Before we explore the basics of HR Management, which we’ll be referring to it as HRM, let’s define HRM. HRM comprises the formal systems designed to manage people in an organization. To best understand HRM, we will look at a brief history, understand the roles HRM plays in organizations and go over when is it time to bring HR into the mix.
When did HRM start?
One of the main issues with today’s HR professionals is that they don’t understand where everything comes from and how the role became what it is today. What is now called HRM has evolved a great deal since its beginnings around the year 1900. Personnel departments, which emerged as a defined field by the 1920s in a lot of parts of the world, was largely concerned with technical functions. What began as a primarily clerical operation in larger companies concerned with payroll and employee records began to face changes with the social legislation of the 1960s. HRM developed in response to the increase in competitive business organizations experienced by the late 1970s as a result of deregulation and rapid technological change. In the 1990s, globalization and competition required human resource departments to become more concerned with costs, planning, and the implications of various HR strategies for both organizations and their employees. The role of HRM professionals has dramatically evolved over the years. If an organization wants to have a formal HR department, which you should, there are typically three different roles that group might play in the organization.
The strategic role links human resource staff with organizational mission and the work of people in the organization.
The operational role manages functional human resource activities and serving as an ‘employee champion.’
And then finally, the administrative role provides recordkeeping, process administration, and compliance efforts, and all that. The priority of these roles has changed a lot during the years.
These functions are a collection of specialized HRM work. For each functional area, Human Resource Professionals are responsible for key activities that help the organization go forward. Now, this begs the question, when is it time to bring HR into the recipe?
HR-to-Employee Ratio in Businesses
Last week we spoke with Comtravo’s People & Culture manager. We specifically talked a bit about when is the correct time to bring an HR into the pot. Bottom line? Better sooner than later. The well-known general rule “1 position in human resources for every 100 employees” still exists and it is not bad, but it tends to be for larger companies with a human resources department with sufficient resources. On one side, there are equations to sustain all of this. Let’s talk first about calculating HR-to-employe 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 Employer Example:
Company A has 1 HR FTE employee and 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.
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 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 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 effectively manage the employees. 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 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. 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.
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 level 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 organizations of similar size is useful for the business owner in evaluating whether the HR department may be under-or-overstaffed.
IS HRM really that important?
You have no idea. HRM plays 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, this keeps people motivated, happy, personally engaged and contributing to company success. Even more, the HR professional helps the development of organizational culture and climate in which employees have the competency, concern, and commitment to serve customers well.