The True Cost of Onboarding New Employees

We talk all the time about how important it is to practice great onboarding. But getting to the numbers is also important. For example, what is the true cost of onboarding? Understanding what onboarding costs can be very helpful when it comes time to convince your organization to honor that investment with good onboarding processes and practices.

Understanding the full investment — both in dollars and effort — behind onboarding is crucial. Every dollar and minute spent can make or break the long-term success of your workforce. Pouring that investment into a broken system is like tucking your hard-earned cash into a pocket with a hole in the bottom. 

Let’s get down to the brass tacks: How much does effective onboarding really cost, and why is this initial investment non-negotiable for a thriving workplace? Unpacking these costs will not only shed light on the “how much,” but also bolster the strategic value of onboarding in your organization.

Understanding the Full Cost of Employee Onboarding

What’s the difference between hiring and onboarding costs?

Recruitment and onboarding often get grouped together because both HR processes are critical to bringing new talent into your organization. But for the purposes of this article, we’re thinking of these as separate costs.

Hiring costs cover all line items related to getting the right candidate in the door. This might include recruiter feeds, job ads, background checks, and interview time.

Onboarding costs begin after the job offer is signed, and include everything your organization does to help integrate a new hire into the team. These costs help get a new hire productive as fast as possible, and typically include:

• Time spent on paperwork, training, and orientation
• Manager and team time spent on training and support
• Tools and tech needed for ramp-up
• Investment in onboarding software
• Opportunity cost of slower productivity during the ramp-up period

Many organizations put more emphasis on up-front hiring costs, underestimating how critical onboarding costs are to protecting the investment in bringing in new talent.

How to Calculate the Total Cost of Onboarding a New Employee

Here’s a basic framework you can use to understand total onboarding costs per new employee:

Step 1: Calculate Direct Costs

• Onboarding software fees (per seat or per hire)
• Welcome kits, uniforms, tech, or other equipment
• Training programs or certifications
• Relocation or travel expecnses

Step 2: Estimate Time-Basted Costs for Different Roles Involved in Onboarding

• HR coordinators
• Managers and mentors
• Team members

Multiply the hours spent on onboarding tasks by the hourly cost of each role’s salary.

Step 3: Estimate Productivity Ramp-Up Cost

It typically takes six months to a year for a new hire to become productive. Here’s a formula to determine the cost of lost productivity:

Lost Productivity Cost = (Target Productivity – Actual Productivity) x Average Monthly Revenue per Employee x Number of Ramp-Up Months

Take a new sales rep as an example:

• Average monthly revenue target: $100,000
• Average productivity over first six months: 50% (starting at 25% and gradually ramping up)
• Productivity gap: 50%
• Ramp-up period: 6 months

Lost Productivity Cost = 50% x $100,000 x 6 months = $300,000

Step 4: Total Your Costs

Add all the numbers above and this is your estimated total onboarding cost per new hire.

The Cost of Onboarding a New Employee

The cost of onboarding a new employee can vary widely depending on several factors including industry, job level, and geographic location. Indirect costs, such as the time spent by other employees training the newcomer or the temporary dip in productivity, can add significantly to the bottom line. Luckily, advanced onboarding software like Enboarder can optimize these processes and potentially lower these costs by ensuring a smoother, more engaging onboarding experience.

Let’s break down the total receipt, line by line:

Training and Development Costs

According to the Association for Talent Development’s (ATD) 2022 State of the Industry Report, organizations spend an average of USD $1,280 per employee annually on training and development. Once aboard, new employees typically undergo various forms of training tailored to their specific roles. This can range from general workplace conduct to highly specialized job functions. While essential, these training sessions entail both the costs of developing or purchasing training materials and the wages paid to new hires and trainers during these sessions.

Productivity Losses During Ramp-Up

During the “ramp-up period,” which can last anywhere from 1 to 6 months, productivity loss can come close to 2.5% of total yearly output, according to SHRM. While the time and cost for a new employee to reach full productivity can vary widely, it is a significant investment in any new hire journey. At a median salary of $63,534 in the U.S., that is probably at least $1,588 per joiner. And it doesn’t stop with the newcomer — during this period, the productivity of your whole team may take a slight dip as peers spend time training the newcomer, another indirect cost to the company.

Equipment and Workspace Set-Up

The average cost for setting up a new employee with the necessary technology and workspace is approximately USD $1,000 to $2,000, depending on the role and the equipment required. Equipping a new employee with the necessary tools — from computers and software licenses to ergonomic chairs is pricey — even splitting the difference, that’s $1500! Ensuring each employee has a conducive workspace, whether in an office or for remote work, is crucial but costly.

Legal and Compliance Set-Up

Compliance costs vary widely but can be significant, particularly in regulated industries. When considering all the requirements during the onboarding process, companies might spend upwards of USD $3,000 per hire for legal compliance, says the Canadian Conference Board. Ensuring compliance with employment laws and regulations during the hiring and onboarding process is critical. This may involve legal consultations, especially for contract drafting, which can be costly but essential to avoid future liabilities.

Turnover and Early Attrition Risks

According to Jobvite, one in every three new hires today will leave their job in the first 90 days, so what is the cost if your new hire doesn’t make it through the first year? According to The Center for American Progress, the cost of turnover, including the subsequent rehiring and retraining processes, can range from 50% to 200% of an employee’s annual salary. These include the cost of repeating the onboarding process for a replacement, alongside the lost investment in the initial hire’s training and development.

Internal Admin and Onboarding Coordination Costs

An older (but still valid) study by ADP and PWC set the average cost of workforce administration, payroll, and other HR activities at more than USD $1,400 per employee per year (PEPY) for large organizations and almost $2,000 PEPY for mid-size organizations. Either way, onboarding a new employee requires a significant amount of administrative handling — from setting up payroll to benefits enrollment. Utilizing onboarding software can streamline these tasks significantly. And by the way, platforms like Enboarder can transform some of these cumbersome manual processes into seamless automated workflows, reducing the impact of this administrative burden and associated costs. In fact, Zapier found they saved 206,185 minutes of mindless clicking saved in their first year of using Enboarder — that’s the equivalent of 86 work weeks in saved admin time!

So let’s add it all up in USD. 

$1280 in training 

$1400 in admin (at least)

$1500 in equipment

$1588 in productivity

That’s a total of USD $5,768 per newcomer, not even including the revenue lost per person while the seat is vacant!

Strategies to Reduce Onboarding Costs

Obviously, those kinds of numbers mean investment in onboarding is crucial. But it doesn’t have to break the bank. Implementing strategic measures can significantly curtail costs without compromising the quality of your onboarding process. Here are seven powerful strategies to ensure your onboarding process is both cost-effective and impactful:

Streamline the Process

Simplify your onboarding process by eliminating unnecessary steps and focusing on efficiency. Review and refine each step of your onboarding strategy to ensure every part is necessary and adds value. For example, consolidating orientation sessions to cover multiple topics in a single meeting can reduce the time and resources spent on repeated sessions.

Make Onboarding More than Just a Hello

If you deliver onboarding as an immersive process that drives engagement and connection over the first year and beyond, fewer people will be looking for the exits. And when you help employees ramp up quickly, you also increase their effectiveness, confidence, and productivity — which helps your business thrive and grow!

Leverage Technology

Automating onboarding might seem in theory like it compromises personalization or the human touch, but if you have the right software, nothing could be further from the truth. In fact, software can actually make your onboarding feel MORE personal, and help you onboard at scale. Investing in a robust onboarding platform (like Enboarder) can dramatically reduce manual tasks and streamline communication. 

Optimize the Onboarding Workflow

Optimize your onboarding workflow by creating onboarding journeys that are easy to follow and replicate. This includes having a well-defined checklist for each stage of onboarding, from pre-boarding to full integration into the company. An optimized workflow helps reduce the time spent by HR and the new hire, cutting down costs significantly.

Use People Across the Experience

Empower your current employees to take an active role in the onboarding process and leverage the power of human connection by introducing people on a personal level. Peer mentoring systems use seasoned employees to help new hires get up to speed, fostering a supportive work culture and also reducing the formal training time needed and saving some dough!

Centralize Communication Channels

Create a central channel for all onboarding materials that can reach through the noise of the onboarding weeks. This authoritative source of truth will help new hires access information digitally. This ensures that all employees have critical resources when they need them and also prompts them to engage with important information in a timely way.

Schedule Group Onboarding and Learning Sessions

Instead of individual onboarding sessions, schedule group sessions and training wherever practical. This group learning approach is especially cost-effective for roles that do not require highly specialized training. Group sessions also build a sense of team cohesion and community right from the start.

Monitor and Adjust in Real Time

Use data analytics to monitor the effectiveness of your onboarding process and make real-time adjustments. Tools with advanced insights, like Enboarder, can provide insights into which parts of your onboarding are most engaging and effective, allowing you to continuously improve the process and eliminate costly inefficiencies.

By implementing these strategies, you can significantly reduce the costs associated with onboarding new employees while still providing a comprehensive and engaging introduction to your company.

Streamline Your Onboarding with Enboarder

When you’re making such a significant investment in onboarding new employees, you want to be sure it pays off. At Enboarder, we are all about helping you deliver an impactful and seamless experience that enhances employee engagement and productivity from day one. 

Our Intelligent Journey Platform leverages automation, personalized workflows, and interactive content to make onboarding an enriching journey rather than just a procedural necessity. This ensures every new hire is fully integrated into your company culture with all the tools they need to succeed, aligning their start with your long-term business goals. 

Ready to see how Enboarder can transform your onboarding process and safeguard your investment? Use our Turnover Cost Calculator to do the math for yourself, or request a demo today and step into the future of effective employee onboarding!