Current Landscape

When considering a business’s costs of operations, people-related costs typically make up the majority of a company’s operating budget, with these expenses remaining significant in both booming and challenging times. 

During periods of growth and financial success, increasing headcount can seem like the go-to solution to alleviate pressure on growing teams. However, in tougher times, cutting costs becomes essential, and reducing headcount often offers the most impactful savings — evidenced by the widespread layoffs over the past few years.

Business expenses do not stop at employee salaries or benefits. Numerous people programs are required to run things smoothly, from manual pieces of administration carried out directly by team members to associated prices of software like an HRIS or required training.

Regardless of the economic climate, the data consistently highlights the crucial role that well-implemented people programs play in enhancing productivity, retention, and overall business outcomes. A meta-analysis conducted by Gallup this year that included over 3 million employees across more than 180,000 organizations and work units found that higher employee satisfaction is strongly correlated with increased productivity, lower turnover, and higher profitability.

However, while direct costs, such as salaries or software expenses, are immediately apparent, many indirect or hidden costs can easily be overlooked. Companies may not be calculating the true costs correctly, potentially leading to misallocation of resources or cuts in the wrong areas.

In addition, technologies that help scale people programs are often viewed as a significant expense rather than a strategic investment, despite compelling evidence to the contrary. People teams are frequently under-resourced to achieve their goals, leading to the manual management of programs like onboarding, employee engagement, learning and development, and eventually offboarding — an approach that often becomes the operational standard. 

By fully understanding the total cost of people-related expenses, stakeholders are better equipped to make informed decisions that align with both business needs and long-term goals.

3 Types of People Programs Costs

People program costs can be categorized into three groups: direct, indirect, and hidden costs. Let’s break these down.

1. Direct Costs

Direct costs are the easily quantifiable, planned expenses that get approved in an annual operating budget. These include things such as:

• Salaries and benefits: These are the most visible costs, including wages, health insurance, retirement contributions, and other employee benefits.
• Recruiting and onboarding: These are direct costs associated with attracting, hiring, and integrating new employees, including paid job postings or recruiting agency fees.
• Learning and  development: These are costs of professional development-related education and resources, such as workshops, online courses to enhance employee skills, coaches, required trainings for certifications, personal development stipends, and speaker fees.
• Software and other tooling: This can include tools such as an HRIS or applicant tracking system.

2. Indirect Costs

Indirect costs are time-based, frequently related to administrative tasks or change management that falls outside of a role’s primary responsibilities. While these indirect costs generally have some level of awareness, they aren’t commonly quantified or perceived as an expense.

• Productivity loss during onboarding: New employees take time to reach full productivity. The lag in productivity during this period represents a significant cost.
• Time investments for recruiting and onboarding: Recruiting and onboarding processes typically involve a higher time investment from team members alongside their typical work responsibilities.
• Time-based learning and development activities: Formal peer mentorship programs are based around regular meetings between team members, informal coaching, dedicated time for personal development
• Building and maintaining a culture of belonging: Time and resources spent on initiatives and programs designed to foster a sense of belonging and community within the organization can include employee resource groups (ERGs), team-building activities, and diversity, equity, and inclusion (DEI) programs.
• Manager time investment: Managers especially spend considerable time on admin-related tasks, from conducting interviews to mentoring new hires, which takes them away from their primary responsibilities.

3. Hidden Costs

Hidden costs are much more difficult to quantify and contributors to hidden costs frequently feel outside of our control. But there are proactive solutions that organizations can take to mitigate the impact of hidden cost contributors.

• Attrition and knowledge loss: Employee turnover results in the loss of institutional knowledge, which can be costly to replace. The process of rehiring and retraining also incurs additional costs. A Gallup analysis found that replacing exiting workers costs one-half to two times the employee’s annual salary.
• Opportunity costs: Delays in employee productivity and the time spent on non-core HR tasks can lead to missed opportunities for innovation and growth.
• Cost of disengagement: Employees who do not feel connected or supported within an organization may become disengaged, leading to lower productivity, higher absenteeism, and ultimately, a higher risk of turnover.

Breaking Down the Costs

To get a complete picture of the financial impact of your people programs, it’s important to look beyond the obvious expenses. By understanding the direct, indirect, and hidden costs, you’ll see how they really affect your organization’s efficiency, productivity, and overall success. Let’s dive into these cost categories to see how they shape your business

The Impact of Onboarding on Business Outcomes

Onboarding is a crucial element in ensuring the success of new hires and the overall efficiency of an organization. Effective onboarding has a significant impact on key business outcomes, including employee retention, productivity, and operational efficiency.

Research by Brandon Hall Group found that organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. These enhancements can lead to substantial long-term savings by reducing turnover-related costs and speeding up the time it takes for new hires to start contributing effectively.

Investing in a well-structured onboarding program helps organizations retain talent and foster a more productive workforce, ultimately supporting overall business success.

Accelerating Time to Productivity

An established onboarding program helps new employees get up to speed quickly. When they understand their roles, expectations, and company culture from day one, they can start making meaningful contributions to their teams sooner. This faster ramp not only boosts productivity but also saves costs by reducing the time it takes for new hires to reach their full potential.

According to a SHRM foundation guide, effective onboarding can reduce the time it takes for new hires to become productive by months.

Reducing Turnover and Attrition Costs

High employee turnover can significantly impact an organization’s bottom line. One major reason new hires may leave within their first year is a poor onboarding experience, which can lead to feelings of being unsupported or disconnected.

A robust onboarding process plays a crucial role in addressing these issues by keeping new employees engaged, informed, and aligned with the company’s mission. Effective onboarding can help reduce turnover by creating a positive initial experience, which in turn minimizes recruiting and training costs associated with high employee churn.

Lower turnover not only reduces the financial burden of recruiting and training new staff, but also helps maintain valuable knowledge and team cohesion, contributing to long-term organizational success. As previously stated, replacing exiting workers can cost up to two times the employee’s annual salary, which can add up fast. 

Streamlining Administrative and HR Functions

Onboarding involves a myriad of administrative tasks that can easily overwhelm HR and leadership teams, leading to increased costs if not managed efficiently. Automating and standardizing these processes and points of communication can significantly reduce the time HR and managers spend on each new hire.

Processes and manual functions that HR team members and managers are responsible for may include, but are not limited to scheduling and coordination, feedback collection, providing introductions, document verification and completion, goal setting and performance-related processes, necessary legal and compliance steps, and providing support and resources.

According to the SHRM 2023-2024 State of the Workplace Report, only 19% of HR executives anticipate being able to expand their department headcount. This limited growth underscores the need for greater efficiencies to prevent burnout in 2024.

By automating these functions, HR and leadership can focus on higher-value activities — such as strategic planning, employee development, and enhancing the overall employee experience — rather than getting bogged down in manual tasks.

Standardizing these processes also ensures a consistent approach to onboarding across the organization, enabling scalability as the company grows.

Investing in efficient and automated onboarding solutions not only reduces administrative workload but also delivers substantial long-term savings by optimizing program effectiveness and supporting sustainable growth. This investment in people programs — enhanced by technology — provides significant financial and operational advantages, making it a smart choice for companies aiming to improve efficiency and cut costs.

Enhancing Manager Effectiveness

Onboarding isn’t just for new hires — it’s also about giving managers the tools and resources they need to support their teams effectively. A good onboarding program helps managers feel ready to guide new employees, creating a supportive environment that boosts performance. When managers are equipped to lead well from the beginning, it helps prevent costly mistakes and inefficiencies later on.

Impacting Long-Term Employee Development

Onboarding has benefits that go beyond just the hiring phase. A good onboarding process sets the stage for ongoing learning and growth, helping employees advance within the company. By focusing on internal development, you can reduce the need for expensive external hires and cut down on recruitment and training costs.

The Hidden Impact of Employee Disengagement

Employee disengagement can significantly harm a company’s success, triggering a cascade of challenges that affect overall performance and financial health. When employees feel disconnected, this results in a number of business impacts.

Lost Productivity

When employees are disengaged, their productivity suffers. They may be less motivated or simply going through the motions of their work, which means tasks are not completed as efficiently or effectively as they could be. This drop in productivity can end up costing companies a significant chunk of money — 18% of an employee’s annual salary according to Gallup. And it’s not just about one person. This lack of engagement can slow down entire teams, causing delays and reducing overall efficiency.

Increased Turnover

Disengaged employees are more likely to leave their jobs, and when they do, the costs start piling up. As we’ve explored above, backfilling a role isn’t cheap. Beyond the financial hit, high turnover disrupts team dynamics and leads to the loss of valuable knowledge and experience that’s hard to replace. As Gallup found, teams with lower engagement contend with turnover rates that are 18% to 43% more than highly engaged teams.

Impact on Morale and Culture

Disengagement doesn’t just affect the individual. Over time, it can disseminate throughout an organization. When employees are checked out, it can lower overall morale and weaken the company’s culture. Negative attitudes and disengagement can easily influence others, creating a work environment that feels less healthy and less motivating. This decline in morale can be tough to reverse and makes it harder to maintain a positive, productive atmosphere.

Brand Reputation and Talent Acquisition

Disengaged employees aren’t likely to champion your organization publicly, which can hurt a brand’s reputation. They’re less inclined to refer talented candidates or share positive experiences, making it harder to attract and retain top talent. This can have long-term effects, limiting the company’s ability to grow and succeed.

Financial Impact

All these issues — lost productivity, higher turnover, lowered morale, and a damaged reputation — add up to a significant financial burden. The cost of disengagement can quickly outweigh any short-term savings from cutting back on people programs, ultimately hurting the company’s bottom line. Investing in employee engagement can save money in the long run by keeping employees motivated, productive, and committed to the organization.

Understanding Attrition Costs

Attrition is a major hidden cost in people programs. High turnover rates increase recruiting and onboarding expenses, disrupt productivity, and lower employee engagement. The loss of experienced employees also means losing valuable legacy knowledge, which can contribute to further inefficiencies and impact overall business performance. According to Bamboo HR, 70% of new hires decide whether a job is the right fit within the first month — including 29% who know within the first week.

Calculating the Cost of Attrition

When assessing the financial impact of attrition, it’s important to consider several factors:

• Recruiting costs: These include recruitment fees, the cost of recruiting software, job ads, and the time team members spend on interviews and candidate evaluations. According to Glassdoor, the average cost of hiring a new employee is approximately $4,000, and it can take up to 24 days to fill a position. For the tech industry, this time is typically longer, with the average time to fill at 68 days.
• Retraining costs: New hires need time and resources to get up to speed, which often means lower productivity compared to seasoned employees.
• Lost productivity: The time period between an employee’s departure and when a new hire has fully ramped up in a role can create significant gaps in productivity.
• Impact on team dynamics: The departure of an employee can disrupt team cohesion, leading to lower engagement and decreased efficiency.
• Customer satisfaction: High turnover can affect relationships with clients, as they may need to adjust to new contacts or experience delays in service.

All these factors together can paint a comprehensive picture of how attrition impacts an organization’s bottom line.

Strategies to Reduce Attrition

Reducing attrition starts with focusing on employee engagement, career development, and cultivating a positive work environment. Here are some key strategies:

• Invest in career development: Offering clear career paths and growth opportunities via positive manager relationships and programs like peer mentorship not only boosts employee satisfaction but also lowers turnover. A case study that measured the business impact of mentorship programs over a seven-year period at Sun Microsystems found that mentees exhibited a 72% retention rate and mentors a 69% rate — 20+% over non-participants.
• Focus on onboarding: A comprehensive onboarding process helps new hires feel connected and supported from the start, which can increase retention in the long run. 82% of employers with a strong onboarding process see improved retention.
• Enhance employee engagement: Regular check-ins, open feedback channels, and recognition programs keep employees motivated and committed to the organization. Gallup’s 2024 meta-analysis found that the teams scoring in the top quartile on employee engagement also had a 23% higher rate of profitability. 
• Build a positive culture: A strong, supportive culture that values and recognizes employees’ contributions fosters loyalty and reduces the risk of attrition.

These are just a few strategies that work together to create an environment where employees feel valued, supported, and motivated to stay long-term.

What You Can Do About It

Understanding the Total Cost of Ownership for people programs — the cumulative cost to an organization of the direct, indirect, and hidden costs detailed within this paper — is crucial for making informed decisions that go beyond the surface-level expenses of salaries and benefits. By considering all costs, including those that are indirect and hidden, companies can optimize their program strategies and maximize the ROI from their investments in people, processes, and the technologies that support them.

This deeper insight may lead to reevaluating the importance of specific functions and how resources have historically been allocated. What may have previously been seen as unnecessary expenditures — such as investments in people program automation — can reveal significant returns through cost savings, increased efficiency, and freeing up HR teams to focus on higher-value human-required tasks.

To remain competitive, it’s essential to start viewing your people programs not just as an expense, but as a strategic investment that drives long-term business performance. By applying Total Cost of Ownership principles, you can uncover opportunities to improve efficiency, reduce costs, and enhance employee satisfaction and retention.

Calculating the ROI of People Program Investment

One of the most effective ways to understand the impact of people-related costs is through calculating the return on investment (ROI). Factors like headcount growth, attrition rates, and salary levels, to calculate the potential savings and productivity gains from investing in tools that can help you automate and scale key people programs.

Unlock the Full Potential of Your People Programs with Donut

As you’ve read, the hidden and indirect costs of people programs can add up quickly, affecting your organization’s bottom line. But with the right tools, you can mitigate these costs and turn your people programs into a source of strategic advantage. That’s where Donut comes in.

Donut’s powerful automation, onboarding, and mentorship solutions are designed to streamline your people programs, helping you reduce time spent on administrative tasks, accelerate employee productivity, elevate engagement, and improve retention — all while keeping your Total Cost of Ownership in check.

Take the Next Step:

Try Donut Today: Experience firsthand how Donut can transform your onboarding and engagement programs by starting a free trial.

Schedule a Demo: See how Donut can work for your specific needs by scheduling a personalized demo with our team.

Taking action now can help you transform your people programs into a competitive advantage, driving real value and supporting your long-term business goals. Don’t take our word for it — you can hear straight from our customers.

“Donut has saved countless hours of manual work, and enhanced the onboarding experience for our new hires. It helps new hires build connections throughout their onboarding experience, and increases collaboration across Okta.” –Okta

“Donut Journeys enabled us to personalize onboarding, automate messaging, assign tasks, launch polls, and gain data insights. After success with onboarding, we expanded Journeys to company-wide trainings, announcements, and events. Overall, Journeys has boosted employee experience and engagement.” –Huntress

 

References:

https://www.shrm.org/topics-tools/news/talent-acquisition/dont-underestimate-importance-good-onboarding

https://www.shrm.org/topics-tools/news/all-things-work/reducing-employee-turnover

https://www.shrm.org/executive-network/insights/onboarding-key-to-elevating-company-culture

https://www.gallup.com/workplace/321743/increase-productivity-lowest-possible-cost.aspx

https://b2b-assets.glassdoor.com/the-true-cost-of-a-bad-hire.pdf

https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781119040002.app5

https://www.gallup.com/workplace/351545/great-resignation-really-great-discontent.aspx

https://resources.workable.com/stories-and-insights/key-hiring-metrics-for-tech-industry#time-to-fill