Businesses around the world sailed the roughest waters in 2020 due to the pandemic. One of the most significant changes came about in the way we work, as many organisations adapted to the remote working setup.
While some companies are gearing up to welcome their workforce back to the office, most of them are waiting to see how things go in the next few months. However, it can be said with absolute certainty that human resources (HR) teams in all organisations will have to brace themselves for the challenges 2021 will bring. Some experts are even predicting it will be tougher than ever before.
As businesses work hard to stay afloat, HR teams have a tough task ahead. They will have to find ways to attract and retain top talent well within a company’s budget. HR team’s goals of aligning costs with the business bottom line can be achieved once they understand how to manage and optimise the main types of HR costs.
Types of HR Costs You Are Likely to Encounter
Here are some of the main types of HR costs and ways to optimise them to improve business productivity.
1. Hiring
One of the most critical costs for an organisation is the cost of recruitment as choosing the right person for a role has a massive impact on the company. The cost of hiring an employee does not just involve recruiting and training. It also includes time.
According to a 2016 survey, the average amount of time a company spends in finding the right candidate is around 40 days. Sometimes it may take a company up to 6 months to break even on its investment in a new employee. If an employee decides to leave the company soon after they are hired, much of this investment would be considered a waste.
How to Optimise Hiring Costs
The traditional route of hiring can be limiting and time-consuming. Many companies continue to use traditional methods of recruitment like internal hiring, referrals, paper-based job postings, etc. However, these methods may not be adequate to find the top talent for the company.
HR teams must consider alternative recruitment strategies, like using technology, so they can reach a wider audience and get access to a more diverse talent pool. These strategies can also lower recruitment costs and help HR teams make better, informed choices when looking at potential hires. With the assistance of technology, HR teams can also reduce their dependence on manpower to make hiring decisions.
HR professionals can look at ways to reduce admin work associated with hiring. One example is the use of an efficient Applicant Tracking System (ATS). An ATS is used by employers to manage job applications. An ATS also enables recruiting teams to hire faster and to stay well organised during the process. Some of the features an ATS could include are candidate’s stage tracking, resume importing, resume sorting, interview scheduling, video interviewing, etc.
2. Retention
When a company has a high employee turnover rate, it directly affects its performance. Recruitment is expensive, and companies need to keep a check on their employee turnover rate.
Each individual has a different learning curve. Sometimes a new hire may take time to learn and adapt to the new role in the company. The time spent during this process can cost a company. It’s best to ensure this time frame for learning is a reasonable one, so the employee is not demotivated.
When a company has a high employee turnover rate, it directly affects its performance. Recruitment is expensive, and companies need to keep a check on their employee turnover rate. Click To TweetWays to Optimise Retention Costs
Ensure that the salaries and benefits being offered to the employees are competitive. This helps to retain talent in the company.
HR professionals must ensure that the company has a positive and healthy work culture. This impacts employee retention rate as well as how productive and engaged the employees are at work.
HR teams must also have robust processes and policies in place for key issues like diversity, well-being, mental health, etc.
3. Training and Development
Training and development opportunities must be handled strategically as these can prove to be costly for an organisation. It’s essential to give employees the right training and opportunities for skill development to keep turnover rates low.
Ways of Optimising Training and Development Costs
HR teams must have regular one-to-one meetings with managers. This helps in sharing feedback, to structure appraisals, and to set the right goals so employees can progress within the company.
The employee skills assessment must be conducted regularly to recognise areas where there is a shortage. This will help to decide the right training and development strategies.
HR teams must have regular one-to-one meetings with managers. This helps in sharing feedback, to structure appraisals, and to set the right goals so employees can progress within the company.
To keep employee turnover low, companies must look at the option of upskilling. Compared to hiring or training a new employee, upskilling is a smaller investment for the company. In addition, upskilling enables companies to achieve a more efficient and well-rounded workforce. It also boosts employee morale and improves retention.
4. Employee Benefits
Another significant cost that companies need to handle is employee benefits. According to a survey, rising benefits costs were the biggest challenge for more than 50% of the employers surveyed.
One of the major employee benefits is insurance which includes life insurance, health insurance (dental, medical), disability insurance, etc. Some other employee benefits are retirement benefits, time off, housing, travel, transportation, food, wellness, etc.
One key factor to keep in mind is that using the right employee benefits strategies can help attract the right talent and lower the employee turnover rate. A 2018 survey on job satisfaction and engagement revealed that 92% of employees surveyed indicated employee benefits are essential to overall job satisfaction.
How to Optimise Employee Benefits Costs
HR teams must keep track of how employee benefits costs are impacting their hiring, retention, and productivity initiatives.
It is also crucial to track the pay and benefits data to understand how effective the benefits are. HR teams can consider using benefits administration software like Paylocity, Rise, Vestwell, etc. to simplify the process.
5. Administration
This often-overlooked factor can also play a significant role in optimising a company’s HR costs. HR administration tasks involve recording employee data and keeping it updated. Doing these processes manually means that HR teams are spending less time on other, more critical tasks. This could affect business operations and affect the morale of the employees over a while.
Ways of Optimising HR Admin Costs
Managing employee data in Excel spreadsheets, and keeping everything updated can be a cumbersome task. To avoid spending time on paperwork, HR teams can use efficient technology solutions like ActionHRM, Employee Navigator, Jibble, Aruti HRMS, Bitrix24, Ento, Replicon, etc. to meet their admin needs.
HR software systems can also help keep track of information about company processes and employee training, leave management, appraisals, etc.
What Changes Can Be Expected in HR Budgeting in 2021?
With businesses and their financial outcomes impacted, HR teams may have to work with a limited budget in 2021. However, it’s essential to understand that cutting back costs does not mean lowering quality or standards during hiring. It’s all about finding a balance and making well-informed decisions while complying with the hiring directives.
While many organisations had put brakes on their recruitment efforts in 2020, things are fast changing in 2021. HR teams will be challenged as they come to terms with handling recruitment and onboarding in a remote-focused setup.
Today, companies are focused on keeping employees healthy and engaged. After all, employees are the driving force behind every organisation’s success. Some strategies like regular employee counselling or developing a virtual community space could be taken up. HR teams could share motivational messages to help employees stay productive and engaged. Having an employee assistance program in place can also be beneficial to the employees. However, all of these will require additional funding, putting further strain on the overall budget.
This comes at a time when businesses are still not at their peak, and there are uncertain times ahead. Thus, it implies a tougher job at curtailing expenses and aligning the HR costs with the business bottom line. Though this is a new and unprecedented situation, HR teams must be prepared to balance new initiatives within a lean budget in the days ahead.
