Small businesses experiencing hiring regret amid skills shortages

Small businesses are regretting hiring three new recruits a year, on average, as outdated hiring practices see employers attract ill-suited candidates.

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Helena Young
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Businesses with 1-49 employees will hire three unsuitable candidates this year, on average, costing them thousands in recruitment fees and productivity losses.

Global hiring platform Indeed surveyed 1,000 business owners to explore the number of incompatible appointments a firm makes each year. Results indicate that a tenth of small companies will make five mis-hires annually, on average.

Facing mounting worker shortages, SMEs are growing increasingly desperate to find talent. Indeed’s research is a reminder to employers that, if taking a chance on an ill-matched applicant, the financial risk of getting it wrong could outweigh the potential benefits.

Business owners are now being advised to probe their hiring process for areas where unsuitable candidates might be slipping through the cracks.

Inefficient recruiting makes a bad hire harder to spot

We previously identified overly-long application processes as one of the top job advert mistakes that are putting off candidates. Now, it seems that the issue is also frustrating business owners.

More than half (55%) of all employers said hiring is inefficient with the most common complaints about the traditional model being that the hiring process took too long (68%).

Two thirds (67%) of companies said mismatched candidates got too far in the process.

Candidates rejected in the latter stages of the hiring process were more frequently turned down for technical reasons such as right-to-work issues (38%), which could have been identified earlier using right to work checks.

Employers are increasingly searching abroad for talented candidates due to a shortage of skilled labour in the UK. Earlier this year, Startups research showed that searches for overseas work visas had hit a record high as many organisations look further afield to recruit for sought-after skill sets.

Salary ambiguity causes mismatches

The survey also revealed the most common reasons why applications broke down. Most cited were salary expectations (37%), expectations of role (37%) and lack of hybrid working options (35%).

Lack of transparency on salary, or available benefits and perks like flexible working, is often another complaint from job seekers. Startups heard from Dan Hudson, founder of the careers app GiGL, who says employers who leave off this information must take the blame for creating an inefficient process.

“[Remuneration] is the most popular thing that candidates look at when they look at an employer profile,” Hudson reveals. “Salary and the benefits are at the top of the list of questions that candidates ask about. Why would you not give the information?”

What is the cost of a bad hire?

The cost of a bad hire is estimated to be three times higher than the salary paid. This penalty is especially devastating for small businesses, which tend to have smaller cash reserves than large-scale employers.

Based on the annual salary for a worker being paid the Living Wage (£19,000 per year before tax or pension deductions), the estimated fee facing SMEs for three bad hires a year is £57,000.

Inflation has left today’s economy dangling at the edge of a recession. SMEs are being forced to contend against countless financial pressures including record-high energy bills. In this context, hiked staffing costs is a major cause for concern – particularly as statistics show planned redundancies have grown to near COVID levels.

Raj Mukherjee, EVP and General Manager at Indeed, said: “The cost of making the wrong hire can be measured in hours lost and financial loss from open roles, neither of which any business can afford.”

Stronger brand identity could be key to finding the ‘right’ candidate

The Indeed survey suggests small businesses identify mismatches a third quicker than larger companies. On average, SMEs took the shortest time (12 days) to realise a new employee was unsuitable for the role compared to 18 days for large businesses.

Inadequate soft skills (50%), such as communication and team working, were identified by small businesses as the biggest cause of mismatch, beating role-specific hard ones.

Listing company values is one way to emphasise organisational culture and provide a clearer definition of the skills needed to succeed in a role – a mutually beneficial step that will help the job seeker as well as the recruiter.

LinkedIn says it has observed a 154% increase in values-related terms on entry-level job posts between 2020 and 2022. This is likely due to meaningful work (roles that align closely with a person’s own beliefs and ethics) becoming a greater priority for employees.

Job descriptions should communicate the behaviours bosses most value in an employee, like honesty and empathy. This will provide important context for the candidate on whether they will work well with coworkers and managers.

More on this: could small businesses use AI to plug worker shortages?

Written by:
Helena Young
Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.

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