How Much Should You Be Spending Per Employee on HR?

Updated: October 21, 2009

According to a recent study by the Society for Human Resource Management (SHRM) titled SHRM® Human Capital Benchmarking Study, HR expense per full-time employee remained relatively stable at a median of $1,176 in 2007 (the most recent year available). These costs are "soft" costs meaning the costs of the human capital supporting the HR functionalities of the responding companies in the survey. Another key finding was that most companies with fewer than 100 full-time employees average around two employees on their HR staff. Now let's say that you were able to reduce the HR expense per full-time employee (soft costs) by 25% down to around $900 per full-time employee? Would that be appealing to you? What if you could at the same time reduce other expenses like workers compensation insurance premiums, outsourced payroll costs, group medical premiums, 401(k) expenses, etc.? Would that increase your interest?

It is my opinion and experience that the respondents in this survey are over-spending on the "soft" costs of HR based upon the median HR expense per full-time employee of $1,176. HR is not their core business but yet they do not outsource their HR. It amazes me that companies outsource most everything these days that is not core to their businesses except HR. What is even more telling is that most companies increase their HR staffs when seeking operational improvements. The reality is that outsourced HR services are one of the best cost control mechanisms available to small to mid-size businesses today. Most companies with fewer than 100 full-time employees have no need for more than one person on staff in their HR departments. "Tactical" HR employees like HR generalists, payroll, and benefits coordinators can be very expensive solutions and have almost become luxuries in today's economic climate. Companies should only staff "strategic" HR professionals and outsource everything that is tactical.

By partnering with a Professional Employer Organization (PEO) companies can reduce both soft and hard HR expenses while focusing 110% of their efforts on their core, revenue-producing activities. This combination of reducing expenses and increasing revenues can have a great compounding effect on profits.

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