What is the Cost of Onboarding a New Employee? 

 

When hiring, any company has to bear the financial cost of onboarding a new employee – there is no way to avoid the costs associated with the employee onboarding process, unless the company never hires again. 

It takes time and human effort to fully integrate you into a role and a company, not to mention the costs of technical equipment, training courses etc. 

So given that there is a cost of recruiting employees and a cost of onboarding a new hire, which many times could average $3000, there is a sense of urgency in ensuring that resources are spent in an efficient way, and that this initial investment will pay off in the long term. At the same time, high turnover rates place additional pressures on companies, as increasing numbers of employees decide to leave their jobs very early in the employee life-cycle. 

In fact, 90 % of new hires decide to stay with their new employer within the first six months on the job. Additionally, 25% of new hires will resign within the first year, and 20% out of them will do so within the first 45 days, according to introdus’, employee onboarding software, Pre & Onboarding Survey.  

”The rise in first-year turnover is a sign of the job market, as employees can easily go elsewhere if a job doesn’t meet their needs and expectations,” Danny Nelms, President of the Work Institute.

This article will discuss the cost of onboarding a new employee with a focus not only on the onboarding itself, but also bringing into the conversation the cost of failed or poor onboardings. We will show that regardless of how much money an employer will spend onboarding you, the total cost will be much less significant compared to the cost of losing your talents and potential due to an ineffective onboarding process. 

 

The Cost of Onboarding a New Employee: What Does it Comprise?

 

When discussing the cost of onboarding a new employee, we cannot ignore the fact that it is a component of a talent acquisition process. From the moment the job ad is drafted and posted, to the moment the onboarding period is completed and the employee has achieved maximum productivity, there are multiple expenditures to be considered. 

Thus, a real estimate of the cost of onboarding a new employee, will also account for the pre-boarding stage. As such, costs associated with the various stages of the new hire journey are:

 

Preboarding Stage

  • Paperwork costs: the administrative costs attached to filling the required new employee paperwork (such as benefits enrollment, tax forms, employee handbooks, NDAs, etc.)
  • Equipment set-up costs (both hardware and software): workstation and any peripherals, phone, and other physical equipment; licenses for any tools and software you will need to use in order to perform your job duties;

 

Onboarding Stage 

  • Training costs (both hard and soft skills): preparation of training resources and the costs of delivering the training courses;
  • Orientation Day costs: costs of breakfast and any other social event, costs of company swag;
  • Time Resources from the hiring manager, IT professional, line manager and buddy: the working hours spent for guiding you towards productivity in your new job.

 Cost of Onboarding a New Employee

The total cost of turnover per employee depends on the level of experience: replacing highly skilled employee costs up to 400% of their salary.


—According to Sparkbay.

The Cost to Onboard a New Employee is Much Lower than The Cost of Lost Talent

 

When you invest weeks of resources – time and effort – into onboarding only to see an employee quit six months later, you’ve wasted all of those resources. 

“One of the biggest questions a new employee has is: ‘Did I make the right choice?’ And if HR, the management or the company don’t offer an answer for this question, then we risk that a part of these employees will become one of those 25% who leave within a year or the 20% who leave within 45 days or the 4% who don’t show up or leave after the first day.” — Stefan Sjørslev, Pre & Onboarding Specialist at introdus.

The total cost of turnover per employee depends on the level of experience: replacing an entry-level employee costs 30% to 40% of their annual salary, a mid-level employee 150% of their salary, and a highly skilled employee up to 400% of their salary, according to Sparkbay, employee retention solution.

Turnover costs are high because they encompass the costs incurred by: 

  • the reduced productivity of an employee in the weeks leading up to their departure, 
  • the lost productivity in the time between the employee’s departure and the employee’s replacement, 
  • the labor hours of the recruitment specialist/manager responsible for sourcing and screening candidates, 
  • the labor hours of training managers assigned to onboard the new employee, 
  • the reduced productivity of new hires until being fully onboarded.

But when resources are well spent ensuring an effective onboarding process, employees will tend to extend their work-cycle with the same employer, thus de facto reducing employee turnover rates and associated costs. 

58 % of employees are more likely to stay for more than three years when they have experienced a good Pre & Onboarding process, according to ‘Your Pre & Onboarding Buddy’ eBook.

Pre & Onboarding eBooks

58 % of employees are more likely to stay for more than three years when they have experienced a good Pre & Onboarding process.


—According to ‘Your Pre & Onboarding Buddy’ eBook.

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Average Cost to Onboard a New Employee

 

When talking about the average cost to onboard a new employee, we should differentiate it from the average cost per new hire. The latter refers to the total cost of filling an open position from the moment of drafting the job position to finish. The average cost to onboard a new employee refers to the cost of helping a new hire transition into their new role. 

Estimates from SHRM place the average cost per hire across organizations and industries at $4,125. The average cost to onboard a new employee is approximately $3,000.

 

Concluding Remarks 

Using a Pre & Onboarding Software Helps Save on the Cost of Onboarding a New Employee

Investing in new employees is a prerequisite for any employer. Regardless of their level of seniority, the company has to account for the cost to onboard a new employee. Even filing paperwork takes resources away from a normal workflow that would have otherwise generated profit to the company. 

Notwithstanding, when onboarding is an effective process and resources are well spent with the view of engaging and empowering you to do your best in your new job, the cost of onboarding a new hire will not be outweighed by the financial loss due to high turnover.   

By investing in a software solution that is easily customisable, and that allows for the implementation of a structured and effective Pre & Onboarding programme, such as introdus, employee onboarding software, the employee will be engaged as early as signing the contract. This will ensure that the cost of onboarding a new employee is not overshadowed by the cost of lost talent and unfulfilled potential. 

Digitising the Onboarding Process is necessary, not for the sake of digitising, but to provide you with a seamless experience, which in turn assures your employer of a high cost-benefit ratio.

Step into a successful Pre & Onboarding with an easy to use online platform.

 

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