When I am asked by clients to help restructure their HR team a question I am often asked is ‘how many HR people do we need?’. I tell them, “it depends”; but I do qualify that with what I hope is useful guidance.
Earlier this year XpertHR stated that the median number of employees for each member of HR staff (full-time equivalent) is 59.7. So around 1.7 HR people per 100 employees. Considerable research in the USA suggest that the average ratio of HR people to employees has been fairly stable for years at one HR person for every 100 employees. However, also in the USA, a March 2008 study by Bloomberg said HR staffing levels are running at an all-time high, with the median HR-to-employee ratio last year being 1.4 HR employees per 100 employees.
These generalisations, in truth, are of little practical help. Some statistics exclude payroll or health and safety; others exclude learning and development. A ratio of, say, 1 to 150 might be right for a medium sized organisation with a fairly stable workforce making good use of technology. In a global multi-national a ratio of 1 to 600 might be absolutely fine.
The right ratio for your organisation depends upon many things; size, headcount, stability, growth, geographic spread, sector, staff turnover, opportunity for outsourcing, risk and compliance issues, sophistication of workforce; the list could go on.
To work out what you need I suggest you start with an examination of the people challenges you face and the key objectives of your organisation; then assess critically the inherent capacity and know-how within the business to address these priorities, both HR and line management capability.
An organisation with up to 50 people may have an office manager running a number of functions (premises, purchasing, accounting etc), with outsourced payroll, benefits compliance etc. They will often engage an HR consultant and other specialist advisers as and when required. I would say when headcount gets to 50 plus there must be someone who is strongly focussed on HR if not a dedicated person. At 100 plus and growing quickly you will need to start building a team. The second professional hire is often a dedicated recruiter, but it depends on the business and its needs.
If you have less than 200 people you may not need senior full-time resource. I recommend you hire someone in-house with the potential to become your head of function as the business grows and that you create a budget to ensure regular and ad hoc senior level support when it is needed, e.g. to help implement new performance management processes, conduct benefits reviews, deal with acquisition due diligence, significant restructuring, help with coaching to realise potential etc.
As an organisation grows your HR function will develop specialisms which mirror the needs of the business. Learning and development, compensation and benefits, wellbeing, employee relations, all spring to mind. In some sectors specialists in health and safety will be vital early on. As you grow, change initiatives can be still be driven by hiring temporary expertise; with the external provider helping build in-house capability.
I have avoided explanations of service delivery models (business partnering, shared services et al), mainly because it tends to make my client’s eyes glaze over. These are useful for perspective and understanding all the options, but it makes most sense to focus on business priorities and design what works for you rather than apply any particular ‘model’ solution.
Investing in people management and development pays off.
A 2007 survey by Deloitte Touche Tohmatsu and the Economist Intelligence Unit said that 72% of senior business executives believe people and talent are critical to their company’s results, but only 8 percent were confident in the way their company manages talent. Also, 46% of the executives surveyed thought their company’s HR capabilities were adequate but need to improve with another 31% stating a significant improvement was needed.
The Work Foundation and the Institute for Employment Studies, in 2008, tested a range of people management practices with around 3,000 employers to assess their impact on organisational performance. It found that businesses with good HR practices in resourcing, employee engagement and skills development, enjoyed higher profit margins than those without. The study concluded that if an organisation increased its investment in HR by just 10% it would boost gross profits by £1,500 per employee per year.
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