The cost of onboarding a new hire varies widely depending on the position being filled and the industry of the company, but in almost every case, it’s shockingly expensive.
Companies are in a constant balance between resources and expenses, and they have to be very careful with how they use their resources. New employee onboarding is one of those obscure drains on resources in HR.
Here, we’ll work through the cost of onboarding a new hire and how to calculate it.
What is onboarding?
There’s a lot that goes on between receiving a resume and having a fully productive new employee. There’s hiring, orientation, and onboarding among other things. Let’s draw the lines between those three concepts to clarify what costs we’re calculating here.
Our good friends at Lexico define onboarding as “the action or process of integrating a new employee into an organization.”
The keyword in that definition is “integrating.”
Hiring doesn’t fit inside the definition of onboarding because it stops once the person is formally part of an organization. Think of it this way. Hiring is like getting out the peanut butter, bread, and jelly. Onboarding is like making it into a sandwich.
The hiring-onboarding relationship is the same.
But doesn’t employee orientation count as onboarding?
Let’s answer that question with another question. When you started your last job, did you feel “fully integrated” after new-employee orientation? I seriously doubt it.
Even so, orientation is a significant part of onboarding. It’s the beginning of that integration process.
Moving forward in this article, you could substitute the word “onboarding” with “fully integrating new employees into the company” if that makes it easier for you. If not, then onboarding will have to do.😉
Onboarding costs are any expenses or other costs associated with integrating new employees into a company.
Here’s a list of what onboarding costs include.
- HR time spent on paperwork
- HR time spent orienting
- Time spent training
- New employee time spent on paperwork
- Needed work tools and materials
Cool, so how much does onboarding a new employee cost?
How to calculate your onboarding cost
It’s tough to put an exact number on the cost of employee onboarding, but this calculator can get you close.
Here are the onboarding cost variables and the formula for calculating your onboarding costs.
That’s pretty expensive. Fortunately, there’s a simple solution that can lower that number quite a bit.
Try this calculator to see how much you can save for each onboarded employee.
See the argument for saving time on onboarding?
Eddy’s onboarding tool saves time spent on onboarding paperwork by letting new employees complete it by themselves before they start.
Employee Turnover and Onboarding
So, is it cheaper to keep a problem employee or hire a new one? The answer, once again, is that it depends. That’s a turnover question and is a subject all its own, but we’ll touch on it.
If the sum of the costs and benefits of hiring a new employee are better than the sum of the costs and benefits of keeping the old employee, then it’s totally worth hiring someone new.
The cost of employee turnover can be very high, but problem employees can have toxic effects on your company. It’s definitely worth going over those costs in comparison to turnover costs.
Here’s how to calculate turnover costs.
Add up all the costs of onboarding and hiring with the costs associated with having the temporary job vacancy.
Gallup estimates that the total cost of employee turnover is one-half to two times the employee’s annual salary. This depends on the empty role that has to be filled and varies a lot depending on the industry. Even so, Turnover is not a cost to be ignored.
What is the onboarding process for a new employee?
Remember that employee onboarding is the process of fully integrating a new employee into the organization. Full integration takes more than an orientation and some paperwork.
That same Gallup study found that it can take an employee 12 months to achieve full performance in their role.
That tells us two things.
- If you can keep good employees from leaving, it’s probably worth it.
- Onboarding takes a lot longer than a week.
You probably don’t need to have a 12-month onboarding program. Still, a program that supports new-employees for longer might shorten that 12-month less-than-full-steam period.
Before we go into what the onboarding process should look like, feel free to check out our 15-step onboarding guide. It’ll walk you through everything you need to do to make first experiences at your company awesome. We’ll just summarize that article here.
Let’s get started.
You can break down new-employee onboarding into three main sections.
- What you do before the new hire’s first day
- What you do on the new hire’s first day
- What you do after the new hire’s first day
Before the first day
If you start onboarding your new employee on their first day, you’re already too late.
Before the first day is all about preparation. You need to prepare yourself and your new employee now so their first day can be fun, exciting, and productive.
Here’s what you need to take care of before the first day:
- New hire paperwork. Employees can complete this on their own through a platform like Eddy. This gives the first day some more room for productivity.
- Create a first day or first-week agenda. Let new employees know what to expect from where to park to what they’ll be doing.
- Set up their workspace. Make the new employee feel welcome and at home with a clean and ready workspace complete with company swag.
On the first day
- Be welcoming: Show how excited you are about working with the new employee and what they’ll bring to the table.
- Make introductions: Your hire probably knows very few people at your company. Meeting their coworkers will ease their nerves and give them resources for help.
- Follow your agenda: As a new hire, it’s uncomfortable when there’s nothing to do. Your new employee doesn’t yet know how to kill dead space productively at your company.
After the first day
As we’ve mentioned, onboarding can’t end once the paperwork is done. There’s still a lot to be done if you want your hard-won employee to thrive at your company.
- Cultural integration: Celebrate the diversity new hires bring to the table, and help them join the cultural and social aspects of work.
- Training: No matter how good your new hire is, in order to succeed, they need to learn your company’s unique processes.
- Follow Up: Your onboarding program may only last a few months or so, but full integration takes longer. Rare performance reviews aren’t good enough.
How long does the onboarding process take?
If it takes a year to become fully productive, then maybe onboarding should last that long too. This does not mean that you should constantly ask your employee who’s been there for 8 months if they’re doing okay.
The longer they’ve been there, the less involved you need to be. The onboarding-related focus you give to a particular employee should definitely taper over the course of a year.
When you hire a new person, because of turnover or otherwise, there are more costs than just their compensation. These often unseen costs not only exist but are very significant.
Fortunately, by recognizing all the costs associated with onboarding, you can reduce inefficiencies and improve onboarding efficiency. One of the easiest ways to do that is by not wasting time on new hire paperwork.
Wasted time is wasted money. Save that money by using Eddy and allow your new hire to complete that paperwork before their first day. It saves you and your new hire a lot of wasted on-the-clock hours.
Check out Eddy to see more about how our onboarding and other tools can save you time and money.