A thorough background check is one of the best investments an employer can make. Let’s see why.
Information Required to Understand Employment Background Check ROI
- Various studies have concluded that the cost of a bad hire is between 100% and 500% of an employee’s annual salary. This is easy to understand when one considers the costs of a bad hire: the direct and indirect cost of recruiting and hiring; the direct and indirect training cost; the wasted wages and benefits. The management, administrative and legal costs of a bad hire can also be staggering. Plus, consider the direct and indirect cost of damage to or loss of funds, materials, equipment, work environment, customer goodwill, and employer reputation.
- 25% to 30% of thorough background checks uncover issues that an employer needs to review before proceeding with hiring.
- 1/3 to 1/2 of the applicants with problem background checks are not hired, presumably because of the likelihood that they would be bad hires. This means that between 8.3% (1/3 of 25%) to 15% (1/2 of 30%) of applicants are not hired due to problems discovered in a thorough background check.
- A quality thorough background check typically costs $150 to $300 each, depending on the position and the applicant’s history.
A Sample Background Check ROI Calculation
- A salary of $50,000/year.
- The cost of a bad hire is 100% of annual salary (from a range of 100% to 500%). The typical cost of a bad hire would be $50,000 for this position.
- 10% of final applicants are not hired because of problems discovered in background checks (from a range of 8% to 15%).
- $250 is the cost of a thorough background check (from a range of $150 to $300).
Cost avoidance for each thorough background check =
Salary * Typical cost of a bad hire (% of annual salary)
* % Applicants not hired
$50,000 * 100% * 10% = $5,000
ROI = Costs avoided / Cost of thorough Background Check
$5,000 / $250 = 2,000%
Therefore, for this position, the employer would expect, on average to avoid $5,000 (10% of $50,000) of bad hire costs with each $250 thorough background check. That is a whopping 2,000% ROI!
Day in and day out, employers conducting quality thorough background checks realize tremendous returns on their background check investment. For information on how to build a thorough and comprehensive background check, see Comprehensive Background Checks.