Vervoe logo

9 min read

The Real Cost Of Training A New Hire

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. 

Training a new hire is more expensive than you think 

So how much does it cost to hire a new employee in 2023? Well, that all depends on the role, your industry, and the candidate’s level of experience. Regardless, the total cost of hiring a new team member can be surprising if you’re new to the hiring process. 

While the average cost of hiring an employee is around $4,700 in the United States, keep in mind that this is only a median figure, with highly-skilled employees or executive roles costing up to triple this amount to fully onboard. As a general rule, adding benefits to an employee’s base salary can also see their wages blow out by 40%. 

According to Roxanne Calder, founder of Sydney-based recruitment agency EST10, failing to properly calculate these costs can not only break the budget but reduces your chances of unearthing top talent — and retaining them. 

“The cost of hiring includes much more than the salary and statutory costs. Apart from the new hire’s wages, factor in training at approximately 1.5% of salary, equipment, office space, and onboarding, and you are close to the actual cost to hire. The secret is to build retention into your recruitment strategy, and your costs are reduced significantly.”

The actual cost of hiring new employees in the us
If your organization is in the market to replace a highly-skilled or executive level role, expect your hiring costs to blow out by as much as triple the median figure.

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?

Recruitment strategy 

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. 

Advertising the position 

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 checks 

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.

New equipment 

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-the-job training 

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. 

5 costs to consider when hiring a new employee
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.

Cost of employee attrition in the usa and why hiring selection is so important
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.

Why skills testing is the secret to reducing training costs 

No matter how much data you collect, how many wellness programs you introduce, or even how much you pay in salaries, your organization won’t improve retention and turnover unless you address the hiring practices that are setting you up with the wrong candidates. 

According to LinkedIn, employees without a traditional four-year degree stay at companies 34% longer than those with such a degree, making them ideal choices for companies looking to boost retention and reduce the cost of training a new hire to replace them. 

Unfortunately, it’s these types of applicants who are often overlooked by traditional recruitment tools like resume screening. As a data-driven alternative, skills-based hiring is the practice of screening and hiring new employees based on the skills, capabilities, and talent they bring to the table — rather than their educational backgrounds or degrees. 

Considering that an estimated 70 million people across the United States are “skilled through alternative routes” outside of universities, skills-based hiring encourages the philosophy of continuous learning, and aims to give the same opportunities to people who possess and maintain self-taught skills. 

Therefore, it shouldn’t come as a surprise to learn that candidates would rather be judged on what they can do instead of how they interview or what their resume says, with 74% of candidates looking for opportunities to present their knowledge and skills during the hiring process

In an era where the information gained from traditional college degrees quickly becomes irrelevant, this approach to recruitment not only unearths hidden talent but also helps to identify candidates that have embellished their resumes with skills that they may not even possess or be proficient in. 

Let’s also keep in mind that having the right skill set will not only encourage better quality hires but will also reduce the time it takes to onboard and train new employees.

Put simply, embracing skills-based hiring practices benefits both candidates and employers in a multitude of ways — and it all starts with using skills assessments in your recruitment process. 

How skills-based hiring reduces attrition costs
Want to reduce your employee attritions and spend less resources on training new staff? The solution is as simple as hiring the right people in the first place.

Never make another bad hire with Vervoe 

What if we told you that there was a way to reduce attrition, make better hiring decisions, remove human bias, and use fully compliant AI ranking to help you elevate your recruitment process in a way that benefits both candidates and employers alike?

 Vervoe is an end-to-end AI-powered solution that is proudly revolutionizing the hiring process through skills testing, job simulations, and machine learning recruitment. We create tailored skills assessments designed to suit the specific requirements of a role, and our platform predicts performance using job simulations that showcase the talent of every candidate.

By assessing an applicant’s ability to perform the role through a skills assessment, our skills assessments focus on the work — and not the person. To see people do the job before they get the job, book a demo today and let our experienced team run you through Vervoe’s full range of ready-made and tailored solutions. 

Angela Wallace

Angela Wallace

"Angie Wallace is a self-proclaimed word nerd, big thinker, and retired tourism wizard who believes in the art of reinvention every five years—a ritual she considers essential for all good millennials. With a career spanning various roles in the tourism and digital marketing sectors, Angie has amassed a wealth of experience and expertise. She began her journey as a General Manager at Sailing Whitsundays, where she honed her skills in e-commerce and general management over five years. Transitioning into the digital realm, Angie took on roles such as Content Writer at Content Hive, where she specialized in copywriting and marketing, and Content Specialist at Vervoe, focusing on marketing and search engine optimization. Outside of her professional endeavors, Angie is an avid caffeine enthusiast, a connoisseur of in-flight eye masks, and a fan of garage sales and Louis Theroux documentaries. And, occasionally, she indulges in the whimsy of writing about herself in the third person."

Similar articles you may be interested in​

When it comes to implementing skills-based hiring, there’s a clear gap between promise and practice. Although pre-employment skills assessments have

April 10, 2024

Companies have two primary goals during recruitment: Hire fast and hire right. However, with Business Process Outsourcing (BPO) hiring, achieving

March 26, 2024

Pre-employment screening is vital for organizations looking to hire talent with the required skills and personality for an open position.

March 14, 2024