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The true cost of employee on-boarding

​The actual price of losing staff prematurely, is considerably higher and more significant than what you might expect.

In case you flunked out in high-school maths, or simply want a simplistic method to compute the cost of losing a team member, don’t stress, we've got you covered. Here’s a fast lesson to effectively calculate the real expenses of on-boarding a new worker.

Step 1: Add up the direct costs of on-boarding a new member of staff.

This is the easy part. Include everything involved, from making the decision to employ them, through to the end of their probationary period. Grab a sheet of paper and jot down the estimated price of every action during this time period. It might help to break this down into an hourly amount or average.

Here’s a summary of commonly accounted direct costs to get you started:

  1. Place review

  2. Marketing and advertising expenses

  3. Recruitment agency fees

  4. Cost of interviews

  5. Psychometric profiling

  6. Aptitude testing

  7. Reference checking

  8. Government

  9. Letters of offer

  10. Employment contracts

  11. Labour expenses of recruiting staff

  12. Induction expenses

  13. Training and development costs

  14. Salary of the brand-new employee during this time-frame

Plus, more. It soon adds up.

Step 2: Now add up the indirect expenses of worker on-boarding.

All these are the 'hidden' costs involved that are frequently overlooked or not considered whatsoever.

1. Lost productivity for your position:

Here we’re referring to the lost productivity from the actual role that would normally be performed, during the on-boarding process.. We must factor in the missed opportunity and reduced profits whilst the position is empty, and during the time it takes the new recruit to come up to speed with their daily tasks, output and responsibilities.

2. Lost productivity for hiring personnel

Here we’re referring to the lost productivity from time spent on recruiting/on-boarding/up-skilling the new workers or taking on additional responsibilities while the position is vacant. Include the hiring manager's and human resource representative's time at the absolute minimum. Normally there is lost productivity from a much wider team as they accommodate a new workers welcome period or experience operating with a team member less.

3. Lost opportunity
For example, this could include missed sales opportunity, reduced operation, and reduced output.

4. Impact on team engagement and reduced team morale. Disturbances in the workforce can affect the wider teams culture.

Therefore the formula equates to: direct costs + indirect costs = total price on-boarding

Based on these findings, each time you bring a fresh recruit onboard, you could be looking at investing around $100,000 from the hiring process to the end of their probation period.

The dangers identified during this particular investment need to be carefully managed, but most organisations don’t do that efficiently.

In addition, you must add any financial loss for the replacement costs of hiring another employee, and be conscious of your own employee attrition rates within this 12-18 month period.

Direct recruitment costs + indirect recruitment costs = total expense of recruitment

Total costs/ average weekly profit per person = amount of weeks to reach a return on investment (ROI)

It’s important that you understand whenever your company achieves a break-even on your on-boarding investment. Every day after this signifies a return on your investment. Any worker who leaves your company prior to this time, equates to a financial loss for your business, should you discover that break even is at the 12 month stage.