Skip to content
HR Management

The Importance of HR Management: HR-to-Employee Ratio

Before we explore the basics of HR Management, which we’ll be referring to as HRM, let’s define it first. HRM comprises the formal systems designed to manage individuals in an organisation. To best understand HRM, we’ll briefly look at the history, and dive into the role HRM plays in organisations. Finally, we’ll go over when is the best time to bring a human resources department into the mix.

Register with Factorial to manage your HR better


When did HRM start?

Among today’s HR professionals, there appears to be a lack of understanding of the roots of HR and how the role of a human resources manager became what it is today. What is now called HRM has evolved a great deal since its beginnings in the 1900s. Personnel departments, which emerged as a defined field by the 1920s across the world, were largely concerned with technical functions. What began as a primarily clerical process in larger companies, concerned with payroll and employee records, began to face changes following the social legislation of the 1960s.

HRM developed in response to the increase in competitive business organisations in the late 1970s as a result of deregulation and rapid technological change. In the 1990s, globalisation and competition required human resource departments to become more concerned with costs, planning, and the implications of various HR strategies for both organisations and their potential employees.

Prior to this, people may have asked how can human resource management contribute to a company’s success? As more companies began implementing an HR management system the results were clear. These human resources practices allowed companies to take control of their costs, plan better, and manage their teams more effectively.

The role of HRM professionals has dramatically evolved over the years. If an organisation chooses to employ a formal HR department, which they should if they are more than 10-15 people, there are typically three different roles that the department may play in the organization. They are as follows:

Strategic

The strategic role forms the link between the human resource staff, the organizational mission, and the work of those in the organization.

Operational

The operational role manages functional human resource activities and serves as an ‘employee champion.’

Administrative

Finally, the administrative role provides recordkeeping, process administration, and compliance efforts, among others. The priority of these roles has changed a lot during the years.

HRM pyramid role

This human resource model provides the context to understand and apply the important role HRM plays in today’s organisations.

These HR functions are a collection of specialised work that is conducted within the department. For each functional area, human resource professionals are responsible for key activities that help the organization move forward. Now, this begs the question, when is it time to bring HR into the recipe? For starters, many companies seek out a human resources manager to handle the compensation and benefits of the company’s employees, but then later realise there are countless facets they need to cover, which requires much time and attention.

HR-to-Employee Ratio in Businesses

To dive into the topic, we spoke with Comtravo’s People & Culture manager. We specifically talked about when is the correct time to stir HR into the pot. The quick answer, better sooner than later. The well-known general rule “1 position in human resources for every 100 employees” still exists and it’s not bad, but this tends to function for larger companies with a strategic human resources management department that already has sufficient resources. On one side, there are equations to sustain all of this. Let’s talk first about calculating HR-to-employee ratio. The HR-to-employee ratio is calculated by dividing the number of HR full-time equivalents by the total number of employees in the organization and multiplying the outcome by 100:

HR-to-Employee Ratio =
(Total number of HR FTEs / Total number of FTEs) x 100

A Small Business Example:
Company A has 1 HR FTE employee, 55 FTEs and 15 part-time employees each working 16 hours a week. One part-time employee works 832 hours annually. The 15 part-time employees collectively work 12,480 hours annually. Calculating the total hours worked is necessary to have the correct numbers for the equation (which uses full-time workers as the variable).

There are 2,080 working hours in the year, and Company A’s part-time staff works 12,480 hours during that year. To calculate FTEs, divide the hours worked (12,480) by the working hours (2,080). The result is 6 FTEs. Add 6 to the 55 FTEs for the total number of FTEs, which is 61.

Plug the numbers into the formula:

HR-to-Employee Ratio = (1 / 61) x 100
Company A’s HR-to-Employee Ratio = 1.64

A Large Employer Example:

Company B has 5 HR FTEs and 1,000 FTEs. Let’s work out the ratio for that company:

HR-to-Employee Ratio = (5 / 1000) x 100
Company B’s HR-to-Employee Ratio = .5

If you have multiple part-time employees, translate those positions into full-time equivalents for the most accurate results. Company executives can use the HR-to-employee ratio to know if their company has grown to the point that more HR staff are needed to ensure that employees are effectively managed. Being able to calculate the ratio properly helps business owners make important staffing decisions.

On the other hand, there’s a lot of variations of this method, but they don’t differ a whole lot from each other. For example, The Society for Human Resource Management’s 2017 Human Capital Benchmarking Study shows that in companies with up to 250 employees, demand is significantly higher, as the study “Workforce Analytics” shows: An average of 3.4 human resources employees per 100 full-time positions in the company! The ideal ratio varies by organizational needs as well. While roughly two HR staffers per 100 employees may be the norm for many organizations, it may fall short if the organization is undergoing growth and hiring new staff, or is undertaking a significant initiative such as a new training program, new cloud technology, etc.

If the case that your company is in the process of recruitment and selection and doesn’t have the resources to hire on more HR staff, it is a good idea to invest in an applicant tracking system such as the one Factorial HR offers, to help manage your recruitment process better.

Factorial banner

Average HR Staff Ratio

The HR Department Benchmarks and Analysis 2017 report issued by Bloomberg and the Bureau of National Affairs indicates that the median HR staff ratio remains at a record high of 1.4 HR employees for every 100 workers served by the department.

Smaller employers generally report higher HR staffing ratios. For larger employers, economies of scale and automation software help them maintain a lower HR-to-employee ratio. While it is possible to calculate the ratio, the ratio by itself does not tell the business owner whether their HR department is able to effectively keep up with demand. However, being able to calculate the ratio and compare it to other organisations of a similar size is useful for the business owner in evaluating whether the HR departments may be under-or-overstaffed. These calculations should be evaluated every year as you create your annual HR plan.

Video: The importance of HR Management

https://youtu.be/sHsTBR5bq5M

Is HR Management really that important?

HR management and Human resources planning play a strategic role in managing people and the workplace culture and environment. If effective, it can contribute greatly to the overall company direction and the accomplishment of its goals and objectives. Nowadays, successful companies need to be adaptive, resilient, customer-centered and quick to change direction. Within such an environment the effectiveness of HRM is crucial to business success. When you establish systems for performance development, career succession planning, and employee growth, employees remain more motivated, happy, personally engaged and thus contribute to the company’s success. Even more, the HR professional helps the development of organisational culture and climate in which employees have the competency, concern, and commitment to serve customers well. Take a look at best books for HR managers to read in 2020 to expand knowledge on HR practices.

Improve your HR management with Factorial HR

This post is also available in: English US

Related posts

Leave a Comment