,494 | $22,494 |
| Total | $48,884 | $66,694 | $88,014 |
| As a share of salary | 61% | 83% | 110% |
Recruiting costs are a small part of the total. Pay and management time while the problem goes unaddressed are the big ones, which is why a clear 90-day check-in saves more than shaving the ad budget.
Where does the "30% of salary" figure come from?
Many articles state that the U.S. Department of Labor puts the cost of a bad hire at 30% of the employee's first-year earnings. We searched the department's site and could not find a report, page or dataset containing that estimate, and the articles repeating it link to the department's home page or cite nothing. Until someone can point to the original publication, it should not be quoted as a Department of Labor figure.
Another widely quoted dollar figure comes from a 2017 CareerBuilder survey of employers. The address of CareerBuilder's original press release now redirects to its home page (checked October 2026), so we do not repeat the number; it was in any case an average of employers' own estimates, not a calculation.
Single figures vary so much because they differ in:
- The definition of a bad hire: early leavers only, or anyone the manager regrets hiring.
- The components included: some count only recruiting costs, others add lost sales and morale.
- Whether value delivered is netted off, which can halve the pay component.
- Seniority and tenure: a senior hire who stays a year costs a multiple of a junior hire who leaves in a month.
- Method: survey answers about "what did it cost you" are recollections, not accounts.
The invented example above ranges from 61% to 110% of salary on one role. Your own calculation, with your own definition, is the only figure you can defend.
How do you use the number?
- Price prevention. Compare the cost of one bad hire with the cost of what would have caught it: a structured interview round, a work sample, two reference calls. The example's $66,694 pays for a great deal of interviewer time.
- Estimate the annual cost. Bad hires a year × cost per bad hire. Invented example: 60 hires × a 10% bad-hire rate = 6 bad hires × $66,694 = $400,164.
- Find the stage that failed. Run a short post-mortem on each bad hire, as described in how to avoid a bad hire, and fix that stage rather than adding steps everywhere.
What changes for agency placements?
For the client, the agency fee goes into the hiring cost line, but a replacement guarantee can bring the replacement cost close to zero; the terms are explained in placement guarantee period. For the agency, the cost is the refunded fee or the unpaid work of finding a free replacement, plus the damage to the client relationship.
Common mistakes
- Counting the whole salary as a loss, ignoring the work the person did.
- Counting reusable equipment such as laptops as a cost of the bad hire.
- Folding in speculative damage, such as morale, as a dollar figure. Mention it; do not invent a number.
- Quoting a percentage you cannot trace to its original publisher.
- Using the total to justify every new step. The useful question is which stage would have caught this hire, at what cost.
Questions people ask
How much does a bad hire cost?
There is no reliable single figure, because it depends on the salary, how long the person stayed, how much they delivered, and whether you pay severance or an agency fee. Calculated with the formula on this page, an invented $80,000 role came to between about 61% and 110% of salary depending on whether the problem was resolved after three, six or twelve months.
Is it true that a bad hire costs 30% of the first year's salary?
The figure is widely attributed to the U.S. Department of Labor, but we could not find it in any Department of Labor publication when we searched in October 2026, and pages repeating it link to the department's home page or to nothing. Treat it as unsourced and calculate the cost with your own numbers instead.
How do you calculate the cost of a bad hire?
Add the hiring cost, onboarding and training, the person's fully loaded pay during their tenure minus the value of the work they delivered, extra manager and team time, exit costs such as severance, the cost of hiring a replacement, and the cost of the vacancy while the seat is empty. Add evidenced damage, such as a lost client, as a separate line.
What is the biggest cost of a bad hire?
Usually the pay and management time spent while the person is in the role and not performing, which grows every month the problem goes unaddressed. That is why catching a mis-hire at three months instead of twelve saves far more than trimming recruiting costs.