Hiring new employees is one of the most critical parts of operating a business. Your workforce is the backbone of your organization, and without them, you won't be able to achieve any of your goals. As part of that obligation, you need to have a good onboarding process to ensure that your new employees understand their role and can be successful.
However, hiring new employees comes with a cost. While it is a crucial process, onboarding can be a significant expense. Read on to learn the truth about onboarding costs, including how much it costs to onboard an employee, what factors determine total onboarding cost, and how you can decrease those expenses.
Why Is Onboarding So Important?
Knowing that onboarding can be an expensive process may tempt you to pit it off, but it’s important to recognize that onboarding is a crucial part of transitioning new hires into your organization. This transition always works best when there is a deliberate program in place to keep it organized and effective.
Onboarding can set the tone for an employee's entire tenure at a company. It's the time when new employees learn about the company's culture, its mission and vision, and their role in achieving those goals. A well-executed onboarding process can improve employee retention and engagement, increase productivity, and help new employees become productive members of the team more quickly. This helps the program pay for itself.
On the other hand, poor onboarding can lead to disengagement, confusion, and frustration. This can result in high turnover rates and decreased productivity. In the long run, these results cost your company far more than installing a good onboarding program from the start.
In fact, according to Bamboo HR, employees who enjoy an effective onboarding process feel up to 18 times more committed to their new workplace, compared to employees who feel their onboarding was less effective.
How Much Does Onboarding an Employee Cost?
The cost of onboarding a new employee can vary depending on several factors, which will be addressed in the next section. However, the average cost to onboard a new employee is around $4,100, according to a study conducted by the Society for Human Resource Management (SHRM). This figure includes all expenses that occur after an employee is hired, including training, orientation, administrative tasks, and any productivity that is lost while a new employee is brought up to speed.
It is important to note that the costs of onboarding are part of the larger cost-per-hire of each new employee. Cost-per-hire is the total cost of hiring a new employee, including advertising, recruiting, interviewing, and any other expenses associated with the hiring process.
SHRM estimates that the average cost-per-hire runs at about $4,700. But they note that experts estimate that the exact total cost to hire a new employee can be three or four times the employee’s expected salary. So if you want to fill a position that pays, say, $40,000 a year, you may spend up to $120,000 to hire the right candidate — from the start of advertising the position to the end of a new employee’s onboarding process.
In the face of such expenses, you’ll likely want to determine exactly what factors will determine how much onboarding will cost, plan for any unforeseen expenses, and find any ways to save money.
What Factors Determine Onboarding Cost?
Several factors determine onboarding costs. The level of the position being filled is one of the most critical factors. Executive roles require more extensive onboarding, which can result in higher costs. The size of the company also plays an important role. Larger companies will typically have higher onboarding costs due to the need for more extensive training and orientation programs.
Another factor that can influence onboarding costs is the industry. Companies in highly regulated industries, such as healthcare or finance, may require more extensive training and orientation programs to ensure compliance with regulations.
Costs also depend on how many people will be involved in the onboarding process. If you need specialized trainers or specific HR personnel, costs will likely increase — you’ll need to pay those people for the time they spend working on the onboarding process that they could have spent doing other things for your company.
Furthermore, the location of the company can also impact onboarding costs. Companies in higher-cost areas, such as major metropolitan areas, may incur higher costs for equipment, rent, travel expenses, and salaries.
Of course, you may also want to consider social niceties during the onboarding process. Giving new employees gifts can also add to your overall onboarding costs, but nothing says “welcome to the team!” like a thoughtful gift or a goodie bag full of company swag. It’s also a great way to spice up your new employee orientation.
How Can You Decrease Onboarding Costs?
While onboarding is essential, it's also essential to minimize its costs. To help reduce overall onboarding cost, you can:
- Automate certain onboarding processes: Automating onboarding processes can significantly reduce time and costs. For example, using an online onboarding portal can slash the administrative costs associated with onboarding. Additionally, automated processes can help to ensure consistency and accuracy in the onboarding process.
- Use technology for training: Using technology to deliver remote training can also help reduce onboarding costs. Online training programs can be less expensive than traditional in-person training programs. Additionally, online training can be completed at the employee's own pace, which can also reduce the time and costs associated with in-person training.
- Streamline the onboarding process: Streamlining the onboarding process can also help reduce costs. Companies can reduce the amount of time employees spend in orientation by providing the necessary information in advance. Additionally, companies can use a buddy system, where a new employee is paired with a more experienced employee to help them get up to speed more quickly.
- Outsource onboarding tasks: Outsourcing onboarding tasks can also help reduce costs. For example, companies can outsource background checks or drug testing to third-party providers, which frees up your internal resources and can be less expensive than conducting these tasks in-house.
- Plan ahead for low productivity: Planning ahead can help prepare your company for a time of lower productivity while your new employees become familiar with the work they will be doing. Shifting high-priority tasks around to more experienced employees and adding extra time for projects can help protect your bottom line.
Finally, you’ll want to create a comprehensive onboarding plan that includes timelines and clear objectives for your new employee’s training. By setting specific goals and deadlines, the onboarding process can be more efficient, reducing the overall cost.
Additionally, you’ll want to provide ongoing support and feedback for your new employees. Such support can help them get up to your expected level of productivity faster, which will increase their job satisfaction and also reduce turnover rates.
Support Your New and Existing Employees
Onboarding is a critical step in the hiring process. While it can be costly, it's essential to ensure that new employees are effectively integrated into the organization. By understanding the factors that determine onboarding costs and implementing strategies to decrease those expenses, organizations can optimize the onboarding process and reap more of its benefits more cost-effectively.
Once you’ve onboarded your new team members, the next step is to ensure they are supported both in the office and out of the office. After all the effort to get them up and running, you want them to stick around. In a survey of over 2,000 HR leaders, we found 100% of HR leaders say wellness programs are important to employee satisfaction.
Talk to a wellbeing specialist about providing a holistic wellness program to your team!
- Anderson, Brian. (February 24, 2023). From Recruitment to Onboarding, What's the True Cost of Hiring Employees?. BambooHR. Retrieved March 20, 2023 from https://www.bamboohr.com/blog/cost-of-onboarding-calculator.
- Navarra, Katie. (April 11, 2022). The Real Costs of Recruitment. SHRM. Retrieved March 20, 2023 from https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/the-real-costs-of-recruitment.aspx.
- Olmstead, Levi. (March 16, 2022). The Cost of Onboarding New Employees in 2023 (+Calculator). WhatFix. Retrieved March 20, 2023 from https://whatfix.com/blog/cost-of-onboarding/.
- Puhg, Marie-Reine. (January 24, 2023). These 10+ Onboarding Statistics Reveal What New Employees Really Want in 2023. BambooHR. Retrieved March 20, 2023 from https://www.bamboohr.com/blog/onboarding-infographic.
- Singh, Shreelekha. (May 2, 2022). HR Hiring Guide: What's the Cost of Onboarding New Employees. Scribe. Retrieved March 20, 2023 from https://scribehow.com/library/cost-of-onboarding.
- Watts, Amy. (October 3, 2010). How Much Does It Cost to Onboard a New Employee? eduMe. Retrieved March 20, 2023 from https://www.edume.com/blog/cost-of-onboarding-a-new-hire.
The Gympass Editorial Team empowers HR leaders to support worker wellbeing. Our original research, trend analyses, and helpful how-tos provide the tools they need to improve workforce wellness in today's fast-shifting professional landscape.