Introducing a new employee – what are the onboarding costs

Companies that invest adequate time and effort in creating comprehensive and collaborative onboarding experiences typically achieve higher levels of employee retention, productivity, and engagement. In fact, 69% of employees are more likely to stay with a company for at least three years if they have a positive onboarding experience. Despite the initial significant appearance of onboarding costs, they are actually an investment in long-term employee retention and increased productivity.

The cost of hiring an employee

Recruitment costs are not only the direct expenses associated with purchasing and publishing job advertisements but also numerous indirect costs related to other HR activities during the recruitment process. Indirect costs include the recruiter’s time, which involves the average number of hours spent on reviewing applications and meeting with candidates. Additionally, the time spent by department managers on recruitment must also be considered, as they are actively involved in the process.

Furthermore, recruitment costs also include those associated with planning processes or tools used in recruitment. This includes Applicant Tracking Systems (ATS), candidate evaluation tools, etc. As seen, the cost of hiring an employee comprises not only the price of a job advertisement but also many other complex factors. This cost escalates further when factoring in headhunter fees and recruitment agency fees, which are sometimes engaged in candidate sourcing.

Employee Onboarding Costs

Employee onboarding costs include expenses such as the cost of onboarding programs. These programs aim to guide the employee through the period of acclimatization in the new organization and integrate the new individual with the company as quickly as possible. Such expenses also include the value of the training department’s work dedicated to planning the onboarding process and adapting it to the employee’s needs and the specifics of the position. Additionally, these expenses include the cost of planned onboarding meetings, the time spent by individuals involved, and the cost of training materials.

When entering a new role, a hired candidate typically requires 3 to 6 months for their work to start adding value to the organization. The time after which the value of their work exceeds the costs of their employment and onboarding is often 9 to 12 months. This demonstrates the scale of an employer’s investment when deciding to recruit and hire a new employee. It’s natural that this investment is driven by the need and hope that the incurred costs will be recouped and then some over time.

Hiring Costs vs Missed Business Opportunities

If a new employee joins the sales or customer service department but their approach to duties or skills leaves much to be desired, then the costs of bad hiring can also include missed business opportunities. This concept refers to the value of contracts with clients who could have been acquired but, due to the employee’s insufficient efforts or incompetency, did not cooperate with the company. Such opportunities also include missed business partners that the employee did not identify as crucial for the business.

Strained Customer Relations

We all know that good customer experience is key to business success. However, if these relations are somehow strained, the company is exposed to incurring additional costs. Examples include costs of discounts or gifts given “as an apology” to mitigate potential disputes between the departing employee and the customer or business partner. These may be minor costs. The situation becomes more serious when our employee has made commitments in a contract with a customer that the company cannot fulfill, and unfulfilled commitments result in the need to pay contractual penalties for failure to meet contract terms. This is how matters resulting from the employee’s dishonesty, abuses, unfulfilled actions, or miscalculations can end.

The Connection Between Employee Onboarding and Company Costs

Employee onboarding establishes a strong first impression and sets employees up for success. This process helps to reduce employee turnover and simultaneously increase levels of retention, engagement, and productivity.

According to an HR Dive study, the cost to replace an employee is 33% of the employee’s annual salary. In other words, the cost of replacing an employee with an average annual income of 45,000 dollars could be 15,000 dollars per person. High turnover means that HR managers have to restart the employee acquisition process, investing additional time and money in onboarding a new group of employees.

Effective Onboarding Process

Higher Productivity from Day One

Organizations with an organized onboarding approach experience 54% higher productivity from new employees. New employees typically aren’t productive at the beginning. However, effective onboarding speeds up their path to productivity.

Reduced Turnover

In any business, turnover significantly impacts a company’s financial results. Poor onboarding experiences can decrease the potential value new employees bring to the company, leading to increased employee turnover.

Employer Branding

Employer branding involves promoting the company as an attractive place to work. This is a crucial step in attracting new employees and building positive relationships. With the rise of company review sites like Glassdoor and Indeed, job seekers rely on the experiences of previous employees to decide where to apply. A company with high turnover is likely to have more negative reviews, demanding additional marketing efforts to build a positive employer image.

A strategic onboarding program offers many benefits to companies—it helps increase employee retention, engagement, and productivity, while reducing onboarding costs. An interactive onboarding program helps shape a positive brand image, fostering a positive work culture and building employee loyalty. Effective onboarding not only makes it easier for new employees to quickly adapt to their new environment, but it also influences their motivation to achieve goals. The long-term benefits include reduced turnover costs, improved efficiency, and strengthened employee engagement.