Over the years, the universally accepted and simple rule-of-thumb guideline for the proper ratio of HR staffing to total employees has evolved into one HR person to 100 employees. Of course, as with all guidelines there are exceptions and, as such, this relationship will vary slightly, either more or less, by industry and within the same industry. For example, variations will occur because Payroll and / or Training may or may not report to HR and may or may not be included in the ratio calculation. Regardless how it is determined and who makes up the ratio for your organization, the resident HR Leader should know through experience, workload measurement, contact with industry peers, and other relevant indicators whether or not the HR department is staffed properly in terms of number and position function.
Many, if not most, organizations view HR as administrative overhead – an expense which detracts from, rather than an asset which contributes to, the bottom line. In the interest of cost control, HR departments will more often tend to be understaffed as opposed to overstaffed. Jim Kroh, an HR Professional, points out that this thinking is shortsighted. Kroh’s opinion is based on having been the HR Leader for three national employers during a 25 year career. Ten of those years were spent with an employer which made a conscious decision to strategically overstaff the HR function with an additional HR Manager / Employee Relations position. This “excess capacity” enabled the HR department (with a complement of seven persons plus three persons assigned to Corporate Training) to be measurably more available, attentive, proactive, and responsive to the needs of this 550 person, multi-site, multi-state organization. The Company was a provider of medical professional (malpractice), general liability, and workers’ compensation insurance products to the healthcare industry. As such, the workforce was highly specialized, technically oriented, and very demanding.
The investment in HR paid significant, measurable dividends. Consider the following:
- Annual turnover was reduced from 14% to a consistent, recurring 9%. In terms of hard numbers, the 5% decrease represents some 27 (550 employees x .05) positions and a corresponding, estimated annual savings / cost avoidance of some $972,000 (NOTE: average annual salary $36,000; TOTAL COST of turnover generally quantified and defined as +/- 1 times the salary of the position being replaced). By comparison, annual turnover in the insurance industry generally falls between 14%-17%.
- Average annual use of sick leave was reduced from seven days to four days. By comparison, business on average uses nine days per year. Translated into savings, we find that some 1650 man days (three days saved x 550 employees) or the equivalent of $270,000 (average daily rate $163.64 x 1650 man days) in previously lost sick time were now being recovered on an annual basis.
- The Company received +/- 2500 applications annually. By comparison, another local insurance company with 7000 employees received +/- 6000 applications annually. The Company had established a reputation for being an Employer of Choice – a place where people wanted to work. Consequently, many vacancies had the benefit of a pool of qualified applicants already on file thereby avoiding the cost of newspaper advertising and reducing the time otherwise required to fill the position.
- As a medical malpractice insurer, the Company, given the nature of its
business and its employee makeup, had a predisposed mindset toward litigation. Despite this, the Company received only one charge of discrimination during the entire 10 year period being addressed. That charge was subsequently dismissed by the Pennsylvania Human Relations Commission at the initial fact finding stage as being without merit. Given the experience of other similarly sized organizations, it would have been reasonable to expect a rolling, ongoing number of two to four charges at all times. The cost savings on this subject alone are incalculable.
- In bi-annual employee opinion surveys which focused primarily on benefits, HR programming, policies, and practice and to which more than 80% of the employees would respond, the HR function routinely received either a “meets” or “exceeds expectations” rating from +/- 95% of the respondents. While this writer has not found any comparative data, it is reasonable to conclude that the results cited here were likely above average.
These outcomes were accomplished largely due to the addition of the “extra” position. The extra position gave the department the wherewithal and the ability to do the things that it never had the time to do – the things that make a difference which in turn produce the results cited above. Those things contributing to the positive difference as perceived by employees include:
- A more comprehensive, in-depth new employee orientation with built in follow-up.
- More one-on-one supervisory coaching and guidance.
- More time for policy research and development.
- More time for innovative benefit research and development.
- Increased visibility of HR “on the floor” resulting in increased access by employees to HR.
- Improved, accelerated conflict resolution.
- Improved performance management.
Overall, the level and delivery of all the various aspects of internal customer service and employee relations were able to reach, and consistently perform at, all time highs.
With regard to the examples of outcomes cited previously, total annual savings in terms of cost avoidance easily equate to more than $1.5M. When you consider that the total cost (including benefits) of the additional / excess position in HR was some $85K, the return on investment is almost 20 to 1. Who wouldn’t want such a return? Organizations and CEO’s need to rethink how it is they view, value, and utilize the HR function. More often than not, the HR department represents a goldmine of opportunity when staffed to be proactive and do more than simply process paper and do what is minimally required.
Jim Kroh is Director of Human Resources for the R.H. Sheppard Co., Inc. located in Hanover, PA.
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