Whenever we think about hiring a new employee, we tend to consider the recruitment costs (advertising the position, time spent interviewing and testing and so forth) along with the costs of getting the candidate started (training, orientation, provisioning of materials such as computers and furniture). As any HR person can tell you, these costs can quickly add up!
However, there’s one area that most organisations fail to fully consider – the cost of onboarding the employee. This often includes:
- Offer creation
- Sending out paperwork
- Time spent processing paperwork
- Materials cost for welcome packs and contracts
- Administration time
P.S: For inspiration on how to create an amazing new employee experience and automate back office admin, check-out our free new employee onboarding checklist.
How much does it cost to onboard a new employee?
For your average small to medium business onboarding 100 new employees each year, onboarding can cost upwards of $40,000 per year (or $400 per employee.) That’s just onboarding, not including recruitment or training costs.
Grab your calculator out and I’ll show you why the costs can be so high (and the easiest ways to reduce them!).
The Factors That Contribute To Onboarding Costs:
Number of Onboards
Ok, I’m sure you knew that this has an impact on your total onboarding costs, but when each new hire can cost you $400 in onboarding costs alone, reducing the number of employees hired each year is a guaranteed way to reduce HR expenditure.
Of course, an increasing number of positions within your organisation can be a great sign that the business is doing well. However, it’s vital you’re attracting the right candidates for your positions. If not, you’ll be paying to hire poorly-matched candidates, only to lose them once you or they realise the job’s really not suitable for them. 90% of businesses believe that employees make their decision to stay within their first year of employment.
Even reducing initial employee turnover by 10%, in our example of 100 onboards per year, could save you $4,000 in onboarding costs alone each year, not to mention cutting lost productivity time, recruitment costs and provisioning costs.
Size of your Offer Pack
How many pages do you need to print for each offer pack? Most Australian organisations with a manual process require about 40 pages, made up of contracts, tax forms, company policies and welcome information. Each page is costing you time and money to create, update and send.
Consider providing online offer packs to candidates. It’s faster, cheaper and more environmentally friendly. If you’re using employee onboarding software, you can even have employees ‘sign’ their contracts online.
Time spent preparing offers
Most of our customers found they’d spend around 2 hours preparing each offer when they were using a manual system. It will depend on the complexity of the role, but remember to include time spent sending orders, updating contracts and gathering the documentation.
To speed up this process, consider automating the offer creation step with dynamic contract templates or, again, using an online system to eliminate printing and mailing time.
How long is spent provisioning equipment, IT & furniture for the candidate?
Communicating with all the necessary teams to adequately provision a new candidate for their role can be a real headache for HR. It can also be costly due to the time it can take for the provisioning to actually happen.
Most organisations find about 2 hours are spent on average provisioning new hires with the tools they’ll require.
Try setting up clear processes for provisioning. Have a go-to person in each department responsible for getting whatever candidates will need. Again, if you can automate this process you’ll significantly reduce time delays and the chance of miscommunication.
Of course, any delays in provisioning will lead to lost productivity if the candidate isn’t ready to go on Day 1, so it’s important to consider…
The time (and cost) wasted by the candidate in their first week
Provisioning is a big contributor to this cost (how can a new employee get to work if they haven’t received their computer yet?), but the other factor here is all of the paperwork you’ve provided in your offer pack.
Many employees will wait to fill out a lot of these forms once they start work, which can take a long time if they don’t have all of the necessary documentation with them.
Ideally, you can get employees to complete paperwork before their offer is formally accepted, but it’s difficult process to enforce with physical documents. Requiring the forms to be submitted online can ensure everything has been completed and filed so the candidate is ready to go from Day 1.
The average employee takes about 4 days to get started in their new role. If their wage is $75,000 p.a., that’s about $1000 wasted. It can’t be stated strongly enough – make sure candidates are ready to go from Day 1!
The annual salary of the HR person
No, I wouldn’t recommend you suggest this is a good place to cut costs. Still, remember that if your salary is $75,000 per year, every hour you spend working is worth about $35. Your time is valuable! Don’t waste it on processes that could be automated. There are far more valuable ways for you to spend your time.
At this point, you can probably see where the $40,000 cost for 100 onboards comes from. However, your organisation may be slightly more (or less) efficient than the average. Get in touch with one of our onboarding specialists and find out how much automated, paperless employee onboarding software like HROnboard could save you each year.