Finding and hiring the right employee can make or break a company. Companies that do it well tend to perform better financially, have fewer turnovers and have stronger reputations within their market. Avoid these top three mistakes and make better hiring decisions.

A Harvard University study indicates that 80% of turnover is due to hiring mistakes. With a real cost of as much as 50% of annual compensation, making the right hiring decision is important to your company’s health.

Business owners also have something else to worry about regarding recruiting and hiring… negligent hiring. Negligent hiring means you and your company can be held liable if one of your people injures other employees, especially if you could have foreseen a problem but did not do a thorough check of the new employee before hiring.

The following are the top 3 hiring mistakes and how you can prevent them.

Mistake 1: No Job Description

What are your needs?The first step in the hiring process is to determine your needs. Write out the duties, responsibilities, skills, expertise needed, experience, education and training required for the position. Prioritize these needs and develop a picture of the person you need.

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Write a job description. A good job description serves as an important guide for hiring as well as for performance appraisals later. What is the jobholder supposed to do? What are they not supposed to do? How much decision-making authority do they have? …On what type of decisions? The more specific you can be, the better job you will do screening candidates. You will also have guidelines to manage by, once the new-hire is on the job.

Mistake 2: Relying Too Much on the Interview – Trusting your “gut” too much

The interview is an important part of the hiring process, but it’s only one part. Most managers tend to put too much weight on the interview. They are looking for that feeling in their gut that tells them, “This is the one.” Unfortunately when it comes to hiring, most “gut feelings” fail miserably.

A University of Michigan study measured the usefulness of the interview in overall success on the job. The typical interview was found to increase success in choosing the best candidate by less than 2%. You’d improve your chances by 48% if you just flipped a coin.

The problem is not the interview, it’s the gut. Most managers ask good questions, but they don’t spend any time up front determining the best answers or what they mean. Without an understanding of what a good response would be, the interviewer judges a candidate only on rapport and communication skills by default.

Go back to the Job Description and determine the skills and qualities that you’d like to be displayed in an answer to each of your interview questions. Ask for an example of how they handled a hypothetical situation in the past and look for those qualities. Count how many of the requirements they used. Put a number to it. Then put a value or a weight to the number, relative to the priority of the skill listed in your job description.

If possible, arrange a group interview. Conduct a panel interview, or multiple interviews with other managers or employees in the position’s peer group. The team approach to the interview will help negate the “charm” factor of an experienced interviewer and will also build consensus toward the candidate’s fit within the culture of the company.

Mistake 3: No Reference Check

Most companies, large or small never check references. Calling references and verifying credentials may be the written policy, but for whatever reason, in a large majority of the cases the check is never done. Couple this with the fact that as many as 30% of job applications and resumes present false information, and you’ve got the recipe for a problem employee.

Thoroughly check references before you make a job offer. Some companies use the checks as a screening system for applicants, but by saving this step until after the interview, you will have an opportunity to verify information discussed in the interview.

Reference checks can be handled over the phone, but you may need to request it in writing. To avoid litigation, many former employers play it safe and verify only dates of employment and salary. If your reference checks are a dead end, that in itself may be a red flag. The candidate needs to provide to you references that are reachable and responsive. Ask for more. An interview only tests the candidate’s ability to interview well. A reference check may be the single most important step of the selection process.

A drug test and DMV background check are also a good and inexpensive precaution, especially if the job requires operating machinery or driving a vehicle.

In summary, the more you do at the beginning of the hiring process, the fewer problems you will encounter during the process and after the person is hired. It is much easier and less expensive to hire right the first time, than to repeat the process over and over for the same position or to have to deal with people who are not the right fit for the job. Nothing you do will be more important than getting the right people into the right jobs.

As for the “negligent hiring” by documenting that you took all of these steps, you’ve gone a long way toward protecting yourself against a lawsuit. And more importantly, you’ve taken the first steps toward finding an employee you can trust and with whom you can establish a successful employment relationship.