What is the Cost to Train Vs. Hire a New Employee?

According to a study by U.C. Berkeley, it costs an average of $4,000 above salary and wages to hire a new employee. That cost rises to $7,000 when it comes to replacing management-level employees and professionals. But here is an important question: does it cost more to hire a new employee, or to train an existing employee? The answer: it depends. We'll cover some of the costs associated with both new hires and investment in employee training, and how it may affect your workplace.

A Better Leader is proud to offer consistent leadership training for your workplace, that promotes a strong culture and engages leaders who embrace it. While we are excited to be able to provide this solution for employers, we feel you should be educated on both sides of the matter. Understandably, online training for your employees may or may not be the solution you need. Let's dive into some of the different costs associated with onboarding a new hire vs. training an existing one.

The Cost To Train

We've already shared the cost you can expect to pay for leadership training. Of course, not all leadership training is alike, and therefore the costs will vary, depending on the format. According to the Association for Talent Development, a 2016 report found that the average cost to train an employee is $1,252. That simply includes the cost and not the time spent. The same survey found that the time necessary for training each employee is around 33.5 hours. It's essential to take this into consideration. Other studies show slightly different statistics, as it varies from year to year.

It's important to note that there are a lot of potential hidden costs that go into training. The upfront costs are simply the beginning and are an average for many companies with around 100 employees. Things like necessary training materials, the cost of a mentor (if you are implementing in-person training), and equipment, are factors to consider. 

Is The Cost to Train Worth Your Investment?

The cost of training has to do with a whole lot more than just the price tag. What does your workplace culture look like? Do you want to foster a strong sense of employee engagement and cultivate leaders who embrace it? Do you have a small team that takes a long time to train, but the thought of onboarding a new employee is overwhelming? Consider what makes your organization unique, and what is important to you and your company values.

Consider this fact: Millennials make up the majority of today's workplace. And a Gallup study found that 87% of millennials rate "professional or career growth and development opportunities" as important to them in a job. (This is far greater than the 69% of non-millennials who say the same.) 

If your employees feel valued, and feel that their professional development is being taken seriously, they are more likely to stay and grow with your company. A 2018 LinkedIn Learning survey showed that 94% of employees would remain in their careers longer if it invested in the employees' development. 

The Cost To Hire New Employees

Not only is the hiring process complex and time-consuming, but it also takes time, patience, and as we've discussed: money. Yes, the cost will vary depending on the size of your organization, your industry, and your hiring needs. It's difficult to narrow down a specific dollar amount, but we will share some of the statistics and research shared in recent years that will give you some insight and a general guideline. 

For starters, a 2016 study by the Society for Human Resource Management shared that the average cost per employee hire is $4,129, and the average time it takes to fill a given position is 42 days. Additionally, SHRM published further research on retaining employee talent, and shared the following in regard to directly replacing an employee: 

"Research suggests that direct replacement costs can reach as high as 50%-60% of an employee's annual salary, with total costs associated with turnover ranging from 90% to 200% ofannual salary. Examples include turnover costs of $102,000 for a journeyman machinist, $133,000 for an HR manager at an automotive manufacturer, and $150,000 for an accounting professional. If these estimates strike you as high, keep in mind that in addition to the obvious direct costs associated with turnover (such as accrued paid time off and replacement expenses), there are numerous other costs."

Taking these figures into consideration, it becomes apparent: it is typically much more cost-effective to train and retain your current talent than it is to replace an employee. While it may take time to develop your workforce, the return on your investment in training will likely show better long-term results. Between employees staying longer because they're feeling valued, and the majority of today's workforce stating how important career development is to them, you set your organization up to become an employer of choice.

The Bottom Line

Essentially, training your employees can help them stay engaged and eager to learn and develop. According to a Gallup poll, actively disengaged employees cause U.S. companies between $450 – $550 billion in lost productivity per year. When you take into consideration the upfront cost of training and the potential costs that come into play with the absence of training, it becomes quite clear. Poorly trained employees can result in a lack of engagement, lack of productivity, and, therefore, ultimately an increase in spending on employee onboarding after the disengaged employees leave when no time was spent on their career development.

Be Proactive

Of course, you cannot control the actions of every employee. Despite best efforts, it's always possible that you may have to replace lost employees and onboard new hires. At A Better Leader, our goal is to offer consistent online leadership training that helps you connect with your workforce and improve retention rates and employee satisfaction. Engaging employees is the key to a positive culture and ultimately, a strong workforce that grows along with your company. We'd love to help you implement training that enables you to improve company culture and better serve your customers.