The "Magical" HR Formula

Posted: March 23, 2021 in Benefits Consulting , Leadership , Recruitment & Retention

The People team, Human Resources, Human Capital….no matter what you call the HR team, they are necessary to keep a business running smoothly. As firms add people to their headcount or new geographies to the map, a common question is whether the company has the “right” number of HR people. The Society for Human Resource Management (SHRM) reports over half of small businesses manage their human resources internally without outside resources. What is the ideal ratio for proper HR employee support?

Most people love a trusty ratio they can rely upon to make headcount decisions. In start-ups and smaller businesses, owners often initially wear the HR hat. Many owners consider ten employees to be the tipping point at which they need to delegate HR so it can be given the time and care it deserves. At this size, HR is likely a part-time job for an employee who also manages other functions such as finance or marketing. Regardless of the incumbent, the HR lead needs to invest in continued education to manage this rapidly changing field.

As companies grow, the decision and timing in which to add new HR staff should be evaluated on an ongoing basis. A much-disputed ratio in the HR community is the number of HR employees needed to scale up. A rule of thumb is one full time HR person for every one hundred employees (1:100). But this figure is not bulletproof. Companies should consider a variety of factors unique to their organization. Performance goals and strategic plans should be taken into account. Reviewing company goals is more than just looking at growth plans. Evaluate the industry needs and maturity of the business. Additional considerations should also include major organization changes such as reorganizations, corporate layoffs, or office consolidations – change management practices where HR professionals are key for design and implementation. Culture plays into the ratio as well; countries with more compliant cultures may need less support.

Evaluate the needs of your employee base as well, which may run the gamut. A factor to review includes management expectations. How involved are managers in discussing career paths and providing coaching to their staff? A manager who doesn’t provide spot coaching may lead to a team that requires more frequent HR support. It is also pertinent to consider the novel business environment. For example, the onset of the coronavirus (COVID-19) crisis elevated HR needs in areas such as mental health and real estate. A stronger focus on employee wellbeing has been brought to light given the increase in workers juggling home and work in the same space.

It would be helpful if there were a formula to determine the right number of HR staff for your company. Truth be told, choosing the HR-to-employee ratio is a company-specific exercise. Stakeholders should be thoughtful of their employee needs and consider the unique challenges they face in the market. Rightsizing the number of your HR staff to meet the needs of your organization is one option. Other options include utilizing HR consultants or outsourcing firms to manage specific pieces of your HR strategy, a factor that may make sense before you hit a critical employee mass.

_{SOURCES: United Benefit Advisors (UBA); SHRM; peoplemanagement.com}