What Are the Real Onboarding Costs That Businesses Should Expect?

We highlight the factors that contribute to high onboarding costs for businesses.

onboarding costs to consider

Every time an employee resigns, retires, or gets fired, the company needs to consider the costs - including onboarding costs - of replacing them. The new hire needs to go through onboarding - welcoming and seamlessly integrating the worker into their new workplace. At the end of the onboarding process, the new hire should understand their role, responsibilities, and expectations of their job.

This whole process of organizational socialization is a costly affair for the business.

What are the real onboarding costs your business should think about in your recruitment budget? Are there factors that contribute to the costliness of the process?

Let’s have a look.

How Much Do Companies Spend On Onboarding?

A Society for Human Resource Management (SHRM) report estimated that the average cost-per-hire for companies is nearly R60,000 (US$4,125). Forbes states that it can cost a business up to twice a previous employee’s annual salary to find their replacement. The total onboarding costs, however, depend on the industry and the organizational recruitment strategy.

The timeline of an effective onboarding program should last a minimum of three months and a maximum, one year.

The time factor plays a key role in the cost of onboarding. But it isn’t the only factor that contributes to high onboarding fees. Let’s look at other aspects to consider when compiling onboarding budgets.

company onboarding or training

What Factors Contribute to High Onboarding Costs?

There are various factors that have an impact on your onboarding budget, including:

Administrative Time and Paperwork

Unless you onboard your new hires digitally - by using a platform like &team’s - there will be paperwork to print and process. Think about the employee handbook, contracts, non-disclosure forms, arbitration agreements, tax forms, enrollment benefits, and more.

This paperwork process can be a substantial cost to your business- one that is quite easily avoidable.

To minimize your costs here, digitize all the documents and paperwork. Using a talent experience management platform can also help you virtually onboard new employees. Not only does digital document management save money, it also saves time on the administrative side.

Onboarding Management and Training Costs

Another aspect to consider is onboarding management and the training costs involved.

To calculate management costs, tally up the number of new employees you hire and multiply this by the number of hours spent on onboarding and training. Multiply this by the rate per hour of the manager responsible for training and boarding, and you get your total. This gives you a rough estimate of the onboarding cost.

Onboarding costs new employees

However, there are other considerations here too, which increases this cost:

  • Do other team members also help out with training and onboarding? If yes, how much time do they spend on this per new hire?
  • Do you give your new hire a welcome package or kit? What’s the cost of this?
  • Calculate the total supply costs per new hire. This would include computers, software, stationery, and so on.
  • Do you pay the new employees for completing their onboarding or training?

According to the Association for Talent Development’s State of the Industry Report, the direct learning costs per employee were almost R20,000 (US$1,308). The average amount of time employees spend on learning or training is nearly 35 hours per employee on average.

How much time and money do your new employees spend on training? These are important factors when calculating the costs of onboarding.

Quick Turnover of New Hires

Some interesting stats: 20% of new hires quit within a month and a half of starting at a new company. 60% of workers quit before their third work anniversary.

If you’ve spent even a month or three onboarding a new hire and they resign, you’ve effectively wasted time and money. This is one of the “hidden” costs of onboarding. Worse, the process to fill the open job position needs to start all over again. This means it will cost your company even more money.

Turnover and onboarding costs

The good news is that you can stave off early turnover rates, combating high and repeated onboarding costs. An SHRM report states that if you have a structured onboarding program in place, nearly 70% of new hires are likely to stay. A structured process also ensures that your new employees have higher performance levels and organizational commitment.

The Benefits of Onboarding Effectively

If you onboard new hires effectively, you cut down the costs of onboarding Other benefits of effective onboarding include:

Final Thoughts

Onboarding is an expensive recruitment exercise, yet it is a must if you want your new hires to ensure employee productivity and reduce turnover. This, in turn, increases your revenue and profit margin.

There are ways to cut down on onboarding costs. Reach out to &team today to see how we can help you!