Average Cost of Onboarding a New Employee: What Small Businesses Really Pay

The average cost of onboarding a new employee is $4,100 according to SHRM. But that number includes enterprise companies with dedicated HR departments, formal training programs, and compliance requirements that most small businesses never face.

For small businesses with 5-50 employees, the real cost of onboarding a new employee ranges from $600 to $1,800 per hire. That is before you count the hidden costs that make up 60-70% of the total: lost productivity during ramp-up, manager time spent training, and the opportunity cost of doing it all yourself.

As a founder, I have onboarded dozens of employees across multiple companies I have built. The biggest surprise was always how much of the cost was invisible. The equipment and paperwork were easy to budget for. The three months of reduced productivity and the hours I spent answering questions instead of building the business? That was the real expense.

The Real Numbers for Small Businesses

Most articles about employee onboarding costs cite the same SHRM benchmark: $4,100 per hire. What they do not mention is that this figure averages companies of all sizes, from 10-person startups to Fortune 500 corporations with formal training academies.

Here is how onboarding cost per employee breaks down by company size:

The counterintuitive finding: small businesses often pay less per hire but get worse results. Without structured processes, onboarding becomes ad-hoc. New hires take longer to reach productivity, and turnover rates are higher. You save money upfront but pay more in the long run.

Onboarding Cost vs. Cost-Per-Hire: What is the Difference?

Before diving into specific numbers, let me clear up a common confusion. Many sources mix up onboarding cost and cost-per-hire, which are two different metrics with different timing and components.

The distinction matters because solving one does not solve the other. You can have an efficient recruiting process (low cost-per-hire) but still lose employees in the first 90 days because onboarding was neglected. I wrote a separate guide on the full cost of hiring a new employee if you want the complete picture from job posting to full productivity.

Direct Costs: The 30-40% You Can See

Direct costs are the expenses you can point to on a spreadsheet. They account for roughly 30-40% of total employee onboarding costs, and they are the easiest to budget for.

For a typical small business hiring a professional role, expect direct costs between $1,500 and $3,000. This includes:

• Laptop and monitors: $1,200-$2,000
• Software licenses (first year): $200-$500
• Administrative processing and paperwork: $300-$500
• Training materials or courses: $200-$500
• Welcome kit and supplies: $50-$150

Remote employees may cost less in physical equipment but more in software, home office stipends, and shipping. Budget an additional $200-$500 for remote-specific needs.

Hidden Costs: The 60-70% Nobody Talks About

Here is where most small business owners underestimate how much it costs to onboard an employee. The indirect costs, sometimes called soft costs, make up the majority of total onboarding expenses. They are harder to measure but impossible to avoid.

Lost Productivity During Ramp-Up

New hires operate at approximately 25% productivity during their first four weeks. For a $60,000 employee, that means you are paying $5,000 in salary during month one but getting $1,250 worth of output. The $3,750 gap is a real cost, even if it never shows up on an invoice.

Manager and Team Time

Someone has to train the new hire, answer their questions, review their work, and help them navigate company systems. In small businesses, that someone is usually you or your most productive employees. SHRM estimates managers spend 10+ hours per new hire on direct training and supervision. If your time is worth $75/hour (conservative for a founder), that is $750 in opportunity cost.

The Multiplier Effect

When your best people spend time training instead of producing, the cost compounds. A senior employee earning $80,000 who spends 20 hours helping a new hire costs $800 in direct time, but you also lose whatever they would have produced in those 20 hours.

Time to Full Productivity

How long does it take for a new employee to fully contribute? The answer determines how much of your onboarding investment you will recover, and when.

The average across all roles is about 26 weeks, or six months, to reach full productivity. That is six months of paying full salary while receiving partial output. For a $60,000 employee, the productivity gap over those six months can easily reach $15,000-$20,000.

This example shows why the cost of onboarding new employees is often 25-30% of the first-year salary. Higher complexity roles with longer ramp times can reach 40% or more.

The Cost of Skipping Proper Onboarding

Some founders look at these numbers and think: what if I just skip formal onboarding? Let them figure it out. Sink or swim.

The data is clear on what happens next.

Twenty percent of employees leave within the first 45 days. When they do, you lose everything you invested in hiring and onboarding them, plus you have to start over. Turnover costs range from 50% to 200% of the departing employee's salary, depending on their role and how quickly you can replace them.

The math is brutal: if you hire someone at $60,000, skip proper onboarding, and they leave after two months, you have lost $30,000-$120,000 when you factor in recruiting costs, onboarding costs, lost productivity, and the cost of starting over.

Companies with structured onboarding programs see dramatically different results:

The question is not whether to invest in onboarding. The question is whether to do it systematically or hope for the best. I built FirstHR specifically because I saw too many small businesses lose good people in the first 90 days due to disorganized onboarding. The cost of a simple system is nothing compared to the cost of preventable turnover.

How to Reduce Onboarding Costs

You cannot eliminate onboarding costs, but you can reduce them significantly while actually improving outcomes. Here are the approaches that work best for small businesses:

When Software Pays for Itself

The question I hear most often: do I need onboarding software, or can I do this myself?

For companies hiring 1-3 people per year, a well-organized Google Doc and calendar reminders can work. The cost of employee onboarding software (typically $5-15/employee/month) may not justify itself for occasional hires.

For companies hiring 5+ people per year, software typically pays for itself through:

• Time savings of 7-10 hours per hire in admin work
• Reduced errors and compliance risks
• Consistent experience that improves retention
• Visibility into what is working and what is not

Research shows that structured onboarding reduces costs by 60% over time compared to ad-hoc approaches. The upfront investment in systems, whether software or documented processes, pays dividends with every hire.

This is exactly why I built FirstHR: to give small businesses the structure of enterprise onboarding without the enterprise complexity or price tag. When you track what works, you can replicate it. When you automate the repetitive stuff, you free up time for the human connection that actually matters.

For a deeper look at what good onboarding actually looks like, see my guide on what makes a good onboarding experience. And if you want to track the metrics that predict whether onboarding is working, check out my article on onboarding KPIs.

Frequently Asked Questions

What is the average cost of onboarding a new employee?

According to SHRM, the average cost is $4,100 across all company sizes. Small businesses with under 100 employees typically spend $600-$1,800 per hire, while enterprise companies spend $3,000 or more. The variation depends on role complexity, training requirements, and whether you count hidden costs like lost productivity.

How much does it cost to onboard a new employee at a small business?

For small businesses with 5-50 employees, expect to spend $600-$1,800 in direct costs plus significant indirect costs. When you include lost productivity during ramp-up and manager time spent training, total onboarding cost per employee often reaches 20-30% of the first-year salary.

What is included in onboarding costs?

Direct costs include equipment, training materials, administrative processing, and welcome kits. Indirect costs include lost productivity during ramp-up (the largest component), manager time for training and supervision, HR administrative time, and team members helping the new hire get up to speed.

What is the difference between onboarding cost and cost per hire?

Cost per hire covers recruiting expenses from job posting to accepted offer (SHRM average: $4,700). Onboarding cost covers integration expenses from accepted offer to full productivity (SHRM average: $4,100). They are sequential costs, and both contribute to the total investment in a new employee.

How long does onboarding take?

Formal onboarding programs typically last 30-90 days. However, time to full productivity ranges from 8 weeks for entry-level roles to 6-12 months for senior positions. The average across all roles is about 26 weeks (6 months) to reach full productivity.

Is onboarding worth the investment for a small business?

Yes. Companies with structured onboarding see 82% better retention and 70% higher productivity. Since turnover costs 50-200% of an employee's salary, even a modest improvement in retention pays for onboarding investments many times over. The question is not whether to invest but how to invest efficiently.

How can I reduce employee onboarding costs?

Start pre-boarding before Day 1, create reusable checklists, implement a buddy system, and automate administrative tasks. Structured approaches reduce onboarding costs by up to 60% over time while actually improving outcomes. The key is consistency: doing the same thing for every hire rather than reinventing the process each time.

What are the hidden costs of onboarding?

Hidden or soft costs make up 60-70% of total onboarding expenses. They include lost productivity during ramp-up (new hires operate at 25% capacity initially), manager time for training and supervision (10+ hours per hire), team training time, and errors made by new employees learning systems.