Bad Employees: Are They a Liability or an Expense?

When it comes to categorizing bad employees, one could reasonably argue that they could be considered either a liability or an expense, or both. Let's explore these perspectives and understand the implications in detail.

Chad, Roxanne, and Karen: A Case Study

Let's consider the case of Chad, Roxanne, and Karen to illustrate the points:

Chad: A reliable but clumsy employee who occasionally drops dishes. He does the job but can harm the business' reputation due to customer complaints and reviews if left unchecked. One might label him an expense rather than a liability. Roxanne: Continually late, absent, or sick, she is clearly neglecting her responsibilities. Her actions could lead to a decline in customer service and productivity, placing her as a liability. Karen: Despite her clumsiness and the impact on customer service, she consistently turns red when talking to customers. Her poor attitude has negatively influenced customer feedback, making her a liability and possibly leading to a loss of regular clientele.

Are Liabilities and Expenses the Same?

In accounting terms, payroll and benefits are considered expenses, but this classification applies to all employees. However, from a practical standpoint, an employee's classification can indeed be a liability:

Labor as an Expense

For any business, an employee’s salary and benefits are listed as an expense on the profit and loss (PL) income statement. This is true for all employees; however, the distinction becomes more significant when evaluating a bad employee.

Liability for Negative Actions

An employee who can cause harm or jeopardize customer relationships is considered a liability. This situation can lead to legal action and financial loss. In most cases, even good employees carry a certain amount of risk, but it is typically minimized through appropriate measures and insurance coverage. Bad employees, on the other hand, are more likely to engage in high-risk behaviors, either through omission or commission of acts, thus increasing the risk for the business.

Balancing the Costs and Risks: Are Bad Employees Justified?

A bad employee is both a liability and an expense for the organization. Expanding on this, the expense aspect refers to the direct financial cost of retaining such an employee, including their salary and any associated benefits. The liability aspect, however, encompasses the indirect costs, such as the impact on customer satisfaction, productivity, and potential legal actions.

From a practical perspective, a bad employee reduces overall productivity, affects customer satisfaction, and can ultimately harm the business’s reputation and bottom line. Therefore, it is crucial to manage such employees proactively.

Addressing the Root of the Problem

One must consider the reasons behind an employee's "bad" behavior. Are they simply unsuited to their role or are they being inadequately managed? It could be that an employee is a 'square peg in a round hole' or are overwhelmed and need support in their current position. Here are a few steps to consider:

Identify the Metric: Determine the specific metric or criteria by which the employee is judged as 'bad.' Discrepancies in Assessment: Evaluate if the employee's poor performance is due to management or if they genuinely do not fit the role. Supervision and Role Adaptation: Assess if changing their supervisor or role could help improve their performance.

Conclusion

In conclusion, bad employees are both an expense and a liability for the organization. While their direct financial impact is measurable, their indirect impact on customer satisfaction and the business’s reputation is often overlooked. It is essential to address this issue proactively and ensure that corrective measures are implemented to either improve their performance or find alternative solutions.