the true cost of poor onboarding: unveiling the hidden expenses.

For an employee starting at a new workplace, effective onboarding is essential for creating a good first impression, giving them confidence in their new role, and integrating them into their team. For the employer, it’s a sensitive period that influences the employee’s long-term career at the company — and significantly impacts the company’s costs.

The personal issues created by poor onboarding can be seriously challenging for a new hire. Most HR experts are aware of this, but in this article, we’ll look at the less-obvious effects of an ineffective onboarding process on the company’s bottom line.

the benefits of onboarding — when done properly

Team dynamics and morale is one of the main reasons why onboarding is important — both for the new hire and the colleagues they work with. But from an HR perspective, one of the most compelling reasons to invest in great onboarding is increased employee retention.

Following employee onboarding best practices helps keep new hires at the company for longer. As reported by the Society for HR Management (SHRM), 69% of employees are more likely to reach the three-year mark at their company if they’ve been onboarded well. 

As we’ll see later in the article, from a cost perspective, the biggest benefit of a well-designed onboarding process is lower employee turnover — which gives the company more time to get a return on the investment it made during hiring.

the cost of poor onboarding

If good onboarding increases retention, it’s logical that bad onboarding increases employee turnover rates. Put yourself in the shoes of a new hire — if you arrive at your new workplace and don’t receive enough support, don’t get the tools you need to do a good job, and don’t get a chance to integrate into the culture, you probably won’t want to give the company years of faithful service.

High employee turnover has always been a painful cost for companies of all sizes, but it’s especially problematic now that qualified talent is so difficult to hire. In a time when over 65% of European small and medium-sized enterprisess say hiring skilled workers is one of their most serious challenges, your company can’t afford to wave goodbye to talented new hires after only six months.

The changing generational preferences of the workforce are making retention even more important. A 2023 Gallup poll, for example, found that 21% of millennial workers had changed jobs in the last year — a rate three times higher than the average for other age groups. Generation Z also appear to be more likely than other age groups to pick and choose employers, and more willing to quit — for example, our own Workmonitor survey found almost half of Generation Z workers would not accept a job from a company that didn’t share their social and environmental values. 

In this workforce environment, employers need to be taking every measure they can to boost retention — and onboarding is a great place to start. The cost of onboarding a new employee can be significant, but it’s low compared to these turnover-related costs:

hiring costs

HR professionals know just how much it can cost to hire new employees. When you consider only the combined costs of creating a job description and job posting, job board fees and potential recruitment agency fees, even generous budgets can be stretched. SHRM benchmarks the cost of hiring a new employee at $4,700 — but some employers report costs stretching even further for some roles, reaching three or four times the new employee’s annual salary.

This cost can be reclaimed once the new hire gets up to speed and starts making a real contribution to the company. But if a poor onboarding causes them to quit early, the money is wasted — and the company faces making the same investment again to hire a replacement. 

training costs

Onboarding is about more than just organizing a welcome gathering and giving some presentations about company policies. At some point, the new hire needs to be trained in their new responsibilities and the tools and equipment they need to handle them. Depending on the role, these costs can quickly escalate. According to training organization ATD, companies spend an average of $1,252 per employee on training annually. However, this is the average cost of all employees, including those who are already established in their role — so the cost of training a new employee from scratch will be much higher.

Once again, if the new hire leaves the company early, the financial and time investment of training them is wasted — so setting them up for a long and successful employment with solid onboarding is key. 

lost productivity

No matter how talented a new hire is, it’s always going to take time before they reach their full potential. Just how long it takes is hard to say — the ‘time to productivity’ metric depends on the role’s complexity and employee’s capability. According to research quoted in MIT Sloane Business Review, time to productivity can be as short as eight weeks for simpler clerical roles, to six months for senior managers. 

Regardless of the length of this period, if an employee quits before they reach a high level of productivity, the company gets nothing in return for the investment it made in hiring and training them. Here, we again see the potential of good onboarding to cut time to productivity and reduce costs by boosting retention. 

find out how much you can save with improved onboarding for new hires

So far, we’ve only seen benchmark figures for the hidden costs of poor onboarding. If you want to estimate how much it could be costing your company, download our onboarding cost calculator.

Just enter a few figures about your current number of staff, turnover rate and time to productivity, and we’ll show how much your onboarding may be impacting your hiring, training and productivity costs. By changing your turnover rate in the calculator, you’ll quickly see just how much money you can save with minor improvements to the onboarding process.