One of the most common arguments we hear against background and reference checking is that it is “too expensive.” This is a fallacy—and a dangerous attitude. HR Management magazine published an article, “The ROI of Background Screening,” which calculated all the various ways that lax screening and checking techniques can cost firms money—from employee turnover to occupational fraud. Per the research they identified, the annual return on investment (ROI) in background and reference checking is a whopping 900 percent! How can that be? Following are a few statistics we gathered from the article and other sources.
- Replacing a lost hire costs firms between 25 percent (per the Employment Policy Foundation) and 150 percent (per the Saratoga Institute) of salary and benefits, based upon the skill level and position of the employee. In his book, Topgrading, Dr. Bradford Smart postulates that the replacement cost for a senior executive can be as high as 2,400 percent.
- Employee Theft or Fraud. The United States Department of Commerce reports that 30 percent of all business failures result from theft or embezzlement. A study by the University of Cincinnati found that 64 percent of small businesses report employee theft, with the average amount stolen being $20,000.
- Drug and Alcohol Use. The National Council on Alcoholism and Drug Dependency reports that 35 percent of employees who are hospitalized for work-related injuries are problem drinkers.
- Negligent Hiring. Employers lose more than 70 percent of negligent hiring cases, and the average settlement is more than $1.6 million.
A comprehensive drug screen, background and reference check should cost no more than $500. Therefore, the real question has to be, “Can an employer afford not to perform background and reference checks, as well as drug screens, on employment candidates?” (For more information about drug usage in the workplace, read this article, also from Barada.)
It seems abundantly clear that the cost of checking is nowhere near the cost of a bad hiring decision. As the old adage goes, “It’s always better to be safe than sorry.”