The optimal HR-employee ratio
The HR to employee ratio is a useful tool for assessing the optimal HR capacity in an organization. In this article, we will look at the staff-to-employee ratio, list factors that affect this ratio, and provide a measure of the staff-to-employee ratio.
What is the ratio of staff to employees?
HR to employee ratio best practiceBenchmark for the optimal staff-to-employee ratio
What is the ratio of staff to employees?
First, let's examine how the HR-to-employee ratio (akaHR-staff ratioorHR-Personalquote) Is. As the name suggests, the HR-to-employee ratio is the number of HR professionals divided by the number of employees in the organization.
This metric provides a ratio that indicates HR efficiency. A high ratio (meaning that there are relatively many HR staff working in the organization) could indicate lower efficiency in the delivery of HR services. However, this is not always the case and a high ratio can be explained by several factors. We will examine this in the next section.
But let's look at the exact formula first. The HR-to-employee ratio is the number of HR employees (expressed in FTE or full-time equivalent) divided by the number of total employees in an organization (also expressed in FTE). This leads to the following formula.
Suppose a rapidly growing scale-up company has 2045 employees (1860 FTE). Jill, the organization's HR manager, is concerned because HR is under a lot of pressure to perform, which results in far more work than there are people in charge of it. The current HR team consists of 35 people (32 FTE) and Jill wants to advocate for more staff hiring budget. To do this, she wants to compare the ratio in the organization with the benchmark ratio in the industry. To do this, she calculates the HR-staff ratio as follows:
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That 1.7% is well below the benchmark rate for companies of a similar size, giving Jill an additional data-driven argument for increasing HR team size. However, there are many other considerations when it comes to determining the optimal staff-to-staff ratio.
HR to employee ratio best practice
Regarding this ratio, the best practices depend on the specifics of the case. Several factors influence the staff-to-staff ratio. That doesn't mean there are necessarily best practices—the best practice depends on your situation. Here goes!
- Technology. The first aspect affecting your HR-to-employee relationship is the level of HR technology in the organization. Organizations that have invested heavily indigital HRand self-service functionalities, typically have a smaller HR organization. In these organizations, both employees and managers can manage most of their HR needs themselves. This leaves HR with very little work, making their role more tactical and strategic, and requiring less FTE to achieve the same impact.
- HR department role. Consistent with the foregoing, the role of HR is another factor influencing staff-to-staff ratios. A highly operational HR function performs different tasks and requires a larger HR workforce compared to a highly strategic HR function. An example is theHR Business PartnerPopulation. When the ratio of business partners to the rest of the organization is low, those business partners typically have a much more strategic role. When the ratio is high, the business partner behaves more like a traditional recruiter and has a much more operational role.
- Budget and budget control. A third factor is budget (duh) and staff budget control. Budget makes sense: A larger HR budget allows for more HR people on the payroll. However, in some organizations, the decision to recruit is made by the human resources department. In these organizations, it is not uncommon for the HR department to find that it needs employees more than other departments, resulting in a higher staff-to-staff ratio. I experienced this at a large European multinational company. Once this has happened, it is very difficult to undo.
- Industry. Another factor is the industry. Although the benchmark data we'll show in the next section doesn't specify an industry, there are some industries that require more HR involvement than others. Examples are professional service firms, where high-skilled professionals need more training and personal development to hire and retain staff compared to low-skilled workers.
- organization size. The size of the organizations also influences the ratio. Smaller organizations hire their first HR department between 20 and 50 people. Although this person often has other responsibilities, one HR manager for every 50 employees is a normal ratio. Larger organizations will have a lower ratio as economies of scale from digitization and automation allow a single HR professional to serve many more internal clients. We'll cover this in more detail in the benchmarks section later in this article.
- Union organization and collective agreements. The final factor is the degree to which employees are unionized. Collective agreements and unions usually pose a challenge as they are involved in all important decisions related to employees. The involvement of these unions and active stakeholder management is a key task that normally falls to the HR department. As a result, a high degree of unionization can result in a higher staff-to-staff ratio.
While this is not an exhaustive list, it touches on the key issues affecting staff-to-employee relationships. Therefore, it also shows that a simple number is not enough to speak for an increase (or decrease) in HR staff in relation to the total staff.
So hiring manager Jill will have to make additional arguments. Just knowing the relationship is not enough. For example, she might be doing well because her HR organization is technologically advanced and highly strategic. Instead of hiring new employees, it could invest in further automating processes while keeping costs down.
Benchmark for the optimal staff-to-employee ratio
Let's take a look at the staff-to-employee ratio benchmark. As far as we know, this data has never been compared across industries. However, we do know how the staff-to-employee ratio develops compared to company size.
The Society for Personnel Management (SHRM) has been researching this for several years. In their 2015 Human Capital Benchmarking Study, the following staffing ratios were reported.
As mentioned earlier, the HR staffing ratio is often lower in smaller organizations. Organizations with fewer than 250 employees have an average of 3.4 HR professionals per 100 employees, while larger organizations have only a fraction of that.
In fact, the 2009 report examined 119 large companies and found an HR-to-employee ratio of just 0.4 for companies with over 7,500 employees. However, it's good to note that these ratios have changed over time, so the 2009 numbers may be less relevant today - but they do show the huge difference between small and large companies.
To emphasize this, a2017 SHRM Studyfound an average HR-to-employee ratio of 2.6 with a median of 1.58. The average and 75thpercentiles are almost identical, suggesting that 2.7 is close to the highest possible staff-to-employee ratio. The 25ththpercentile was 0.99. This is significantly higher than theirsBenchmark 2016, which reported an average of 2.32 and a median of 1.33.
Bloomberg Law's 2018 HR Benchmarks Report mentions that HR departments have a median of 1.5 employees for every 100 employees. This represented an all-time high at the time as it has been around 1.0 per 100 for a long time. Both the SHRM and Bloomberg figures are very similar.
In summary, the HR staff ratio is highly dependent on the number of employees working in the organization. There are other factors, however, including the technological capabilities of HR, the degree to which HR is strategically aligned, budget and budget control, and unionization. All of these factors make up the unique metric that is your HR-to-employee ratio.
If you have any questions or suggestions, please let us know in the comments below!
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