What is the Cost of Onboarding a New Employee?

Businesses that invest proper time and efforts implementing comprehensive and collaborative onboarding experiences have higher employee retention, as well as higher levels of productivity and engagement with new hires. In fact, when matched with a positive onboarding experience, 69% of employees are more likely to stay with a company for a minimum period of three years.

Many organizations underestimate the value of engaging onboarding. Starting the employee lifecycle with a full-fledged retention strategy—such as relationship building activities, mentor support or social gatherings—is extremely important in creating positive associations between a new employee and the organization as a whole.

As it is often said, first impressions matter. Unfortunately, most companies tend to solely focus on hiring activities or apply efforts towards retention activities only later on in the employee lifecycle, missing the first impression mark, which can result in a domino effect of leading businesses towards higher turnover rates.

Companies in both the United States as well as the United Kingdom are estimated to spend $37 billion dollars annually to retain unproductive employees. A smarter way to increase employee retention would be to invest in improving onboarding experiences, helping engage employees from day one.

As we have previously covered, preparing personalized onboarding experiences can feel long and tedious with many costs associated in bringing in new recruits, including the cost of equipment and new softwares. When it comes to onboarding, the biggest cost typically incurred is the time HR and team managers spend in preparing a solid onboarding experience. That said, the time and money is a worthy investment in the end, given that successful onboarding leads to motivated employees with higher productivity levels and a stronger sense of belonging (as well as commitment) towards organizations.

The Relationship Between Employee Onboarding and Company Costs

Onboarding establishes strong first impressions and ultimately sets employees up for success. The process is proven to help decrease employee turnover, while increasing levels of retention, engagement and productivity.

According to a study by HR Dive, it is estimated that the cost of replacing an employee is 33% of a worker’s annual salary. In numbers terms, the cost of replacing an employee with an average yearly income of $45, 000 can amount to $15,000 per person. High turnover means that HR managers have to restart the employee acquisition process and invest additional time and money in onboarding a new set of employees.

Additionally, when members leave a company, it is important to account the period of time it takes to find candidates to fill the role. During this gap, the remainder of the team is usually forced to go into overdrive to make up for the employee shortage. Given that, 22% of companies have no formal onboarding approach, while 49% only have a partially successful process, the turnover gap is quite common and can be overwhelming for individual teams and businesses as a whole. Thus, a supportive foundation from inception to completion is very important in securing long term employment within a positive working environment.

How to Calculate the Cost of Onboarding New Employees

Preparing an onboarding strategy is time consuming and is usually a collaborative effort between the HR manager and team manager. According to SHRM, the average cost to hire new employees is about $4,125 across organizations and industries.

The general formula in calculating onboarding cost is by averaging the number of employees hired per year with the average hours spent onboarding said employees, along with the annual salary HR managers and team managers make. The formula only accounts for the preparation period of onboarding—and as seen in our previous blog 4 Essential Onboarding Checklists for New Employees—the timeline realistically occurs over one full year from an employees start date.

Not forgetting the pre-onboarding phase, companies also have to take into consideration the number of hours HR managers and team managers spend throughout the year onboarding new employees. Doing so enables managers to forecast a more appropriate onboarding cost schedule. For example, if an HR manager makes 25$/hour and needs 10 hours to prepare one onboarding experience, and the company hires 60 new employees per year, that gives a base cost of $15,000 per year dedicated to pre-onboarding alone.

Saving Money With an Effective Onboarding Process

Higher productivity from day one

Organizations with a structured onboarding approach experience 54% greater new hire productivity. It’s normal for newcomers to not be actively productive within their role at the very beginning. But effective onboarding helps speed up the road to productivity.

To make the integration within a new company more interactive, HR and team managers can scatter training sessions and informative sessions, throughout the different stages of onboarding. Doing so saves employees and managers time and money by allocating the productivity time to more important projects.

Reduced turnover

In any business, turnover is one of the larger costs that affects the company’s bottom line. Poor onboarding experiences lower the potential value new hires can dedicate to businesses, ultimately increasing employee turnover.

In fact, almost one third of new hires start looking for a new job within the first six months if they experience dissatisfaction during the early stages of employment within an organization. Harvard Business Review highlights that organizational costs of employee turnover are estimated to range between 100% and 300% of the employee’s salary. However, these numbers can be lowered with a well-thought-out and collaborative onboarding approach—reducing turnover and increasing productivity.

For more insights, we invite you to read The Ultimate Guide to Successful New Employee Onboarding.

Employer branding

Employer branding involves HR managers and members putting promotional efforts in making a company desirable. It is a crucial step in attracting new employees and establishing positive connections. Hubspot notes that a good employer brand can reduce turnover rates by 28%.

With the rise of company review websites, such as Glassdoor and Indeed, job seekers rely on past employee experiences to decide where to apply. A company with high turnover is likely to have more negative reviews, resulting in businesses having to put additional marketing efforts in building a positive employer brand.

A Randstad research notes that 86% of job seekers would not apply for a job that has a negative image. Thus, employer branding affects the company bottom line and is directly linked to both recruitment and turnover rates.

Key Takeaways

A strategic onboarding program has many advantages for companies—it helps increase employee retention, engagement and productivity, while lowering costs related to turnover. An interactive onboarding program helps foster a positive brand image, as well as a positive work culture, bettering an organization’s bottom line. The benefits of strategic onboarding far outweigh the costs and is a must for businesses across all industries.