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Outsourcing, recession make HR-to-staff ratios less precise

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in Hiring,HR Management,Human Resources,Leaders & Managers,Management Training

While there is no “correct” HR-to-staff ratio, one HR professional per 100 employees is a generally accepted starting point.

But HR-to-staff ratios have become less precise—and harder to interpret—due to the economic downturn, layoffs (of HR professionals and employees) and the continued growth of outsourcing.   

Still worth measuring? HR-to-staff ratios continue to be a valid metric that organizations use to gauge HR effectiveness and efficiency, according to PricewaterhouseCoopers Saratoga, PwC’s HR benchmarking service.

However, the firm suggests employers shouldn’t stop there. It says any comprehensive measurement of HR efficiency should also examine HR costs per employee as an indicator of HR spending effectiveness. (Divide direct HR costs by the number of employees.)

An ‘ideal’ ratio? HR-to-staff ratios vary widely depending on the organization’s size, outsourced functions and many other factors. The average ratio is 1:100, according to the SHRM Human Capital Benchmarking Database.

However, a growing number of larger organizations are seeing ratios of 1 per 200 employees or even 1:400 employees, in part due to outsourcing.

As an HR professional in a company with a ratio well below 1:100 recently wrote in our online HR Specialist Forum, “The number of HR staff also depends on industry. In our industry, in addition to recruiting, benefits, orientation, discipline, etc., we have to track multiple certifications, plus vaccinations, uniforms … and our industry has fairly high turnover.”

HR ratios can be deceiving because the metric doesn’t directly measure the impact of outsourcing.

“I think the role of technology in the HR function of an organization matters in this context,” said another HR professional in the HRS Forum. “How distributed to other staff is the HR role? What level of self-service is available to staff? Is the organization using an HR business partner model?”

Company size: Smaller employers typically have higher ratios simply because it takes a minimum staff baseline to deliver primary HR services. But once that baseline is met, the incremental amount of HR staff required to support more employees doesn’t increase at the same rate.

If the role is primarily organizational asset preservation—preventing litigation by overseeing policies, cutting HR costs and outsourcing—then a ratio of 1:100 for large employers is the standard benchmark. If your department’s goal is asset creation—an ongoing alignment with business strategy—then the ratio could be near 1:150.

Final note: Low HR-to-employee ratios can be misleading. A low ratio might mean you get things done quickly, but if you’re getting the wrong thing done quickly, it has no value.

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