While training a new hire can be challenging, it is an essential part of building a strong team and maintaining a successful business. Although the process requires patience, time, and effort, in the long run, it can be a rewarding experience for both the new hire and the company in question.
Unfortunately, many organizations misjudge the true cost of training a new hire and make the mistake of assuming that the primary expenditure is their agreed-upon salary.
In reality, calculating how much a new employee costs involves many other components — some of which might surprise even the most seasoned of human resources professionals.
Bringing a new employee onboard is an exciting time for any business. But it also requires a substantial investment of time and money to get that employee up to speed. Many employers only account for the obvious expenses like salary and benefits when budgeting for a new hire. However, the total cost to train a new employee goes far beyond that.
In this article, we’ll break down the major factors that contribute to the overall cost of training new hires. We’ll also provide tips on how to control these costs while still ensuring your new teammates receive the training they need to be productive and successful.
Direct Training Costs
The most obvious expenses associated with training new employees include
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Compensation This includes the new employee’s salary, benefits, and any bonuses or incentives paid out during the training period. Make sure to account for the full duration of training time, not just their first week on the job
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Training programs. Many companies invest in formal training programs or classes to teach new hires job-specific skills. These could be in-house programs developed by your training department, or external programs delivered by a third-party. Tuition, registration fees, materials, and travel should all be included.
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Onboarding resources. This covers any manuals, guides, checklists or other materials created or purchased to aid with onboarding. Online training modules or subscriptions to onboarding platforms should also be factored in.
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Trainer time. Add up the hours spent by supervisors, team leads, or peer mentors providing hands-on training and coaching to the new employee. Be sure to account for regular interactions over the full training period.
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HR administrative costs. HR staff will spend time orienting new hires to policies and procedures. They also handle paperwork and other administrative tasks associated with onboarding.
Indirect Training Expenses
Some costs of training are less obvious but still have a very real impact on your bottom line:
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Lost productivity. New hires will naturally be less productive during their initial training period as they learn systems, build skills, and acclimate to your organization. Estimate how much less their output will be versus a fully trained employee.
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Reduced team productivity. Even experienced employees spend time away from their regular work when providing training or mentoring to a new team member. Account for these hours of lost productivity.
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Mistakes and errors. New employees may make mistakes that result in defective products, customer refunds, or other costs. Try to estimate expenses associated with trainees getting up to speed.
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Turnover. If an employee leaves shortly after you invest in their training, those are essentially wasted expenses. High turnover can significantly impact your training budget.
How Long Does Training Take?
The duration of the training period greatly influences the overall cost of onboarding a new employee. The longer it takes to train someone, the more it will cost your organization both directly and through lost productivity.
According to a study by BambooHR, it takes an average of 8.4 months for a newly hired employee to reach full productivity. However, this varied significantly across different roles:
- Senior executives: 21.2 months
- Managers: 9.3 months
- Professional roles: 6.8 months
- Administrative roles: 5.8 months
- Entry-level roles: 1.9 months
The more complex the job and higher the skill level involved, the more investment of time is required for training.
Tips for Controlling Training Costs
While training costs are a necessary part of adding any new employee, there are ways to optimize your investment:
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Hire self-starters. Look for candidates who are quick learners, self-motivated, and comfortable working independently. They’ll likely ramp up faster.
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Prioritize retention. Avoid high turnover to prevent wasting training dollars. Foster a supportive work environment and growth opportunities.
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Train in batches. If possible, onboard new hires in groups to maximize trainer time across multiple trainees.
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Use blended learning. Combine self-paced online modules with in-person coaching. This reduces unproductive training hours.
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Document thoroughly. Create detailed manuals, FAQs, and onboarding checklists that trainees can reference independently.
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Automate where possible. Reduce repetitive trainer tasks through HR software, online knowledge bases, and other tools.
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Evaluate regularly. Assess new hires frequently. Refine your training program based on gaps identified.
While some investment will always be required, following best practices can help optimize your training spend. With an employee base fully trained and enabled to succeed, the long-term gains for your business can be immense.
5 factors that impact the cost of training a new hire
Regardless of the size or scale of your business, hiring a new employee should be approached as an investment. In turn, crunching the number prior to making such a commitment is a must. Aside from salaries, what costs should you consider before onboarding and training a new hire?
If you’re looking to enlist the services of an external recruitment partner, expect to pay a commission anywhere between 15-25% of the new hire’s salary. While their time, energy, and resources can prove to be game-changers when recruiting for executive positions, once your company grows to a certain size, paying a salary to your own dedicated HR professional is usually the preferred path.
If you’re doing your recruiting internally, you’ll need to market your vacancy. Job board fees are one of the most common costs to think about and vary wildly depending on which site you use. Fees are either charged per click, per job, or per month, so don’t forget to budget for this new employee cost, and do your research on which site is most likely to match you with the right types of talent.
Background screening checks are an increasingly important part of the hiring process, especially in the era of big data. While they help employers hire the right person for the job, they also offer a buffer from lawsuits and any negative impact on the workplace culture. Hiring managers check criminal databases, verify qualifications, and conduct reference checks, but be sure to budget for the time and expense.
What many people fail to factor in when they consider the cost of hiring an employee is the equipment they will need to get the job done. Depending on the nature of the role and the industry your organization operates in, new equipment to budget for can include essential technology like company phones, laptops, and even software licenses — which can quickly add up to thousands of dollars.
On average, a typical mid-level manager needs 6.2 months to become fully productive. In the meantime, companies should budget for a loss of productivity, wages for other staff who need to conduct employee onboarding, and on-the-job training for getting the new hire up to speed. While it might sound obvious, one of the easiest ways to reduce this cost is to hire people with relevant skills and experience. Aside from the new team member’s actual salary, what other key factors impact the final cost of training a new hire?
Employee attrition drives up the price of training a new hire
The cost of replacing an individual employee can range from one-half to two times the employee’s annual salary. Add a highly competitive and tight labor market to the mix, and most organizations probably can’t survive the loss of good people.
As such, there’s nothing that drives up the cost of training a new hire more than existing employees leaving. In fact, a 100-person organization with an average employee salary of $50,000 is likely to have turnover and replacement costs between $660,000 to $2.6 million USD per year — ouch, right?
Therefore, keeping this figure in check is directly tied to two key metrics: retention and attrition. A company’s employee retention rate measures the percentage of people who remain employed by a company over a specific period. In contrast, employee attrition is essentially the opposite, which measures the percentage of employees who leave the company.
Aside from reducing recruitment costs, good employee retention rates also help to boost morale, maintain a good customer experience, encourage productivity and innovation, and reduce overall costs.
Employees moving on is something that almost every organization can eventually expect, but the best way to retain employees is by making them feel valued and providing them with the opportunity for growth within your organization.
Ultimately, reducing employee attrition and the associated hiring costs is as simple as hiring the right people for the right roles – unfortunately, this is often easier said than done.
Traditional recruitment methods like resuming screening and psychometric testing are designed to rank candidates based on how they present on paper, but this information rarely ever predicts performance.
For organizations ready to take a different approach and futureproof their recruitment process, a data driven alternative is to embrace skills-based hiring practices. There’s nothing that drives up the cost of training a new hire more than existing employees leaving – which is why organizations need to pay attention to their attrition levels if they want to reduce this sizeable expense.
How Much Does a New Employee Actually Cost You
How much does training a new employee cost?
With that in mind, here are some useful statistics on the cost of training employees, the cost of turnover, and more – all help to determine your organization’s average cost to onboarding a new employee: The average training cost per employee is $1,296 based on ATD Research’s State of the Industry report in 2018.
How much do companies spend on training employees?
On average, companies spent $1,111 per employee on training employees in 2020, compared to $1,286 per employee in 2019. Mid-size companies reported the least training expenses per employee of $581 in comparison to enterprise ($924) and small business ($1,678) companies. Now money isn’t the only resource you spend on training employees.
What are training costs?
Training costs include the actual materials created or utilized for training and time spent in each training module or conference. This is calculated into the total because every moment an employee spends in training is time away from their job.
Are there hidden costs of training new employees?
There can be hidden costs of training new employees that business owners should watch out for. These include the costs of instruction materials, equipment and time for formal training, and the cost of a mentor’s time, if a mentoring system is in place.
