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Business LibreTexts

15.0: Why It Matters: Recruiting and Selecting New Employees

  • Page ID
    4190
  • Why does recruiting matter?

    Isn’t business success all about the big idea? The reason recruiting and selection is so important is that employees can make or break a company. An employee also represents, in a financial sense, a very high risk investment. A company’s personnel costs are often a business’ single largest expense. According to the Society for Human Resource Management, salaries alone can account for 18 to 52 percent of your operating budget[1]. Add in payroll and unemployment insurance taxes, workers compensation, overtime, benefits, reimbursements, leave and holiday pay and the full cost of salaries and benefits could be in the 40 to 80 percent of gross revenue range[2]. No wonder it’s said that people are a company’s greatest asset.

    Choose well, and your employees can be a source of competitive advantage. A poor choice can represent a critical liability. Let’s elaborate on the downside risk. The U.S. Department of Labor estimates that the average cost of a bad hiring decision is 30 percent of the employee’s first year projected earnings[3]. Note, however, that number represents only a fraction of the organizational impact. Chief financial officers surveyed by global staffing firm Robert Half ranked morale (39 percent) and productivity (34 percent) effects of a bad hire greater than the monetary (25 percent) cost.

    In this module, we’ll learn how to choose well—from attraction through selection—and avoid related legal liabilities.


    1. Deeb, Carol. "Percent of a Business Budget for Salary." Chron. Web. 26 June 2018.
    2. Ferguson, Grace. "What Percentage of the Budget Should Be Spent on Payroll?" Chron. Web. 26 June 2018.
    3. Cardenas, Rebekah. "What's the Real Cost of a Bad Hire?" HR Exchange, 02 Apr 2014. Web. 26 June 2018.