What is the Average Cost of Hiring a New Employee?

Onboarding sets the stage for your company’s relationship with a new employee. According to the Society for Human Resource Management (SHRM) Benchmarking Report, the average cost of hiring a new employee is $4,129. At first, this may seem like a high estimate. But it’s easy to accidentally omit key elements of the onboarding process and how those expenses rack up over time. Even taking a much more conservative estimate – for example, hiring 20 new employees per year at a rate of $500 per hire – still yields a considerable price of $10,000 in onboarding costs.

When the hiring process goes smoothly, it increases the likelihood that an individual will be a happy and productive member of your team. In one study, employees who felt the onboarding process went well were 18 times more likely to be highly committed to their organization. If you are committed to building a sustainable and productive culture, take the time to assess your current onboarding practices.

Advertising costs, fees paid to recruiters, drug screenings, employee relocation expenses, and the time your HR department spends on onboarding tasks are just a few possible expenses. Couple this with the cost of high turnover rates (when the wrong people are hired), and it’s a no-brainer: Hiring has a significant impact on your company’s financial health and company culture.

Identifying Cost of Hiring New Employees

SHRM recommends a simple formula for calculating your cost per hire for one year: total recruiting & onboarding costs divided by the total number of hires.

To fully assess the cost of a new hire, companies need to consider the recruitment process. Recruiting costs include job board fees, outside recruiter fees, time spent on interviews, and any other expenses accrued before filling a position.

Let’s consider onboarding costs as any expenses accrued after filling a position. This includes all of the money spent on getting an employee started in a new position. These may consist of training software, orientations, materials distributed, and more. A company may have a superb recruiting process, but a weak onboarding process – or vice versa. The goal is to have the entire process running cohesively. 

“A study by Corning Glass Works found that employees who attended a structured orientation program were 69 percent more likely to stay with the company for three years.” Knowing that a new hire’s first days heavily shape their perspective of your company and their position, a solid orientation is key. Having clearly laid out expectations prevents confusion and conflict down the line.

You might be tempted to stop calculating costs once a new hire is on the clock. But an often-overlooked factor is time wasted by new hires. This does not mean your new hire is a bad worker, or that it’s not worth taking the extra time to train them. But it’s important to remember that new hires need time to adjust before they reach the skill and productivity level of workers who’ve been with you longer. The time it takes for a new hire to get comfortable and reach a high level of competence is something leaders need to keep in mind. If high turnover rates are present, productivity can slump.

Streamline Your HR Department To Cut Hiring Costs

Streamline HR Processes To Cut Hiring Costs

From start to finish, you may find inefficiencies scattered throughout your onboarding process. One of the easiest ways to address this issue is by doing an automation audit. In other words, look for opportunities to automate HR processes. This will ensure your hiring department has more time to bring real value to their roles instead of being bogged down in paperwork and repetitive tasks. Many companies now offer online hiring forms that allow new employees to read handbooks, fill out forms, and sign contracts online rather than printing huge welcome packets. Most companies also are doing background checks for employment to be sure that they are hiring the right persons.

In addition to automating HR tasks, reducing turnover rates is crucial for building a strong workplace culture. Internal communication systems, work-life balance, advancement opportunities, chosen values, and benefits packages are just a few components that help create your employer brand. 

At Projections, our mission is to help you to become an employer of choice and eliminate wasted time, money, and energy on ineffective onboarding practices. With our 40 years of expertise, we’re here to support you in creating an engaged and united workforce.

About the Author Walter Orechwa

Walter is Projections’ CEO and the founder of UnionProof & A Better Leader. As the creator of Union Proof Certification, Walter provides expert advice, highly effective employee communication resources and ongoing learning opportunities for Human Resources and Labor Relations professionals.