As your business scales, hiring decisions are bound to get costly. Talent scarcity and aggressive competition might be two of the most significant factors driving these recruitment costs.
But there’s a lot more to hiring than the cost-per-hire. The cost of onboarding is an often overlooked but crucial metric for hiring managers to determine the financial impact of their staffing strategy.
While a solid onboarding plan prepares the proper groundwork for every employee, don't break the bank. Stay on top of your onboarding costs with this easy guide to accurately measure all the direct and hidden costs. Stick by till the end to learn four proven tips to minimize these costs.
Ready, set, spend... less!
What does it cost to onboard a new employee?
First things first, the cost of onboarding an employee is not the same as the average cost-per-hire. The latter sums up all the costs involved in recruiting, preboarding and onboarding for a single position.
On the flip side, the onboarding cost only covers the expenses required for different parts of the employee onboarding process — which differs based on a company's size, tools and team.
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A solid onboarding plan can strengthen your company's operational framework and produce an incredible return on investment by:
- Engaging new employees from the outset.
- Reducing turnover and maximizing retention.
- Boosting productivity to increase the bottom line.
- Building employee satisfaction and winning loyalty.
Now that you know why businesses invest heavily in employee onboarding, let's look at the average costs of different factors involved in that whole process.
Average costs of onboarding new employees
In one of its surveys, SHRM fixed the estimated cost of onboarding on average at $4,100 per employee. This figure will vary depending on the industry, size and position. However, HR teams and execs can refer to this benchmark as a reliable approximation.
Employee onboarding isn't restricted to a desk setup, company orientation or welcome kit. The process starts even before they officially join your team.
The first course of action includes paperwork and validation. HR executives spend most of their time completing the necessary documentation and collecting relevant data from new recruits. This involves constant communication, follow-ups and reminders all the way up to day one.
While paperwork might seem like an insignificant activity, it takes up a lot of time in an HR executive's day. The more time spent on paperwork, the more costs pile up.
The administrative time and effort spent sending, collecting and reviewing paperwork can cost up to $400 per employee.
Person-hours spent on paperwork, training and orientation for new employees are a big hidden expense. Teams can only estimate the actual cost of time spent on finding and onboarding an employee once the process is over.
The hiring and onboarding process typically includes:
- Shortlisting from a pool of applicants.
- Conducting interviews and background checks.
- Completing pre-employment evaluations and other onboarding paperwork.
- Onboarding new hires to multiple tools and platforms used in the current setup.
Now, consider that a recruiter charges $50 per hour and your onboarding process takes up to 15 hours. That will total up to $750 for a single recruiter and multiply the costs further if you have multiple recruiters. This makes an annual expenditure of $9,000!
So, expenses on the recruiter's time resources are a significant hidden cost in your onboarding framework.
Once the paperwork is off the table, the action kicks off. Formal employee training is one of the costliest culprits behind soaring onboarding costs.
Adequate training sets the proper context for any employee relationship, giving them the necessary resources and guidance to do their job. HR teams think of it as an investment rather than an expense. However, looking at it purely financially, employee training can put a massive dent in your hiring budget.
Here are a few critical statistics from Training Mag’s report to give you a clear insight into training costs for new hires:
- Companies spend an average of $1,071 per learner.
- Businesses offer training in the range of 64-78 hours—amounting to expenses on trainee's hours.
- Organizations in the US spent a whopping $92.3 billion between 2020 and 2021 on employee training.
These training costs include variables like the trainer’s fees, training resource development and delivering the material. You must carefully strategize employee training to minimize your overall training spend.
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The cost of onboarding new employees is closely tied to the employee turnover rate. The more employees leave your org in a specific time frame, the higher the onboarding costs.
You’d be surprised to know that 22 percent of surveyed respondents stated that 51-100 percent of graduate recruits leave within 1-2 years of employment — resulting in (you guessed it) high onboarding costs.
Think of it this way: if an employee leaves within six months after you invest weeks of time, money and effort in their training, your resources are wasted. If new employees leave continuously within a short timespan, your onboarding costs will rise through the roof. This would ultimately result in heavy financial damages.
Let’s look at some of the most significant reasons why employees leave:
- Inadequate or overwhelming training.
- Lower than industry-standard salaries for more work.
- An unstructured and haphazard approach to onboarding.
- Lack of empathy and understanding towards employees.
- A poor company culture with no recognition and job satisfaction.
Nearly four percent of workers leave their jobs every month. That alarming employee turnover rate is a massive hidden cost that most recruiters overlook. A high employee turnover ramps up recruitment expenses, which inevitably increases the cost of onboarding.
Setting up a good workstation is another major expense in any onboarding framework. Provisioning company devices, software subscriptions, welcome kits, remote work or travel allowance, health insurance and tens of other expenses add up to a high cost of workplace integration for a new hire.
Like paperwork, workplace setup doesn't seem like a big deal to many HR executives. However, splurging too much on provisioning the supplies can unnecessarily shoot up your onboarding costs.
While these costs differ for companies with varied budget ranges, it’s easily one of the biggest overhead costs driving up your cost of onboarding.
Picture this: a new employee spends their first week learning about the company and connecting with their team to understand their role better. Their second week goes into consuming training material and attending relevant sessions. They're somewhat equipped to do their job by the third week but not quite there.
Before you know it, the new recruit has spent a whole month in the company without doing anything substantial. That's a simple case of deferred productivity.
A new employee would naturally take time and learn to adapt to the work environment. So, their performance will remain slow and outputs below optimum for the initial few weeks or even months — with most working at a 25 percent productivity rate in their first month at a new company.
This reduced productivity is a hidden expense adding to your onboarding costs. Thirty-six percent of businesses witness this fall in productivity with new employees and pay a reasonable price for employees to settle into the workplace and gradually take on their full responsibilities.
Cost calculator for employee onboarding
There’s no one-size-fits-all approach to calculating employee onboarding costs. Multiple factors come into play to determine the price of onboarding a new hire.
Here are all the numbers required to calculate your onboarding costs in an instant:
- The average salary of your hiring manager or onboarding coordinator.
- Salary and benefits of the new employee.
- HR hours spent on onboarding the employee.
- Employee hours spent on completing all the onboarding activities.
- Employee’s relocation costs and spending on workstation setup.
4 Proven tips to minimize the cost of onboarding
Your onboarding plan can make or break your employee experience. It’s a chance to set a great first impression and get the ball rolling on the right note. But spending too much on the onboarding process isn’t always ideal.
So, here are four best practices to cut back on onboarding costs strategically:
- Plan for low productivity: An effective onboarding plan prepares for low productivity levels in the initial weeks of a new hire's time on the team. Manage resource allocation in such a way that work doesn't get disrupted. This gives new employees time to adapt to their workflows.
- Focus on career development: The lack of emphasis on career progression is the biggest reason why workers leave their jobs. Drive conversations around career development during the onboarding process to give new employees a feeling of fulfillment from the start.
- Seek constant feedback: A hallmark of a great onboarding program is making employees feel heard. Include feedback as a key part of your plan and take constructive views from the new recruits to make your program bulletproof.
- Interactive training resources: Most employee training material is hard to understand and takes forever to create. Tired of copy/pasting manual documentation? Use Scribe to create visual guides and training resources in seconds.
Keep the cost of onboarding under control
Onboarding a new employee has become increasingly expensive in recent years. But a strategic employee onboarding framework can significantly bring down the direct and hidden costs involved.
Start by evaluating the time your recruiters spend on onboarding-related activities — from paperwork to background assessments. You can also review the upfront costs like workplace setup and training. Then add the hidden expenses, such as employee turnover and deferred productivity, to calculate your onboarding costs accurately.
Have hidden costs? Measure their effectiveness by holding a survey or asking employees directly. Then, only keep what's necessary to welcome employees and support them in their roles. Happy onboarding!