When looking at HR metrics, we tend to focus on the numbers that reflect on how the workforce is performing. Turnover looks at how many people leave the organization. Internal mobility rate looks at how often people are moving throughout the company. Engagement scores determine how happy talent is within the organization.
Those metrics are important for understanding how the business is operating and show how HR practices, initiatives, and policies are impacting the workforce. But, those are just indirect indicators. HR can only do so much to affect metrics like turnover and engagement, so they may not always be the clearest indicators of your HR team’s performance. The best HR initiatives cannot overshadow poor business decisions.
Here are two HR metrics for your scorecard that speak to how your HR team is performing.
HR Expense to Revenue Ratio
The HR expense to revenue ratio metric is helpful for budget planning and fiscal projecting. First, identify and total all HR operation costs including HR team labor costs, HR systems fees, outsourced services, recruitment fees, and etc. You’ll also need the business’s revenue for the fiscal year from your finance team.
To calculate, divide total HR expenses by the revenue. Then multiply by 100 to get the percentage.
HR expense to revenue ratio = Total HR Expenses / Revenue
HR Expense to Operating Expense Ratio
Similar to the previous metric, HR expense to operating cost ratio benefits budgeting and fiscal planning. It gives an idea of how much an organization is investing in the HR function versus overall operations. HR expenses can vary depending on if you choose to lump the organization’s workforce labor costs into HR expenses.
To calculate, divide total HR expenses by total operating costs. Then multiply by 100 to get the percentage.
HR expense to operating expense ratio = Total HR Expenses / Total Operating Costs
Both metrics will set you apart as a strategic business partner for your business leaders. When the finance team is projecting future revenue, you can look at historical ratios to project HR costs. Or you can compare HR’s percentage of the operating costs to other functional areas. HR becomes more proactive vs reactive.