Now and then the old question comes up: “What is the optimal HR-to-staff ratio?” The best answer is: “It depends.”
The basic rule-of-thumb, which says the average ratio is one HR professional for every 100 employees, still holds up for the most part. But very few companies fulfill that rule-of-thumb criterion because there are so many variables that influence HR staffing ratios.
Canadian data shows the national average ratio is 1.4 to 100, which is higher than in the United States. Data published by the Bureau of National Affairs in Washington show the following industry distribution: health care 0.5; education and government 0.8; and associations and social services 1.0. Other data, broken down by industry type, indicate that financial institutions had 0.7, forestry 0.2 and construction 0.1.
Large versus small, tall versus flat
Larger organizations in a stable business environment may have a ratio of 0.25 and smaller ones can have much higher ratios. Smaller companies often use line managers to do HR functions instead of using professionals. In general, it can be said that smaller firms require higher ratios as they are unable to benefit from economies of scale in HR activities.
Tall organizations with many layers of management tend to be more bureaucratic, have less efficient communication and require more HR staff, resulting in a higher HR staff ratio. Flat organizations with a larger span of control have more employees reporting directly to the boss and tend to have lower ratios.
Mature versus fast-growing organizations
Well-established companies tend to have lower ratios than fast-growing companies, where ratios of 1.75 can be found. That’s because fast-growing companies tend to require more recruiting and selection staff and may have higher turnover rates.
Stagnate versus innovative organizations
Stagnate organizations tend to use well-established and often outdated HR technologies, while innovative organizations tend to use the latest technical tools. Examples would be organizations that rely on traditional HR administrative approaches, such as paper files, as compared to organizations that use computer technology and specialized software for HR management or use an intranet or a self-service approach. It is easy to see that stagnate organizations would need a higher HR staff ratio than innovative ones.
Internal versus outsourced HR
A relatively new trend is the outsourcing of HR management functions like payroll administration, employee benefits administration, relocation services, global recruitment support, employee database maintenance, training support and legal compliance. Outsourcing in the same country could result in savings of 15 to 20 per cent. Outsourcing to another country can result in savings of 20 to 30 per cent, an even greater incentive.
One of the largest deals in the HR field was the global $1-billion US, seven-year contract that Unilever awarded in 2006 to Accenture, a consulting company. The deal covers recruitment, payroll administration, performance management, workforce reporting and third-party provider management, as well as a range of learning services such as content sourcing and development, program planning and delivery and learning system hosting. The result will be that the HR staff ratio at Unilever will decline from the current 1.6 to 0.5.
A 2003 Hewitt survey,
Beyond Borders: Global HR Strategy and Design
, revealed 40 per cent of responding companies are now using new HR technology and employee self-service to drive down HR staff ratios and, with it, HR costs. These services are mostly web-based and require a significant capital investment, often in the $10-million US to $20-million US range. Self-service allows employees to handle many job-related tasks (such as applications for reimbursements, updates to personal information and access to company information) that otherwise would have fallen to management or administrative staff. Access is usually available via a company’s intranet or it may be part of a web-based service.
Baxter International Inc., a manufacturer of health-care products in Illinois, introduced self-service to its 30,000 employees. A cost-benefit analysis revealed self-service could save the company about $2.8 million US in transactional costs per year. The company also predicted it would be able to decrease its HR staff ratio from 1.6 to 100 to one to 100, an additional savings of $6.6 million US. Combined, the switch to self-service could save Baxter $9.4 million US a year.
From the examples given it is obvious that there is no one-size-fits-all HR staff ratio, because too many factors influence it. A careful analysis of the company’s characteristic and type and comparing the results with the above information will offer a clue as to the optimal ratio. One trend is clear, though. The ratios are undoubtedly declining.
Hermann Schwind is a professor emeritus of human resource management at Saint Mary’s University in Halifax and author of Canadian Human Resource Management. He can be reached at email@example.com.