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.

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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.

lisa simpson GIF

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!

 

Get free cost of new hire onboarding spreadsheet

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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