How much should HR cost?

For every full-time employee, Canadian organizations spend more than $1,000 on HR staff

Canadian HR departments are running a little less lean this year than in 2001, suggests a recent survey.

The Conference Board of Canada surveyed more than 300 organizations about the size of their HR departments. “This year, organizations reported an average of 1.6 human resources staff per 100 employees, up from the average of 1.4 that has been reported consistently over the past few years,” states the report Compensation Planning Outlook 2003.

The study also illustrates that the larger the organization the fewer HR people needed per employee. Organizations with fewer than 500 employees have an average of 1.8 HR staff, while those with more than 5,000 employees, average just 1.4 HR people per 100. (For organizations with between 500 and 5,000 employees the average was 1.5.)

The Conference Board study also asked respondents how much money is being spent on HR. For every full-time employee, Canadian organizations spend $1,055 on HR staff (excluding payroll staff). Here too the smaller the company the more money spent. At organizations with less than 500 employees the average cost for HR is $1,289 and at firms with more than 5,000 employees, the cost is less than $790 (see chart).

Meanwhile a survey of almost 500 American HR professionals reveals HR departments south of the border are smaller than those in Canada. The average in the U.S. is 0.9 HR staff per 100 employees. That ratio has shown little change since 1993, according to BNA, a business news and information publisher.

“HR department staffs tend to expand and contract proportionately with the rest of workforce, though probably with some lag,” states the report HR Department Benchmarks and Analysis 2002.

The BNA survey showed American firms are spending less on HR this year. Respondents were asked about HR budgets as a percentage of the organization’s entire budget. In 2002, HR budgets represented 0.8 per cent of spending across the organization, down from one per cent in 2001 and 0.9 per cent in 2000. “In years past, HR department costs typically took up 1.0 to 1.1 per cent of organizations’ total operating budgets.”

It’s widely held that HR technology is having a significant impact on HR staffing levels as more employee and manager self-service functionalities reduce the number of HR people needed to handle administrative tasks.

In the United States, businesses have actively tried to reduce head counts through the introduction of new technologies, Alexia Martin an HR expert with software consulting firm Cedar, told the Canadian HR Reporter earlier this year.

“The premise about HR technology is that it can reduce the overall costs of providing services to employees. The primary way to reduce costs is through reducing the labour to provide HR services,” she said.

A study conducted by Cedar in 2000 revealed companies that successfully implemented HR self service had an HR-to-employee ratio of 1:150, while those without self service had a ratio of 1:99.

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