Onboarding Costs for New Employees

One of the best ways you can control costs for your business is by retaining the employees you hire. This is because the hiring and onboarding process for a new employee can cost up to twice that employee’s annual salary, according to Gallup.

So let’s say compensation for your new employee matches a recent average of $28.31 an hour. At 40 hours a week for a year, the hiring and onboarding costs for that employee can reach $117,769.60. In this article, we’ll take a detailed look at the costs involved with hiring and onboarding new talent.

Employee onboarding cost formula

The basic formula for determining new hire costs is:

Average Cost Per Hire = (Total internal costs + Total external costs) / Number of new hires

While the formula used to calculate onboarding costs is simple, the number behind it may not be. Let’s take a look at the typical internal and external costs a company might incur when onboarding a new hire.

Typical internal new hire costs

• Compliance costs for creating the legal documents that are required to hire and onboard an employee.
• The administrative costs for HR hours spent processing documents, reviewing resumes, and interviewing.
• Training and development of the new employee.
• Training resources, including employee salary costs for everyone involved in hiring and mentoring the new employee.
• The hours for which the new employee gets paid during onboarding.

Typical external new hire costs

• The cost of background checks and drug tests.
• Costs associated with the job ad.
• Professional memberships and/or software subscriptions.
• Travel and relocation expenses, if provided.
• Expenses for employee referrals, if monetary compensation is offered.
• Any signing bonuses that may apply.

When calculating your own, consider all the costs that might apply to your circumstances, even hidden expenses not mentioned above. Choosing an HR software solution with employee onboarding capabilities can reduce time, therefore money, typically spent on much of it.

Various onboarding costs associated with new employees

The combined cost of onboarding a new employee is different for every company and for each role within the organization. Exact employee onboarding costs will depend upon the investment into the above considerations. Cost per hire varies based on the seniority of the open position, company size, and investments in new employee training. That can include equipment and how many hours human resources, managers, and others spend bringing the employee to full productivity.

For example: Computer-based, video, and in-person training. If you already have these detailed courses for new employees, you’re only out the wages for your trainer and employee. Estimates place computer-based training costs at around $1,300/employee for the person helping individuals through it. Some companies need to develop the courses prior to implementing the training program. Those costs can reach $15,000+, according to Skildlabs.

Paperwork and administrative costs

These costs depend upon what you pay your hiring manager and the time taken to complete and input the onboarding paperwork. For example, if you pay your hiring manager for 15 hours at $35/hour, you’ll spend $525 on the paperwork. The actual paper, ink, and software used to create those papers is usually negligible.

Welcome package

The costs associated with your welcome package depend upon what’s in it. The new hire paperwork, employee handbook, and other necessary documents can cost $20 – $100+. If you also include a water bottle, coffee mug, or other company swag, factor in the cost of those items. If you mail the package, account for shipping.

Workspace setup

The cost of your workplace setup will depend upon where your employee works. Many companies have employees who work at the office, at home, and a combination. Your employee may need a desk and chair at the office ($400+) as well as an at-home setup. You might therefore send them a laptop ($500 – $1,500), keyboard ($50), mouse ($25), monitor ($100+), and monitor stand ($50+).

Understanding when onboarding begins

For many companies, the onboarding experience begins as soon as a person signs an offer letter. These organizations know how crucial an employee’s first few months are to their onboarding success and long-term employee experience. So they don’t waste time when integrating new employees with their people and processes.

It’s important to note that there isn’t a one-size-fits-all approach to successfully hiring and onboarding your new employees. However, you can control costs and streamline the process by establishing your plan and training and development programs prior to the new hire’s start date. Your well-planned onboarding program can reduce the costly impact of employee turnover and help shape a thriving company culture of skilled and united employees.

For help creating your own most effective onboarding program, read our definitive guide on employee onboarding today. For more tips, tools, and other resources for business management and HR professionals, visit Workest by Zenefits daily.

Sources

1. This Fixable Problem Costs U.S. Businesses $1 Trillion (https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx)
2. How Much Does it Cost to Develop an Online Course in 2022? ( https://www.skildlabs.com/how-much-does-it-cost-to-develop-an-online-course-in-2021/