Cost of onboarding a new hire (Free Spreadsheet)

What is the cost of onboarding a new hire? 

Is your cost of onboarding a new hire more than it should?

Put simply, ‘bad onboarding’ is an unstructured and haphazard onboarding process that fails to engage early, nurture continuously or monitor growth during the job lifecycle. The consequences of this for both the new hire and the employer, are far-reaching.

The onboarding experts here at Preppio frequently refer to ‘experience and science-based’ onboarding. Our software and methodology focus on the employee experience during the pre and onboarding phases. Preppio’s onboarding software honors people as the true currency of success for companies and organizations. It does this by interlocking mandatory business protocol and corporate needs with a heightened understanding of professional support and growth.

The process is built on the psychology of potential and best practices created by leading scientists. The newly updated 6 C’s employee onboarding framework devised by Preppio’s Chief Scientific Advisor Talya Bauer Ph.D., forms the pillars of the Preppio onboarding experience - Compliance, Clarification, Confidence, Connection, and Culture moving into Check-back.

 

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  • The average cost of onboarding a new hire is 30% to 70% of their annual salary
  • Recruiting and training are major costs, but time to productivity has the highest overall cost
  • Companies can save up thousands of dollars per new hire hired by maximizing the onboarding success



 


The direct and short-term costs of onboarding a new hire:

#1 Direct And Short-Term Cost: New hire Turnover and Retention

Employers have good reason to be nervous given the statistics show that 11% of new hires change their minds about an offer after they’ve signed a contract. 60% of these do so because they receive a better offer afterward.1

Additionally, there’s a large body of statistics relevant to employees’ early weeks and months in a job. These vary depending on the job in question. However, what is overwhelmingly common is the high rate of employee departure that hits as early as 45 days all the way through to 18 months.

  • 28% of new hires quit before reaching 90 days on the job2
  • 22% of new hires that quit do so in the first 45 days 3
  • 50% of hourly workers quit within the first 120 days4
  • 50% of senior outside hires recruited to a new position fail within 18 months 5

#2 Direct and Short-Term Cost: New hire Time to Productivity 

Organizations recoup the highest onboarding return on investment in the area of time to productivity. This is the time it takes an new hire to deliver actual value to the organization. We have all heard about the disastrous first day where managers forget to order the IT and tools needed, or forgetting to book employees for training. How much time is wasted in the first days of not getting employees to a flying start in your organization?

#3 Direct and Short-Term Cost: Failed Hiring or Derailed New employees?

The industry frequently uses the term ‘bad hire’ or ‘failed hire’. It’s one that has connotations of blame that squarely sits with the new hire. At Preppio we avoid using this term as we believe there’s more to an employee not working out than meets the eye. Some new hires will never succeed as a result of a bad or unlucky recruiting process, but most have the potential to become star employees. Failure in recruiting is more often than failure in onboarding of the new hire.

According to a study by Leadership IQ, 46% of new hires will fail within 18 months, while only 19% will achieve unequivocal success. Interestingly, and contrary to popular belief, technical skills are not the primary reason why new hires fail; instead, poor interpersonal skills dominate the list.

shining schitts creek GIF by CBC

#4 Direct and Short-Term Cost: Time Spent by HR, Managers, and New Hires

If you’re still doing things manually with email as your go-to way of communicating to new hires and other staff, you’re likely to be surprised at just how much time you are spending chasing, advising, re-doing tasks – all with no defined objective.

When speaking with Preppio’s customers we found that the average onboarding program has 56 activities per new hire across all stakeholders including managers, buddies, IT, and HR. The number of onboarding activities increases the larger the organization.

Of course, this number depends on the type of employee and the onboarding program implemented, but streamlining this process guarantees that onboarding is standardized instead of left to chance.

Want to learn the cost of onboarding a new hire to your company?

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The indirect and long-term costs affect your organization!

#1 Indirect and Long-Term Cost: New hire Engagement

One of the typical onboarding pain-points for managers is time. This means they are focused on tasks rather than orienting new hires into the broader business objectives of the company and its brand. In order for employees to have a sense of purpose at work, their roles should be consistent with the higher objectives of the business.

Without the opportunity for new hires to connect with a higher business goal, the employee’s level of engagement slowly decreases and along with it, so too does his interest in the role. This is where culture plays an important role in bringing a different quality of connection with co-workers.

A study by the Massachusetts Institute of Technology published in the MIT Loan Management review 6 showed that participation in onboarding where new hires were encouraged to apply their unique personal strengths to their jobs, making it easier for employers to help them connect with their colleagues, became more engaged in their work and improved retention.

There must be room for personalization and for the new hires to feel special. You might not be able to give the CEO treatment to every single person, but there are plenty of things leaders and HR can do to personalize the onboarding process, at scale!

#2 Indirect and Long-Term Cost: Employer Branding and Recruiting

We have talked a lot about the financial consequences to companies as a result of bad onboarding. But what about a business’s intangible assets? A company’s image and reputation are two assets often overlooked. However, a great brand must offer a great brand experience, and if the two don’t align, there’s a problem.

This is where reputation can tarnish your brand credibility. Reputation is made up of a mix of sentiments from clients, your customers, your people (employees), and also potential employees who are your candidates. Individually, each will form judgments about whether to work with you (clients) or work for you (employees). Collectively, these sentiments form an organization’s rating as an employer of choice. Bad onboarding is a common theme when it comes to employee reviews. Investing in the new hire experience in the onboarding phase is critical for employer branding.

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Candidate experience also deserves a mention as it is the stage before onboarding. Successful talent acquisition is directly aligned with the quality of experience which is defined by the series of interactions between new hire and employer.

#3 Indirect and Long-Term Cost: Customer Experience, Health, Safety, and Compliance

When it comes to compliance and health and safety most companies work through the necessary “checklist” to satisfy standards. However, what we often hear is that after the first introduction, n tend to lose focus on compliance-related issues as their managers prioritize productivity, inadvertently pressuring them to deliver on their roles.

The purpose of having a deliberate onboarding process with a focus on compliance is to ensure that information is not just read but understood. A designed onboarding program is a productive and efficient way to communicate expectations around behavior in the workplace.

#4 Indirect and Long-Term Cost: Company Culture

Much of what has been discussed feeds directly into the company culture. Company culture is an internal expression that the company is doing things right. It’s a reliable barometer. If the culture is right, there’s a greater chance that many of the road-blocks that affect putting a great onboarding process in place won’t exist or be as problematic.

The idea of culture has climbed up the list of priorities for candidates over the years. In fact, the majority of people looking for work consider company culture as being ‘relatively’ important, while 46% claim it’s ‘very’ important.

Just like onboarding, culture is a permanent brand fixture. It’s not something a company chooses to have. Rather, it exists as either good or bad. If we agree that company culture is made up of the many micro-experiences to which a company subjects its candidates, clients, and employees - it follows that the onboarding experience, too, contributes to its culture.

We like think about culture as the way people behave when no one is watching, essentially the habits that we do not think, just do. What kind of culture people see in the early days set the habit culture for. the employee life cycle.

Modern HR teams are not a cost center!

As an HR practitioner, you can deliver impact to your company’s bottom line by improving the employee experience during the pre and onboarding process.

When companies review and assess the business case with our onboarding experts here at Preppio our experience shows that there is often a ten-fold return on the investment. This is substantial and reflects that if there is no investment in people at the critical early stages of employment, issues can manifest not only for the hire but across the business. 

Most HR practitioners we speak to already know that they have a broken onboarding process. What surprises them is the cost and impact it has on the bottom line. The solutions are different from company to company depending on the areas of concern, but the tangible returns across department functions and disciplines - from automating time-consuming tasks, reducing unwanted turnover, speed to productivity, and increased employee engagement - are hard to ignore.

If these key onboarding checkpoints have raised some concerns you may like to access a series of cost of onboarding a new hire Worksheets that we have put together to help organizations delve more deeply into their onboarding requirements!

 

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Do you want to know the cost of onboarding a new hire to your company?


 


This blog is an excerpt from a chapter in the upcoming book written by Talya Bauer Ph. D, and Amin Fard on employee onboarding. It comes with all the resources you need to revamp your employee onboarding from the ground up.

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New Employee Onboarding Framework

By: Talya N. Bauer, Ph.D.
Chief Scientific Advisor, Preppio

This article on "New Employee onboarding framework to maximize employee success" is an excerpt from an upcoming book on employee onboarding written by Talya Bauer, Ph. D., and Amin Fard.

The new employee onboarding framework 

A decade ago, I first developed the 4 C’s of onboarding framework. This was work that was published by the SHRM Foundation (Society for Human Resource Management). The 4 C’s have since evolved into the 5 C’s of Onboarding: Compliance, Clarification, Confidence, Connection, and Culture. Further to this, and to add a layer of practicality, I’ve added a 6th C, called Check-back.

While each of the 6 C’s is an important component of onboarding, the higher up the scale your organization is able to go, the more effective your onboarding program becomes.

This framework will instruct you on how to get the best out of your employees and for each individual to get the best out of themselves in their jobs. The best onboarding solutions have the employee experience at their core. 

 

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How my interest in employee onboarding started

I have been studying the onboarding process for 25 years. In fact, my Ph.D. dissertation at Purdue University included a study of new college graduates entering a variety of jobs. I surveyed college graduates across campus before they graduated and several times after they’d started their new jobs.

My work looked at a set of predictions specific to different stages and behaviors, and the relationship of these to important outcomes such as new employee performance, job satisfaction, and retention. This included what happened during the recruitment process, what the manager did while the new employee was being onboarded, and what the new employee did themselves.

After spending 12 months following new employees into their new jobs and studying their onboarding successes and failures, many of my predictions turned out to be true. In fact, over the past two and half decades, I have been amazed at how powerful the onboarding process is, and the direct impact onboarding has on these important outcomes.

30 years on

Over the last three decades that I have been studying onboarding, a lot has changed. Onboarding began as what we now think of as orientation programs to complete paperwork and to orient new employees in their jobs. These orientations were rarely considered a source of competitive advantage. That changed as onboarding became the increasingly hot talent management topic that it is today.

My own research, and that of many other academics, has consistently shown that effective onboarding leads to faster adjustment, better job attitudes, more customer referrals, better performance, and stronger retention. But that’s only the case if it is done right.

As more and more organizations focused on onboarding and began considering the need to rethink their onboarding process, best practices began to be discovered and shared. That’s great news for those interested in helping employees and organizations to create vibrant and effective workplaces together.

You can learn more about my 5 keys to success in this article here where I dive a bit deeper into the onboarding process.

What’s to gain?

When onboarding goes well, individuals and organizations thrive. When onboarding goes poorly, the negative outcomes can be equally powerful with high levels of dissatisfaction, low engagement, poor performance, and high turnover. The statistics are sobering with half of all hourly workers leaving their new jobs within the first 120 days, and half of all senior outside hires fail within 18 months in a new position.

All it takes is understanding which tools or levers are available to the organization to help new employees thrive. As I conducted research and reviewed what worked and what didn’t, I realized that the key levers could be identified and broken down into core components.

Relationships matter

They matter primarily because relationships connect us as human beings. Few would actively disagree with such a statement. However, successful relationships require intention and effort. Interestingly, when it comes to onboarding, many organizations assume that a new employee’s need to belong and to connect with colleagues will happen with time. It might – but then again, it might not. By helping organizations to develop proactive and strategic onboarding approaches that cultivate a sense of connection and belonging for new employees, these relationships are not left to chance.

Season 7 Nbc GIF by The Office

The manager holds a special key to the connection process. In research I conducted with a colleague, we found that being unable to establish meaningful connections with co-workers led new engineers to seek less information. However, if the new engineer and his or her manager were able to connect, the newcomer could overcome this hurdle even in the face of conflict with co-workers. In other words, the relationship the new employee has with his or her manager was crucial to establishing a sense of belongingness in the organization and this relationship enabled them to freely seek information from the supervisor. Hence, these employees were positioned to succeed in the organization.

The sink-or-swim mentality is a thing of the past

It’s a risky strategy to rely on new employees to “sink or swim” when it comes to connecting with their co-workers and managers. Organizations can help new employees maximize success by engaging in onboarding best practices. These are based on research, consulting, and observations regarding new employee success that consistently show that when you invest in new employees, they invest back into their co-workers, customers, and the organization.

 

Employee Onboarding Checklist

What experience do you offer your new hires in their first 90 days? Take a look at Talya Bauer PhD.'s Onboarding Checklist to see if you have covered the basics.


The evolution of the onboarding framework from 4 C’s to the 6 C’s 

Organizations that focus on the 6 C’s demonstrate more successful onboarding and business outcomes than those that do not.

Compliance - first the housekeeping

Compliance refers to the mandatory actionable of all new employees such as completing paperwork, the badging process, and provisioning tasks like equipping new employees with computers and phones as well as a workspace. Organizations, even those that claim they do not have a formal onboarding program, must be compliant to stay in business. Due to this, many employees spend their first day on the job filling out forms. This is a missed opportunity.

Organizations spend millions of hours and billions of dollars working through the recruitment funnel to attract candidates, identify qualified candidates, assess candidates, and then finally hire them with the hope that they join the organization. The irony is that they spend much less time thinking about ways to improve the employee experience.

Clarification of employee roles and expectations

Clarification refers to how well new employees understand their roles and performance expectations. Of course, organizations hire new employees to do specific jobs so clarifying what they need to be doing, how to do it, and how the organization functions in terms of rules and policies, is important.

We also know that structure and clarity are important for individual and team success, but spending time learning these basics isn’t the most exciting way to spend your time when you’re new. It’s important to build in ways to help new employees understand what is expected of them and to make them feel equipped and supported in their decision to join your organization and give them confidence in their ability to do a good job. This feeds into the next ‘C’.
Building new employee confidence

 

Helping employees build meaningful connections

 

Connection refers to how accepted and valued new employees feel. When new employees feel connected to their colleagues, they feel safe. Research has consistently shown that a sense of connection leads to various positive individual and organizational outcomes. When new employees feel connected and safe, they ask questions and try new things. Additionally, they engage more fully with their co-workers, their role, and the organization with a greater sense of appreciation. It is a factor that helps new employees feel that they made the right decision to join the organization.

Gallup has consistently found that having a close friend at work is related to a 50% boost in job satisfaction and that those employees with a best friend at work were seven times more likely to fully engage with their work. This starts with onboarding. If new employees feel alone and isolated on their first day, it can be challenging to recover, as researchers found at Microsoft.

Building employee Confidence

Confidence refers to employees’ feelings about doing the job well and their competence to tackle new challenges. It is a state of mind. While an organization cannot directly help new employees feel better about themselves, they can design onboarding experiences that help build up employees rather than tearing them down. When employees feel more confident, they are more likely to feel good about those around them as well as the choice to join your organization.

Research conducted by Dan Cable 7 and his colleagues found that when onboarding focuses on the value of the new employee and encourages him/her to share themselves at work, it can immediately increase performance and retention.

Shared cultures are always evolving

Culture8 refers to how well new employees understand the norms, values, stories, and symbols of their new organization. Onboarding is one of the key ways through which organizational culture is formed, maintained, and changed. When I was working at Google we focused on onboarding as a KPI in People Operations because the number of new employees at Google was forecast to double within 18 months. That turned out to be true. It was imperative that we identified what the Google culture was and how this growth would impact it. One important consideration was acknowledging the stories about how the company was founded yet respecting that its norms, missions, and goals were constantly evolving.

Onboarding is a great way to teach your people about what matters within your organization. It is also a great way to learn about how your organization can evolve for the better and learn about the contributions of new employees to the organization’s future.

Onboarding check-backs are critical for long-term success.

Checkback refers to onboarding feedback. The data you receive about the employee experience will be invaluable. As you can see, there are big benefits to executing onboarding in a purposeful and planful manner. Yet even the best onboarding plans sometimes don’t turn out the way we hope. This is one reason why it is so important for all onboarding programs to include the sixth C of Check-back. 

The only way to know if your onboarding programs are working is to ask new employees. Schedule a check-back time with new employees even before they start, and be sure to let them know what you’ll be wanting to know. You should also survey managers and other stakeholders to assess what is working, what should be repeated for future newcomers, and what needs to be adjusted to ensure a world-class onboarding experience. The Check-back insights will help you benchmark results, find problems, and improve areas that need attention. These will support your business case to drive change in the organization and iterate and improve areas that need attention.

 

Sign up for our expert advice and free tools in our newsletter here.

This blog is an excerpt from a chapter in the upcoming book written by Talya Bauer Ph. D, and Amin Fard on employee onboarding. It comes with all the resources you need to revamp your employee onboarding from the ground up.