Calculate the ROI of Employee Onboarding Software

Need to make a compelling case for onboarding software to senior management? Read on!

Making sweeping changes to your employee onboarding process (or perhaps enacting a documented process in the first place) isn’t easy or free. In fact, developing and maintaining a sound and effective onboarding experience for your newly hired employees can be quite labor-intensive for both human resources staff and other process stakeholders in your organization. The employees (yourself included I’m guessing) charged with acclimating new hires into the business could very well be working on other projects that help the organization drive revenue, reduce costs, or both.

As a result, it’s an uphill battle for HR professionals to get senior management to view the effort required for onboarding process improvement, including employee onboarding software implementation, to be anything more than a fruitless overhead cost to the organization. However, employers of choice make it a priority to assess the impact of employee onboarding efforts on business outcomes; thus, making it clear whether there is a business case for ongoing process improvement.

In this blog, I’ll focus on how to calculate the ROI of employee onboarding software so you may demonstrate the value of this tool for easing the burden of the more tactical and administrative aspects of employee onboarding. Please note that the cost estimates that follow for each hiring scenario are quite conservative and may very well be greater for your own organization.

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Calculate employee onboarding administrative costs for SMBs

Even within the SMB space, there can be a great deal of variation in the number of employees hired annually from one organization to another. So, we’ll look at two different companies and calculate the ROI of using employee onboarding software for each. We’ll say that Small Company hires 50 employees annually, and Medium Company hires 250 people per year.

What are the hard costs of preparing new employee paperwork?

I’ll calculate an average of $10 per hire for costs related to the following items:

paper and printer ink for: new hire forms; employee handbook; policy acknowledgments; and, branded company folder to present items
shipping new hire packets to employee homes and/or other office locations (particularly if HR is centralized in corporate office) – this cost will increase if you send your packets via certified mail

Small Company: Calculate the annual hard costs for Small Company ($10 x 50 employees = $500).

Medium Company: Its annual hard costs come to $2,500 ($10 x 250 employees = $2,500).

How many human resource labor hours does it take to assemble, route and approve new employee paperwork?

Let’s assume this comes to 2 hours per new hire regardless of company size. That figure includes the time spent to:

print forms and policy acknowledgments;
assemble and ship new hire packet;
initiate (and often follow-up on) requests to IT, those who provision equipment, payroll and other affected departments;
double check submitted employment paperwork to ensure legibility and completion;
countersign employment forms; and,
file paperwork with employment records

Now consider the time saved when onboarding software is introduced to the equation. Because so many of these tactical responsibilities can then be automated and handled much more quickly and easily, assume that only 15 minutes (or .25 of 1 hour) is required per hire to execute the above items when using software. That’s a savings of 1.75 hours per hire per year.

Small Company: If it hires 50 employees per year, calculate the labor hours saved (50 x 1.75 = 87.5 hours).

Medium Company: Since it hires 250 employees per year, it could save 437.5 man hours per year with onboarding software (250 x 1.75 = 437.5).

How do saved staff hours translate to saved labor costs?

Small Company: Let’s assume it has only a couple of people in the HR department – perhaps an HR Manager and a Generalist. Jim the Generalist is the most likely staff member tasked with fulfilling these administrative duties, and his salary is $45,000. Divide his salary by 2,000 (hours worked in a year assuming a 40-hour work week and 2 weeks worth of vacation) to get his hourly rate. For Jim, that’s $22.50. Multiply his hourly rate by the number of hours saved annually to calculate Small Company’s saved HR labor costs ($22.50 x 87.5 = approx. $1,969)

Medium Company: Since Medium Company is larger than Small Company and hires about 250 employees per year, we can assume that its human resources department is larger and that it has an entry-level HR Assistant to handle the administrative tasks. Anna the HR Assistant has a salary of $32,000. Therefore, her hourly rate can be calculated as $16 ($32,000 / 2,000 = $16). Consequently, we can estimate that Medium Company would save $7,000 in annual HR labor costs ($16 x 437.5 = $7,000).

In both scenarios, consider how the hours saved on administrative minutia can now be applied to more strategic aspects of the employee onboarding process…the items that Jim and Anna never had time to address before…the tasks that really help engage new hires and better equip them to be productive sooner.

How long does it take a new employee to complete new hire paperwork by hand?

Let’s say this comes to 1 hour per new hire in both of our company examples. Consider the many different types of forms and documents that need to be completed by new hires — many of which require the same fields of information to be written over and over again:

federal I-9 form / e-Verify
federal W-4 tax withholding form
state tax withholding form
background and drug testing authorization form
direct deposit authorization form
building access card request form
emergency contact form
employee handbook acknowledgement form
sexual harassment and workplace violence policy acknowledgement forms
uniform order forms / technology order forms
continuing education program enrollment form
non-compete and/or non-disclosure agreement
personal information form

When the new hire is able to access a web-based employee dashboard via an onboarding software application, he enjoys the benefit of answering questions only once before they are automatically populated to various electronic documents and presented to him for his approval and electronic signature. Not only does this improve his perception of your organization’s professionalism, but it cuts down the hour he would have otherwise spent completing paperwork by hand to only 15 minutes. We’ll take that savings of 45 minutes (or 0.75 hours) per hire per year!

Small Company: Calculate new hire labor hours saved (50 x 0.75 = 37.5 hours).

Medium Company: For Medium Company, that amounts to 187.5 new hire hours saved (250 x 0.75 = 187.5).

How do new hire saved hours translate to saved labor costs?

Small Company: To be conservative, let’s say that the average new hire salary is $35,000/year). That’s a new hire hourly rate of $17.50. Multiply this hourly rate by the number of hours saved annually to calculate Small Company’s saved new hire labor costs ($17.50 x 37.5 = approx. $656).

Medium Company: We’ll use the same hourly rate for Medium Company to keep things simple. Medium Company would save $3,281 in annual new hire labor costs ($17.5 x 187.5 = approx. $3,281)!

What can you expect to pay for ongoing access fees for onboarding software?

While the exact cost an organization pays for onboarding software access fees will be determined by both the number of annual hires as well as the number and complexity of forms used during the onboarding process, the below examples paint an accurate picture of what the average organization with the same specs as our sample organizations would pay ExactHire.

Small Company: Since it hires 50 employees annually, it can expect to pay around $1,800/year in access fees.

Now, add up the total savings Small Company can expect as the result of using employee onboarding software:

TYPE OF COST
Paperwork Hard Costs Saved
HR Labor Hour Costs Saved
New Hire Labor Hour Costs Saved
TOTAL COSTS SAVED
Onboarding Software Access Fees Spent
ROI

Small Company
$500
$1,969
$656
$3,125
($1,800)
174%

That comes to an attractive return on investment (ROI) of 174% (($3,125 / $1,800) x 100 = approx. 174%)…suggesting that onboarding software will save Small Company money and make life easier for both new hires and staff. Moreso, it frees up labor hours so that they can be allocated to the activities that will really take an organization’s employee onboarding process to the next level (i.e. mentoring, training university development, KPI benchmarking and analysis, employee recognition, new hire feedback sessions and the list goes on).

Medium Company: With 250 new hires annually, it will pay around $3,150 per year. Now, consider the total savings anticipated from using onboarding software:

TYPE OF COST
Paperwork Hard Costs Saved
HR Labor Hour Costs Saved
New Hire Labor Hour Costs Saved
TOTAL COSTS SAVED
Onboarding Software Access Fees Spent
ROI

Medium Company
$2,500
$7,000
$3,281
$12,781
($3,150)
406%

While the ROI for Small Company was already encouraging, the ROI for Medium Company is a whopping 406% (($12,781 / $3,150) x 100 = approx. 406%)! That’s a number that CFOs and CEOs can’t ignore.

Other employee onboarding costs are subjective

If your organization is an SMB, then it is even more likely that you will need to make a compelling business case to senior management if you are going to get employee onboarding software approved. The aforementioned ROI examples should help your cause, but that doesn’t mean organizations that hire even fewer employees per year should discount the positive financial impact of onboarding software. While the ROI calculated from hard administrative costs may not initially appear to be as much of a slam dunk as in our two examples (if you’re hiring fewer people), don’t forget to consider the impact of employee onboarding technology on your onboarding process as a whole. What other more subjective items can be eliminated or reduced as the result of using software? Don’t forget about the time it takes (and related opportunity cost) to:

prompt hiring managers and other HR staff to log in to approve documents that are assigned to them (because there’s always someone that needs to be reminded to follow through)…software will send email reminders to employees with items that are due soon and overdue
prompt new hires to complete paperwork that may extend beyond the first initial days of employment…software will send these reminders, too
manually look up which onboarding process stakeholders are responsible for which department’s or division’s new hire forms and equipment provisioning tasks…software automatically knows which admin users should be assigned tasks for new hires depending on role level, location, business unit, etc.
ensure that existing employees (both new hires and veterans) have an easy means to approve policy updates…software isn’t only for new hires
cultivate a strong employment brand…software is attractively customized to match your company brand, and its ease of use offers new hires a positive user experience
keep track of which employees have completed certain training prerequisites so that they can be manually invited to more advanced training sessions…software has a task hierarchy that allows notifications to be presented to the new hire only after the new hire has already completed prerequisite tasks
remember to prepare and administer an employee satisfaction survey at a significant date milestone beyond a new hire’s start date…software can send automatic notifications for you at the right time

Even for SMBs, the return on investment for employee onboarding software can be significant. It may be worth your organization’s time to explore it. For more information about ExactHire’s hiring software solutions, please try our pricing estimator tool, visit our resources page or contact us today.

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