What is the Actual Cost of Training Employees?

Cost of Training Employees

Employees are one of the most critical components of your organization. There would be no one to push the company’s growth without them. However, to perform to the quality you expect, they must first have access to the necessary knowledge. To put it another way, they must be trained.

There is no getting around the reality that employee training costs are high, yet it is vital if you want to retain talent and maintain a competitive edge.

As per Training Magazine’s 2021 Training Industry Report, the average employer in the United States spent $1,071 per employee on training costs in 2021, which is $40 less than in 2020.

Employees have no reservations about leaving companies that fail to train them. According to the US Bureau of Labor Statistics, churn has increased yearly over the previous decade, and this costs businesses a total of $1 trillion every year.

Money may not be the only resource you spend on employee training. There is also a responsibility for the number of hours worked. 

While the cost of training per employee decreased, the number of hours of training per employee climbed significantly, from 42.1 hours to 55.4 hours per year.

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How much does it cost to train an employee?

As per the Association for Talent Development reports, the average cost to train a new employee is $1,252.

Though this estimate is a good starting point for estimating future employee training costs, it is only an average. The actual cost of training a new employee will vary based on factors.

1. Size of the company

The size of your company is one element that influences employee training costs. Larger the company, the lower the cost of training a new employee. The smaller the company, the more expensive employee training will be. Training employees is more disruptive to operations when there are fewer individuals. Small businesses are also unable to benefit from economies of scale.

Smaller businesses are underinvesting in training, which is a global trend. Companies with 10-19 workers in Europe spend just 1.5% of labor expenditures on employee training, compared to the average of 2.3%. Only one-third of small businesses in Australia provide organized employee training, compared to 70% of medium-sized companies and 98% of large enterprises.

2. Industry

Employee training expenditures are influenced by factors other than company size. Costs of training employees are also affected by your company’s industry.

The sort of training required for new hires varies by industry. Training a concierge receptionist, for example, is not the same as training a pilot or a digital marketer. The type of training every employee receives will vary depending on their industry.

Some professions need substantial employee training. Typically, specialized training for risky occupations is more expensive.

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3. Employee’s aptitude

The employee training required by an individual is based on their previous knowledge and skill set, which will inevitably be different from one employee to the next.

Employee Skillset

Even if two employees begin with the same knowledge level and abilities, some people learn quicker than others. As a result, upskilling two employees in the same employee training program may cost different amounts.

Those who learn more slowly or have a more significant ability gap to overcome initially will require more time commitment, resulting in a higher cost.

4. Method of training

The type of employee training programs you offer influences employee training costs. Your industry and position may determine the employee training program. Here are some training technique examples:

  • On-the-job training
  • Technology-based learning 
  • Simulations
  • Classroom environment learning

5. Productivity loss

Any time spent on employee training is a loss in employee productivity. The time spent training cannot be devoted to working. The amount of productivity lost is determined by the number of persons engaged in the training and the length of the training.

Is another employee’s time being used for training? If so, the cost is doubled since two people dedicate time to training rather than working.

For example, suppose a manager responsible for generating $10,000 per week for your company must devote two weeks to training a new worker, accounting for up to 4% of their yearly objective; there will be some productivity loss.

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How to calculate training cost per employee?

The per-employee training cost is calculated by dividing a company’s training spend by the number of employees. But what precisely is included in a company’s learning expenses?

Calculate training cost per employee

According to ATD Research, which publishes the annual State of the Industry Talent Development Benchmarks and Trends:

This amount includes TD staff salaries (including taxes and expenses), TD staff travel expenses, administrative expenditures, non-salary development costs, delivery costs (such as classroom facilities, etc.), learning supplier expenses, and tuition reimbursement. It does not cover the learner’s travel expenses or missed work time while participating in learning activities.

To determine a total particular to your organization, use the following formula:

Cost of Training per Employee

So, if your combined expenses (loss of production, engaging an instructor for face-to-face training, etc.) are $200,000 and you have 250 employees, your average training cost is ($200,000/250) = $800.

What are the hidden costs of training an employee?

The average cost to train a new employee formula mentioned above does not always account for the total cost of training new employees. Hidden costs of introducing a new employee can quickly mount up if not carefully monitored. Some of the hidden costs are as follows:

  • Time spent on administrative and onboarding paperwork: Filling out documents for benefits, taxes, and insurance consumes the time of new employees and HR personnel.
  • Excessive turnover: It happens when an employee is taught and then quits within six months or less.
  • Training productivity is low: It goes to reason that an employee who is still learning how to execute their job will be less productive.
  • New employee supplies: If your firm provides employees with office items such as printers, computers, and other essential supplies, this may be a significant investment.
  • Manager attention: New employees frequently require greater attention from managers, which diverts higher-paid managers’ focus away from other tasks.

You may mitigate many of these hidden costs by providing high-quality employee training. In contrast, others (for example, manager supervision and supplies for new employees) are simply the cost of doing business.

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Is the cost of training employees worth it?

Companies frequently spin their wheels attempting to discover the best employee training program at the expense of their employees, and the burden of combating high employee turnover is considerably more significant.

Why should companies invest in employee training?

To begin, Gallup estimates that 87% of millennials value professional growth at work. 

Because millennials are the largest single group in the workplace, the danger of not providing growth opportunities in your business transcends all other considerations.

Second, employee involvement in your company is dependent on growth. Employees get disengaged when they do not feel appreciated and developed, and loss of engagement always means loss of money. Gallup predicts that actively disengaged employees cost the company $300 million yearly.

By providing employee training, you are satisfying the needs and wants of your employees, and when done right, you may minimize turnover.

So, how can employee training programs create beneficial financial outcomes?

Employee training tackles the underlying causes of poor staff engagement and high employee turnover and assists with sales, customer service, safety and compliance, and other areas.

By accounting for employee training expenditures in your budget, you will get essential knowledge into the hands of your workers quickly and easily. Still, you will also equip them with soft skills training.

The higher the effort you put into ensuring employees understand and are comfortable with their roles, the lower the chance of employee turnover.

Hence, organizations should see training as an investment rather than an expense.

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Conclusion

Make sure you think about what the best option is for you. The numbers don’t lie; we’re witnessing significant shifts in training expenses. Face-to-face training (F2F) is no longer practical due to the cost and inability to scale; instead, it turns to remote training solutions designed to optimize effect while minimizing training time.

L&D professionals must be aware of remote learning trends and the training products and services that companies—and their employees—want.

Merin
Merin is an HR professional with an MBA in Human Resource. She likes doing a lot of research and study in the field of Human Resource and can't help but share her knowledge on the same in this platform. She is also a great cook and during her free times she keeps experimenting with new dishes. Know more about Merin by clicking here.
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