HRM A COST BASE APPROACH

"Cost is a sacrifice incurred to obtain some anticipated benefit or service" (Flamholtz,1999). Hence all cost has an “expense” and an “asset” component. This is what Human Resources accounting is all about. HR is a costly element for any business with a staff. The processes of hiring, training, and retaining staff have associated costs that business or company needs to anticipate as part of their human resources budget. So, what are the prominent types of HR costs?

 

1.HR Cost for Administration

Cost mainly involved for the following administrative functions of an organization.

•  Organizing and maintaining personnel records
•  Updating internal HR databases
•  Preparing HR documents

Administration task is often performing in background. The time and effort taken to record staff data and keep it up to date may lead to a hefty cost if process isn’t efficient. But it can be overlooked when it comes to optimizing a company’s HR costs. 

While the duties and responsibilities of HR administrators vary in different industries and organizations, the gist of the job remains the same.

2.HR Cost for Recruitment

Recruitment is one of the costliest HR activities for businesses. Recruiting the right (or wrong) person for a role can have a huge impact on the whole company. What is the average number of applicants per job? How much does it cost to hire someone? How long does the recruitment process take? As well as the cost of salary, we have to consider recruitment expenses, bonuses, office space and equipment, and the time taken to onboard a new employee. This is why it's crucial to understand how much you're spending on recruitment as part of your HR cost analysis. When a recruiting process is running following preliminary cost factors are in force,

 

• Advertising Fees- What you pay job boards to display your job  openings.

• Candidate Assessment Costs- Fees spent to conduct  pre-employment test etc.

             

• External Recruiter Expenses- Money spent to pay individual recruiters, recruiting agencies or staffing/Outsourcing firms.

          

• Careers Page Costs- Expenses that include the setup, maintenance and redesigning of your career pages. 

                       

• Internal Recruiters/Interviewers costs- Often the highest recruiting line item, this includes recruiters’ salaries, benefits and travel expenses.

 

3.HR Cost for Employee Benefits

Employee benefits can be one of the most significant human resource costs for a business or organization. Employee benefits may be expensive, but their value goes beyond their cost factor. When come to job offers, prospective employees would absolutely be comparing the benefits of each company offers before they take over. Of course we have to offer the best of the best that help edge out the competitors. When implemented correctly, Employee Benefits can also help reduce costs through minimizing staff turnover and helping attract talented job candidates. When costing the benefits of an employee following key factors are much dominant,

• What are the most common employee benefits?

• What percentage of an employee’s salary is benefits?

• What is the cost of employee benefits to employer? (Ex-Medical, Dental, Retirement Plans)

       

4.HR Cost for Training and Development

Simply hiring someone may not be enough to boost the performance of a certain business or a company. In this case, you definitely have to rely on training and personal development. But training does not come for free. Training and other forms of staff development are crucial for both retaining employees and growing the business with in house experience and skills. However, training and development can be very costly if not handled wisely. Many employers are hesitant to provide training due to the cost, the time investment, and the risk that their investment will go waste if an employee leaves. 

When calculating the Training Cost per Employee, we have to mainly focus on the following variables,

1. The training equipment and materials you are going to use
2. The payment for lecturers/ trainers
3. The loss of productivity, such as the salaries that you are going to pay to your employees during training

All the aforementioned are added to the training budget of the company, which can increase or decrease depending on the training means we use.

5.HR Cost for Retention

High staff turnover rate can be more costly for businesses or an organization. This is due to the cost of recruiting another employee and the cost of lost output while the new employee learns the role. Many businesses put retention strategies to help lower their turnover rate. However, these strategies can get costly too, as companies boost salaries and benefits packages to attract and retain top talented employees. Employee turnover costs can have a significant negative impact on a company's performance. But Some time there may be exceptions. Turnover is generally considered bad, but McDonalds has built a business on high employee turnover. A new replacement may be more productive or more skilled than his or her predecessor. A comprehensive employee retention program can play a vital role in both attracting and retaining employees, as well as in reducing turnover and its related costs. It is more efficient to retain a productive employee than to recruit, train and replace employee of the same quality.  

When replacing an employee following cost are incurred.

1.    Separation Costs are the immediate costs an employer incurs when an employee leaves. These include severance pay, unemployment insurance claims, continued benefits etc.

 

2.    Recruitment costs  are the total amount spent to recruit a hire starting from the job posting to joining the organization

 

3.    Productivity costs The hours of productivity the company loses while the position goes unfilled, and time it takes for the new employee to get up to the level of production and productivity of the previous employee. This can range from just a few days to a few months depending on the type of position.

Reference

www.checkster.com.(2020) HR budget planing.checkster.com. [online] Available from: https://www.checkster.com/blog/hr-budget-planning-planning-your-hr-costs-for-the-future. [Accessed : 02 June 2021] 

Sharon G. (2021) optimize HR cost. gartner.com [online] Available from: https://www.gartner.com/smarterwithgartner/10-ways-to-optimize-hr-costs/. [Accessed : 02 June 2021] 

Vulpen E. (2020) how to measure human resource cost. aihr.com [online] Available from: https://www.aihr.com/blog/measuring-human-resource-costs-human-resource-costing/. [Accessed :02 June 2021]

Philip J. (2012) measuring HR cost. shrm.org [online] Available from: https://www.shrm.org/resourcesandtools/hr-topics/behavioral-competencies/business-acumen/pages/measuring-hr-costs.aspx. [Accessed : 02  June 2021]