Key Performance Indicators for Human Resources are measurable indicators that analyze the effectiveness of HR strategies and action plans in contributing to an organization's overall success. Key performance indicators for human resources provide useful information about how lucrative the HR department manages its resources, attracts and retains talent, fosters employee engagement, and aligns its practices with the overall business goals. The human resources department may make educated decisions to maximize their personnel and achieve their business goals by tracking and reviewing HR KPIs regularly.
Every human resources department is tasked to select the correct metrics for their firm and to track them regularly. Key performance indicators for human resources that are tracked regularly can assist in evaluating the influence of HR policies and activities on the overall health of the department as well as the organization at large. While a variety of human resources KPIs are used across different organizations, there are some popular examples, such as employee turnover rate, retention rate, absenteeism rate, Average Employee Tenure, cost-per-hire, salary cost by department, and training costs. We will cover these most KPIs in detail in the following section.
Key Performance Indicators for Human Resources
Employee Turnover Rate
The Employee Turnover Rate is a very common key performance indicator for human resources across different organizations. Employee turnover is the percentage of employees that leave a company during a given period. Organizations typically calculate turnover rates annually, half-yearly or quarterly. To calculate the employee turnover rate, human resources departments divide the number of employees that left the organization by the average number of employees over the same period.
The Employee Turnover Rate KPI is quite handy in assisting firms to monitor the general health of the workforce and indicate opportunities for improvement. A high staff turnover rate can indicate organizational issues such as low employee satisfaction, low morale, or insufficient training and development initiatives. Organizations can then set up initiatives to combat their turnover. Organizations can monitor the impact of these programs and determine their efficacy by tracking the Employee Turnover Rate KPI.
Employee Retention Rate
The retention rate is quite the opposite of the employee turnover rate. It is a very common key performance indicator for human resources. It measures the percentage of employees who remain employed by the same organization over a certain period.
A high employee retention rate may mean employees are satisfied with their work and are devoted to the organization. A poor retention rate, on the other hand, indicates that there may be underlying concerns that need to be addressed. Organizations can identify areas of high turnover by comparing retention rates across different departments, demographics, or job levels. This data can then be utilized to investigate the fundamental causes of turnover and develop targeted solutions.
Tracking retention rates before and after introducing new HR efforts, such as employee engagement or training programs, can assist in determining whether these activities are beneficial in reducing turnover and enhancing employee satisfaction. When comparing retention rates to industry norms, an organization's talent retention can be objectively assessed. This can assist in identifying areas where the organization's HR operations should be improved or where it could offer more competitive wage and benefits packages.
By analyzing historical retention rates and projecting future growth or changes in the business landscape, organizations can anticipate their future talent needs and make informed decisions about recruitment and staffing strategies.
While retention rate is a very common key performance indicator for human resources, some shortfalls come with tracking this KPI. Calculating the number of employees at the beginning and end of the period may not be enough to conclude the status of employee retention. Certain individuals could be unsatisfied but stay because they have nowhere else to go. It is, therefore, important to also consider the reasons for retention before making decisions.
The absenteeism rate is another one of the key performance indicators for human resources. It measures unplanned absenteeism by employees due to various factors. It is calculated by dividing the number of absent days by the number of available work days in a given period.
A high absence rate may indicate that employees are dealing with health challenges, stress, or other issues that are interfering with their capacity to work. Absenteeism rates can also be utilized to pinpoint specific organizational issues, such as bad working conditions, insufficient training, or low staff morale. Tracking absence rates over time allows organizations to identify trends and patterns that may indicate underlying concerns. Absenteeism rates can be used to assess the success of human resource programs aimed at increasing employee health and well-being.
Average Employee Tenure
Average employee tenure is another essential key performance indicator for human resources. The average employee tenure measures the total length of time that employees have been working for a particular company on average. It is calculated by dividing the total number of employees' years of service by the total number of employees.
The average employee tenure KPI is a useful tool for firms to evaluate the health of their staff and detect potential issues affecting employee retention and overall organizational success. A high average employment longevity may indicate a contented and engaged workforce, whereas a low average job tenure may indicate dissatisfaction with one's job and a willingness to leave.
Cost per Hire
The cost-per-hire KPI highlights the amount spent on recruiting a new employee. It is determined by dividing total recruitment costs by total number of hires. Tracking the cost-per-hire key performance indicator (KPI) can assist firms in monitoring their recruiting spending and identifying areas where they may be able to save money. A high cost per hire may imply that the recruitment process is inefficient or that there are cost-cutting opportunities.
To measure their performance, firms might compare their cost per hire to other organizations in the same industry or sector. This can assist organizations in determining areas where they succeed and places where they need to improve. Organizations can discover specific areas where they may be able to save money by evaluating the breakdown of recruitment costs. They may be able to negotiate better pricing with recruitment firms, for example, or switch to a less expensive advertising platform.
Salary Cost by Department
Departmental Salary Costs is a measure of how salary spending is distributed among different departments within a business. It is often expressed as a percentage and is derived by dividing total pay expenses for each department by total salary expenses for the organization as a whole.
Salary Costs by Department KPIs are a useful tool for firms to track the deployment of wage resources and identify possible areas for improvement. It can also be used to compare salary expenditures across departments and verify that compensation is aligned with departmental duties and contributions. Organizations can examine their wage distribution relative to other organizations in the same sector by comparing their departmental salary ratios to industry benchmarks. This can provide insight into whether their compensation allocation is in line with industry norms and competitiveness.
Related: Example Key Performance Indicators
Training Costs per employee
The training costs key performance indicator for human resources is a measure of the average amount of money spent on training per employee in an organization. It is also known as the training expenditure ratio or training expense per employee. It is commonly computed by dividing total training expenses by total employee count. Tracking the training costs KPI can assist firms in determining how much they invest in training and development. This data can be used to assess if the organization is investing adequately in training to satisfy its needs.
Organizations can assess the success of their training by measuring the training expenses KPI and comparing it to the results of training programs. This data can be used to identify areas of training that can be improved. Training cost KPI tracking can assist firms in making educated decisions about their training and development initiatives. This data can be utilized to identify which training programs are most effective and which should be phased out.
Key Performance Indicators (KPIs) are essential for HR professionals to use when assessing the effectiveness of HR interventions and processes. Organizations can obtain significant insights into employee satisfaction, retention, productivity, and overall workforce performance by deploying HR KPIs.