Employee Training Costs: How Much Should Your Company be Spending?

As HR professionals are well aware, hiring and training new employees is often more costly than upskilling current ones.

A 2020 U.S. Bureau of Labor report shows that employee turnover costs corporations $1 trillion every year. What’s more, a recent Gallup Poll concluded that 87% of millennials see professional development opportunities as a deciding factor when choosing to join or stay with a company. As these statistics indicate, a training program can be a solid, long-term investment for businesses, particularly when the trainings are managed effectively.

employees analyzing company training costs

This article will look at several factors that influence company training costs as well as provide some useful tips on how companies can reduce their upskilling budgets.

How Much Does it Cost to Train an Employee?

The numbers fluctuate from year to year, but since the early 2000s, the average cost of training a new employee has been approximately $1,200. This number had been on the rise until the pandemic, but in 2020 it decreased by $175. This was most likely due to a combination of inexpensive alternatives, and companies simply scrapping their training programs to save money after COVID-related losses.

When it comes to annual costs for keeping an employee trained and satisfied with their level of professional development, the numbers are similar, with the annual cost hovering around $1,000 per employee.

That said, it is still advisable to keep your current team trained, as the costs associated with employee turnover extend far beyond training.

Interestingly, medium-sized businesses (100 – 1,000 employees) spent the lowest amount per employee ($581) compared to enterprises (>100 employees; $924 per) and small businesses (<100 employees; $1,678 per) in 2020. Medium-sized businesses were the companies most likely to trim their training budget during the height of the COVID-19 epidemic.

Strictly Numbers:

In 2020…

  • It cost businesses an average of $1,111 to train a current employee
  • It cost businesses an average of $1,268 to train a new employee

What Affects Training Costs

Like with anything in business, ROI matters. Before you make any changes to your training budget, it’s important to determine if you’re implementing your program efficiently and effectively. Are your employees’ skill levels increasing? Have they retained the information they’ve learned? These are just two of the metrics that should be measured when evaluating your program’s return on investment.

Company size—The smaller the company, the greater the training cost. When you have fewer workers, removing even a single employee from the production line for training can hurt company revenues. Companies with a large workforce, on the other hand, are better equipped to weather the lost production costs associated with training new hires or upscaling an entire department of workers.

Employee skill levels—Every employee comes to a position with a different base level of skills. What’s more, workers learn at different speeds. This means that even employees in the same position with identical work histories may have drastically different training needs, resulting in different costs. Online training programs can help with this, as they allow managers to customize lesson combinations to suit employees’ individual skill levels and needs.

Types of training —One of the bright sides of the move to remote work/training during the pandemic was a rise in the popularity of distance learning, which is relatively inexpensive compared to the costs associated with on-site training. On-the-job training can be pricey because it requires paying a supervisor or other worker to put their own projects aside in order to train someone else. Sometimes this can’t be avoided, however, as certain jobs need some level of on-the-job training.

Are Training Costs Worth It?

Training reduces recidivism and helps boost employee morale.

Employees are an appreciating asset; they become more valuable over time. They become faster, smarter, and better at their jobs. This is ultimately why investing in them is a practical long-term investment.

How to Reduce Costs

Are the costs worth it? Yes, but it’s still important to find the right program for your budget. Online training offers the greatest cost-saving opportunities, but there are other ways to save too.

How to save:

Have a Plan—Having a well thought-out strategy for your training program is step one to making it more efficient. Just as any new endeavor related to your product or service needs a good business plan, so too does a training curriculum. Depending on the size of your team, this may include a survey to determine individual learning preferences.

Repetition—It may seem like repeat trainings wouldn’t be necessary, but studies on retention and memory loss would suggest otherwise. According to the “forgetting curve theory,” knowledge deteriorates over time and often quite quickly (up to 60% of knowledge taught in a give lesson is forgotten in 48 hours). When companies fail to reinforce trainings, they’ve effectively wasted 60% of their budgets. Testing has been proven to be a good reinforcement method.

Find (and reduce) “Hidden Costs”—It’s important to factor in lost time into your budget as well as other “hidden costs” that employers often overlook, such as the cost of training materials or travel-related expenses.

Online Training Can Save Your Company Money

Though society’s move to the remote workplace hasn’t been easy, it has had some silver linings. Companies’ adoption of better communication software as well as the evolution of training programs are just two of the benefits. Online training allows your team to learn at their own pace and on their own time, refresh their skills, and advance both their hard and soft skills.

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