Why is onboarding so important for new employees?
Employee turnover is common because people may look for better opportunities if their current position is not satisfying. To complicate matters further, the costs of onboarding a new employee run deeper than most leaders think. That's why it's essential to create an engaging and detailed onboarding process so that new hires gain a crystal-clear understanding of their job role and responsibilities while also being introduced to the company culture. This way they not only familiarize themselves with their new workplace, but they also get all the tools they need to succeed in their position. Good onboarding reduces retention by 82% and increases productivity by 70%. When team members feel welcomed into their new team, receive the mentorship they need, and receive ongoing feedback, they can improve their performance and fit into their new role.
How do you calculate onboarding costs?
The cost of onboarding a new employee can be high for many companies, so be prepared if you need to go through this phase. You can start by breaking your calculations into three phases: preboarding, onboarding, and the first month. Then you need to predict how many hours and how much money you will need to spend on each stage. For example, preboarding requires setting up the new employee's accounts and providing necessary equipment, including phones and computers. The administration must also prepare legal paperwork so that employees can sign on time. During onboardingManagers must train new employees and communicate closely with each other every step of the way. Therefore, they may need to work longer hours to fit these additional responsibilities into their schedules. During the first month of work, team members should explore their learning and development opportunities by participating in online courses. Additionally, managers should provide timely feedback, while leadership can hand out rewards to congratulate work well done.
The usual expenses for onboarding a new employee
According to one report, the average The cost to hire is almost $4,700, while companies spend approximately 42 weeks finding the best candidate. However, the cost of hiring a new employee and the cost of hiring staff are two separate things. Recruitment includes the money spent advertising your vacancy, the hours lost conducting interviews and the impact on the morale of HR professionals. On the other hand, onboarding involves training the new employee, 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 exceeds $1,000 per employee. Completing the onboarding paperwork itself can take up to 10 working hours, while employees can take anywhere from 8 to 26 weeks to reach full productivity. Keep in mind that costs vary depending on job level, while soft costs such as morale and lost productivity increase the longer it takes to find a new team member.
Factors that influence the amount of money onboarding requires
Company size and number of new employees
The cost of onboarding a new employee depends on the size of your company and the number of new members you add to the team. The larger the organization and the more new employees you hire annually, the more hours managers and HR professionals spend on training. New members should be introduced to the different departments so they can familiarize themselves with their roles. And the fewer people you hire and onboard each 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 reduce employee turnover.
Organizational design
If your employee turnover is skyrocketing and you are constantly looking for new employees, you need to take a closer look at your internal functions and organizational level. If you don't follow your standard operating procedures, chances are your staff won't know how to carry out their responsibilities. Or maybe they don't even have a clear idea of their role. Therefore, you should explain in detail what you expect from each employee and how he or she should perform their daily tasks.
Personal vs. Remote training
The cost of onboarding a new employee may 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 need to spend extra hours navigating new hires through company functions and culture, as communicating via video calls can often be challenging due to poor connectivity. On the other hand, personal training can also incur travel costs. Not only that, but a new work environment can 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 depends on your answer. Creating a new position means creating new documentation, purchasing workplace equipment and streamlining your process. A positive aspect is that you do not suffer from reduced productivity because the function did not previously exist. However, this is not the case with replacements, because you expect a new employee to successfully fill the gap. On the plus side, when it comes to replacement, you don't have to spend a lot of money on purchasing equipment since it is already in place. Not to mention that the previous employee probably documented his work so his replacement can pick up where he left off.
Adjustment time
You have found your ideal employee and you would like to see him get to work. But how long do they need before they become productive? If we talk about juniors, they may need more training and induction time, but usually they can master it within three months. On the contrary, it can take executives and VPs up to a year to become productive. That's because it takes time to review, adapt and implement changes to your business strategy. Their performance may be limited at first, but can skyrocket by the end of their first year if their tactics prove successful.
Equipment and credentials
One word that the administration of any company despises is bureaucracy. Still, your attorneys, HR managers, and finance department should prepare all necessary documentation, including tax and benefit paperwork, arbitration and non-disclosure agreements, and contracts. In addition, there are the costs of onboarding a new employee purchase software and courses they can complete where HR professionals can document the entire process. Without a standard and controlled procedure, onboarding costs can spiral out of control.
Conclusion
How long does it take for companies to see ROI after hiring and onboarding a new employee? During the first month you can expect 25% productivity, increasing to 50% around the fifth week of onboarding. In the best case, a new employee's productivity can reach 100% after the twelfth week. By the end of the first year, you can expect to reach a new employee's breakeven point, as their productivity contributes to an income close to the cost of their hiring and onboarding.