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How Much Should You Be Spending Per Employee on HR?
According to a recent study by the Society for Human Resource Management (SHRM) titled SHRM® Human Capital Benchmarking Study, HR expense per full-time employee remained relatively stable at a median of $1,176 in 2007 (the most recent year available). These costs are “soft” costs meaning the costs of the human capital supporting the HR functionalities of the responding companies in the survey. Another key finding was that most companies with fewer than 100 full-time employees average around two employees on their HR staff. Now let’s say that you were able to reduce the HR expense per full-time employee (soft costs) by 25% down to around $900 per full-time employee? Would that be appealing to you? What if you could at the same time reduce other expenses like workers compensation insurance premiums, outsourced payroll costs, group medical premiums, 401(k) expenses, etc.? Would that increase your interest?
It is my opinion and experience that the respondents in this survey are over-spending on the “soft” costs of HR based upon the median HR expense per full-time employee of $1,176. HR is not their core business but yet they do not outsource their HR. It amazes me that companies outsource most everything these days that is not core to their businesses except HR. What is even more telling is that most companies increase their HR staffs when seeking operational improvements. The reality is that outsourced HR services are one of the best cost control mechanisms available to small to mid-size businesses today. Most companies with fewer than 100 full-time employees have no need for more than one person on staff in their HR departments. ”Tactical” HR employees like HR generalists, payroll, and benefits coordinators can be very expensive solutions and have almost become luxuries in today’s economic climate. Companies should only staff “strategic” HR professionals and outsource everything that is tactical.
By partnering with a Professional Employer Organization (PEO) companies can reduce both soft and hard HR expenses while focusing 110% of their efforts on their core, revenue-producing activities. This combination of reducing expenses and increasing revenues can have a great compounding effect on profits.
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1 Comment
It's an interesting idea and I can see the cost/benefit relationship easily enough, but I find it quite bizarre for an HR professional to see HR as a non-core activity for a business. Surely people are the core of every business? Well run businesses focus a high level of investment on those people through an HR function precisely because it is expected to bring a return in the long run.
I'd happilly outsource payroll, or Government relations (a factor in most emerging markets) because I'd like them done on time with minimal hassle and they have little value add, but high protection for reduced value when in house failures take place.
But whilst I am willing to share my recruitment with recruitment consultancies I want a human face that works for me and manages my brand across the function. The same goes for a lot of the HR generalist role and is essential to me in the reward/recognition slot too.
No matter how good your partners are, in the long run they have their own brand and people to manage, and mine is never going to be their number one priority. A great brand is built on its people, and they should be as one.
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