Understanding The Cost Of Onboarding A New Employee

Why Is Onboarding So Important For New Employees?

Employee turnover is a common occurrence, as people may look for better opportunities if their current position is less than satisfactory. To complicate things further, the cost of onboarding a new employee goes deeper than most leaders imagine. That’s why it’s essential to craft an engaging and detailed onboarding process so new hires get a crystal clear understanding of their job role and responsibilities while getting acquainted with company culture. This way, not only do they immerse themselves in their new workplace, but they also receive all the tools they require to succeed in their position. Proper onboarding reduces retention by 82% and skyrockets productivity by 70%. When team members feel welcome on their new team, receive the mentorship they need, and are constantly provided with feedback, they can improve their performance and fit their designated new role.

How Do You Calculate Onboarding Costs?

The cost of onboarding a new employee may be high for many businesses, so you should be prepared if you have to go through this stage. You can start by splitting your calculations into three stages: preboarding, onboarding, and the first month. Then, you need to forecast how many hours and how much money you have to spend for each stage. For instance, preboarding requires setting up the new hire’s accounts and providing them with the necessary equipment, including phones and computers. The administration also has to prepare legal paperwork for employees to sign on time. During onboarding, managers must train new hires and be in close communication every step of the way. Therefore, they may have to work more hours to fit these added responsibilities into their schedules. During the first month of work, team members must delve into their Learning and Development opportunities by participating in online courses. Also, managers have to provide timely feedback, while leadership may send out rewards to congratulate a job well done.

The Usual Spendings For Onboarding A New Employee

According to a report, the average cost of hiring is nearly $4,700, while companies spend about 42 weeks finding the best candidate. However, the cost of onboarding a new employee and the cost of hiring are two separate things. Recruitment includes the money spent on advertising your job listing, hours lost on conducting interviews, and the impact on HR professionals’ morale. On the other hand, onboarding entails training the new hire, providing them with the technical equipment they need, and paying for their relocation, if applicable. It is estimated that the hours HR team members spend on each hire amount to over $1,000 per employee. The onboarding paperwork on its own can take up to 10 working hours to complete, while employees may require 8–26 weeks until they reach their full productivity. Keep in mind that the cost varies depending on the level of position, while soft costs, like morale and lost productivity, increase the more time it takes to find a new team member.

Factors Influencing How Much Money Onboarding Requires

Company Size And Number Of New Hires

The cost of onboarding a new employee depends on your company’s size and the number of new members you’re adding to the team. The bigger the organization and the more new employees you hire every year, the more hours managers and HR professionals spend on training. New members have to get acquainted with the various departments so they can familiarize themselves with their roles. Also, the fewer people you hire and onboard every year, the fewer hours you have to spend training them. That’s why it’s crucial to pay close attention to your onboarding tactics and decrease turnover rates.

Organizational Setup

If your turnover rates are off the roof and you keep looking for new employees, you must take a close look at your internal functions and the level of organization. If you are not keeping track of your standard operating procedures, chances are your workforce does not know how to perform their responsibilities. Or maybe they don’t even have a clear understanding of their role. Therefore, you need to explain in detail what you expect from each employee and how they should keep track of their daily tasks.

In-Person Vs. Remote Training

The cost of onboarding a new employee can differ for in-person and remote training. Remote employees may need help setting up a home office, including computers, speakers, chairs, and desks. Managers may have to spend extra hours navigating new hires through company functions and culture, as communication through video calls can often be challenging due to bad connectivity. On the other hand, in-person training may include relocation expenses. Not only that, but a new working environment might distract new employees from focusing on their work.

New Positions Vs. Replacements

Are you creating a new role in your company or replacing an existing one? The cost of onboarding a new employee differs depending on your answer. Creating a new position means you must draft new documentation, purchase workplace equipment, and streamline your process. One positive aspect is that you don’t suffer from decreased productivity because the position didn’t exist previously. However, this is not the case with replacements, as you expect a new employee to fill the gap successfully. On a positive note, when it comes to replacements, you don’t have to spend a lot of money purchasing equipment, as it is already there. Not to mention, the previous employee has probably documented their work so their replacement can pick up where they left off.

Adaptation Time

You found your ideal employee, and you are excited to see them get to work. How long do they need, though, until they become productive? When we’re talking about junior hires, they may require more training and onboarding, but they typically get the hang of things within three months. On the contrary, executives and VPs can take up to a year until they become productive. That is because it takes time for them to review your company strategy, alter it, and apply changes. Their performance may be limited at first, but it can skyrocket by the end of their first year if their tactics prove successful.

Equipment And Credentials

One word every company’s administration despises is bureaucracy. Still, your lawyers, HR managers, and financial department must craft all the necessary documentation, including tax and benefit papers, arbitration and non-disclosure agreements, and contracts. Additionally, the cost of onboarding a new employee entails purchasing software and courses for them to complete and for HR professionals to document the entire process. Without having a standard and controlled procedure in place, onboarding costs can get severely out of hand.


So, how long does it take for companies to see the ROI after hiring a new employee and onboarding them? During the first month, you should expect 25% productivity, which increases to 50% around the fifth week of onboarding. In a best-case scenario, a new hire’s productivity can reach 100% after the twelfth week. At the end of the first year, you should expect to reach the break-even point of a new hire, as their productivity contributes to an income close to the cost of their hiring and onboarding.

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