Are you thinking of expanding your team and bringing in some fresh faces? Understanding the cost of onboarding new employees is important when planning for growth. While bringing new talent to the team is a great way to build your business, onboarding is a big job! One that takes considerable time, effort, and cost.
As experienced accountants working closely with numerous business owners, we’ve seen first-hand many underestimate the true investment required for hiring and onboarding procedures. In this article, we delve into the core expenses associated with these processes and explore the trust costs of hiring and onboarding employees:
Cost breakdown:
Direct recruitment costs: Consider the lengthy and costly process of filling a position, including candidate screening, background checks, interviews, HR team wages, and more. The average time to fill a position is lengthy and expensive. For example, the average cost-per-hire in the UK is £3,000 and takes around 30 days. Time that could be used for other vital HR functions such as payroll processing and employee engagement.
Marketing and advertising costs: Attracting the right talent requires strategic advertising, so crafting educational and persuasive job advertisements is essential. Then, you will need to reach a wide audience, which often requires a multi-platform approach, including social media.
When it comes to marketing positions, businesses must balance the effectiveness of recruiters and paid advertising services against free services, which may offer limited visibility and features, affecting the overall success of the recruitment efforts.
Compensation and benefits: Fair compensation is key to attracting quality candidates. According to the Office for National Statistics, as of March 2023, employers in the UK typically spend an average of £22.50 per hour on wages and an additional £10.10 on employee benefits.
These benefits, which can include private health insurance, pension schemes, and employee development programmes, might constitute up to 40% of an employee’s base salary, in addition to employer tax contributions.
Emotional and mental costs: The stress involved in recruiting, especially under resource constraints, can lead to significant emotional and mental health impacts on business owners and HR staff. This not only affects their wellbeing but also their productivity, which in turn can impact the recruitment process itself.
Costs from poor hiring decisions: Making a poor hiring decision can be extremely costly, potentially amounting to 1 to 5 times the salary of the intended position. These costs include the lost wages and benefits along with the additional costs associated with recruiting and training another employee.
Tip: How can you avoid the pitfalls of a poor hire? Work with an accountant to plan for your growth, as this includes talent management planning (i.e. getting the right people into your business just before they are needed rather than waiting until you desperately need them and having the recruitment process disrupt operations).
Onboarding and training costs: Onboarding new employees involves significant costs, too, averaging about £3,600 per employee. These costs cover everything from initial training and managerial oversight to administrative expenses such as setting up IT hardware and processing documentation.
What Factors Influence the Cost of Onboarding?
Organisational Structure
A structured organisation usually experiences a smoother onboarding process. Having well-documented roles and responsibilities reduces the time spent identifying who should train a new hire. However, if a company’s structure is unclear, HR professionals may find themselves juggling multiple departments, increasing the average cost of onboarding. Properly defining each position can help a business avoid duplicating tasks during employee onboarding.
In-Person vs. Remote Onboarding
Deciding whether to onboard new hires in person or virtually can shift overall costs. Remote onboarding may involve purchasing additional tools or creating extensive guides to help new employees get set up at home. Meanwhile, office-based onboarding can lead to higher administrative demands, including workspace preparation and possible relocation costs. According to the Society for Human Resource Management (SHRM), effective onboarding—whether in person or remote—relies on clear communication and well-structured training, both of which contribute to the final onboarding cost.
Company Size
Larger businesses often have more complex onboarding processes, requiring input from various teams and managers. This can lead to a higher cost per hire, simply because more people are involved in training and oversight. Smaller companies, though they have fewer formalities, may still encounter unexpected costs if they lack a standardised onboarding calculator or do not track the average cost per hire.
Number of People Involved in Onboarding
A key contributor to the overall cost of onboarding a new employee is how many individuals must participate. The IT department, office managers, finance personnel, and other stakeholders all invest time in the onboarding experience. Each person’s involvement can increase costs—from reviewing paperwork to creating training materials. Monitoring these inputs carefully helps calculate a more accurate average cost of onboarding.
Creating a New Role vs. Replacing an Employee
When a company introduces a brand-new position, it may avoid some productivity gaps since no one previously held the role. However, developing new documentation, purchasing equipment, and establishing procedures for this position can raise the total onboarding cost. Replacing an employee might minimise setup expenses, but it often brings higher costs linked to productivity loss. If the departing team member does not document workflows or processes, the hiring process and training period can stretch out, increasing the cost of onboarding a new hire.
New Employee Experience and Seniority Level
The cost of onboarding varies with experience. Junior staff generally need more hands-on guidance during the onboarding process, which can lengthen training and increase the overall onboarding cost. Senior-level hires may require fewer tutorials, but they often have higher salary and relocation requirements. According to data from HR professionals, ensuring each role has a tailored orientation plan can raise the odds of a smooth transition while helping manage onboarding expenses.
Time Needed for a New Hire to Get Up to Speed
Regardless of the role, it takes time for an employee to reach full productivity. Some roles demand a few weeks, while others need several months before new hires can work independently. This adaptation period adds to the cost per hire because current staff devote resources—like coaching or mentorship—to guide the onboarding experience. A simple HR calculator can help estimate how long it might take a newcomer to break even on productivity.
At BW Business Accountants & Advisers, we understand that navigating the complexities of recruitment and onboarding can be challenging, especially in today’s competitive market. To avoid unnecessary financial burdens, strategic planning and collaboration with an accountant can help streamline these processes effectively while ensuring the quality retention of talent within your company.
Not sure if hiring a new employee is for you? Explore your options in our previous post: Growing Your Team | Independent Contractor vs Employee
For further assistance, feel free to contact us for professional guidance on managing the cost of onboarding new employees effectively.