A guide to employee onboarding costs
Quick insights
- The cost of onboarding a new employee usually includes recruiting, training, employee benefits and time spent by current staff to assist the new employee.
- Factors like location, industry and job role can influence employee onboarding costs.
- Onboarding software can potentially help reduce manual work, cut costs and improve the experience for both employers and employees.
Hiring new talent is an investment, but it often comes with hidden expenses that can add up quickly. Understanding the cost of onboarding a new employee helps small business owners and human resources managers budget effectively and streamline their hiring process.
This article breaks down common expenses involved in onboarding new employees, how to calculate onboarding costs when hiring and ways you could potentially save money during the process.
How much does it cost to hire and onboard a new employee?
The average onboarding cost varies depending on industry, company size and job role. But it is common for onboarding costs to be in the thousands of dollars per new hire.
Factors that affect and contribute to the cost include recruitment expenses, training and orientation, payroll, benefits setup and technology and equipment, to name a few. There also could be additional industry-specific costs that you’ll need to factor in.
Common onboarding costs
Several categories make up the total onboarding cost. A few common onboarding costs regardless of industry or role include:
- Recruitment costs: This category often includes advertising open positions, background checks, recruitment agency fees and interviewing costs.
- Training and development: Companies will often spend time and resources introducing new hires to company policies, systems and their role. Costs here may also include training materials, courses and coaching sessions.
- Administrative costs: You may want to include administrative time for enrolling new employees in payroll, health insurance, benefits, retirement plans and compliance documentation when surveying onboarding costs.
- Equipment and workspace: Purchasing computers, software licenses and other supplies needed for the job are also common onboarding costs.
- Employee compensation: During onboarding, new hires and managers may be less productive than usual, which can impact operations. You may want to account for lost productivity during orientation and ramp-up as new hires get up to speed.
When examining onboarding costs, it can be helpful to consider when these expenses occur. Some expenses will happen before the employee joins—like recruitment and securing technology—while others happen on the first day or within the first month of employment. Noting when they typically occur may help you better plan for onboarding costs.
How to calculate hiring and onboarding costs
Calculating the average onboarding cost involves more than just adding receipts. You may want to begin by listing every step in your hiring and onboarding process. That includes costs associated with recruitment, background checks, technology and even the loss of productivity as managers and other employees step away from work tasks to assist with onboarding. Once you’ve assigned a dollar amount to the tasks within your onboarding process, you can add them up to get a rough idea of what it costs to onboard an employee.
You may even want to have estimates for different roles within your company. Chances are an employee starting at an entry-level position will have fewer recruiting and onboarding costs than someone who will be occupying a C-suite position.
If your company hires and onboards employees across the U.S., or even worldwide, you may want to consider how location affects onboarding costs when doing these calculations.
Ways you can save time and money during employee onboarding
While onboarding a new employee can be an investment, there are some things small business owners can do to potentially save time and money during the process. One option is to invest in onboarding software.
Onboarding software is an upfront investment, but it may cut down on time spent on manual tasks with the following features:
- Automated paperwork: Digital onboarding may reduce manual data entry, which can save time and minimize errors.
- Self-service portals: In self-service portals, new hires can complete forms, review policies and access training modules independently, which can aid in speeding up the onboarding process.
- Task tracking: Task tracking software may be helpful in ensuring no steps in the onboarding process are missed. This type of software may help businesses stay compliant and organized.
- Integrated benefits enrollment: Some digital onboarding platforms can connect directly to benefits providers, potentially reducing administrative workload.
- Analytics and reporting: With analytics and reporting software, managers can track progress, identify bottlenecks and optimize onboarding over time by digging into the data.
In addition to saving time with onboarding software, business owners can also consider using a small business credit card for any purchases associated with onboarding. Many small business credit cards allow cardmembers to earn rewards (like cash back) on business-related purchases. This can add up over time to help businesses recoup some of the costs of onboarding.
Why onboarding a new employee matters
Effective onboarding goes beyond paperwork. It can lay the groundwork for employee engagement and retention. A solid, thoughtful onboarding process can help new hires feel welcomed, understand expectations and become productive contributors of your organization. Not to mention, onboarding also can help to reduce turnover, enhance company culture and support compliance.
In summary
The average cost to onboard a new employee can be a significant investment—likely in the thousands of dollars—but understanding and optimizing each step can help reduce expenses and improve outcomes. Common onboarding costs are associated with advertising and recruitment, training, administrative costs and equipment. Factors like location, job role and industry can affect how much a company spends onboarding employees.
By understanding recruitment, training and administrative costs—and leveraging onboarding software—small businesses and HR managers can streamline the process and support new hires’ success.
