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Controlling Human Resources Costs: 4 Steps You Can Take Right Now

HR costs, while likely necessary, can be significant. Here are four common HR functions that tend to cost companies money, and some ways to help manage and optimize each of them.
how to control HR costs

Human resources costs associated with operating a business can be significant. From rising healthcare expenses to basic HR administration costs, companies increasingly have to balance budgets to offset funds allotted to attracting and retaining top talent.

You may need to reduce one or many items from your human resources budget, but this doesn't mean your company's productivity or potential has to suffer in the process. Bloomberg's HR Department Benchmarks and Analysis 2017 report indicated that HR costs related to benefits, employment and recruiting, training and development, and compensation account for about two-thirds of a human resource department's total annual budget. But these critical functions may be better managed with a focus on efficiency, and optimizing the return on investment associated with each.

Here are four common human resources functions that tend to cost companies money, and some ways to help manage and optimize each of them.

Invest in hiring and retention

A company's ability to attract, hire, retain, and develop top talent is critical to its performance and potential, but talent management can come at a hefty price. In 2016, The Society for Human Resource Management estimated that the average company spends about $4,100 on each new hire, and takes about 42 days to find the right candidate. Given that the average annual employee turnover rate is about 20 percent; however, much of that investment may be wasted on employees who leave the company soon after they're hired.

HR costs related to turnover may be minimized when employees are given the tools they need to help succeed as soon as they start the job. In addition to providing employees with a professional and positive onboarding experience, staff at all levels should be provided with development opportunities and benefits that make them want to grow their skills over the long-term, and remain a valued member of a team.

When an employer offers employee support through formalized training, mentoring, continuing education, and career advancement opportunities, staff are more likely to make positive and lasting contributions to a company's most important business priorities and long-term strategic objectives. A strong employee retention program — along with a rich benefits package — can also help contain HR administrative costs. Workers who receive good salaries and benefits typically want to stay put.

Evaluate your benefits

Is your benefits spending aligned with your company's priorities, and those of your employees? Many companies evaluate their benefits and find that certain programs or perks are underleveraged and can be cut. It's also helpful to look at who is providing and administering your benefits. You can often find comparable alternatives to health plans, employee assistance programs, payroll support, and other core human resources-related expenses.

Healthcare benefits

Annual healthcare premiums reached $18,764 in 2017 for average family coverage, according to Kaiser's 2017 Employer Health Benefits survey of employers. Respondents said they paid about 70 percent of that cost. Some of the human resources cost associated with this benefit can be better managed by ensuring employees are enrolled in a plan that suits their needs, or with a high-deductible health plan combined with the option for employees to contribute to a health savings account (HSA).

To contain employee benefit costs, you may want to consider:

  • Having employees share some of the expense;
  • Whether you can afford to cover dependents, spouses, and domestic partners;
  • Offering benefits that make sense for your workforce; and
  • Aligning your workforce with a larger entity, which can give you access to more comprehensive and less expensive employee benefits.

Workers' compensation

Most states require employers to carry workers' compensation insurance. Rates are set by states and vary by occupational risk classification. Managing these costs is largely out of your hands, but companies can benefit from working with an insurance agency that has a thorough understanding of workers' compensation issues and regulations.

Forming a business relationship with a professional employer organization (PEO) may also give your workers access to large-group coverage for benefits like medical, dental, and vision care, as well as life, disability, and workers' compensation insurance. PEOs allow for economies of scale by joining your workforce to a larger benefits and administrative employment group.

Streamline HR services with technology

Investing in HR software is another way to help manage costs. For example, applicant tracking systems can streamline the recruiting process, use automated questionnaires to screen individual applicants, and automate candidate communications. Other tools such as time and attendance, employee self-service portals, and management reporting portals can help eliminate unnecessary staff time spent on administrative tasks and free up your HR team to focus on high-value activities.

Outsource to your advantage

HR administration generally consists of functions such as recruiting, hiring, terminating, training, performance evaluation, payroll, benefits management, and keeping up with workplace regulatory requirements. These regulations can change frequently and failure to stay compliant can result in sizable penalties.

Making the choice to outsource HR functions can be an important step in cutting costs, without eliminating benefits that employees value, or jeopardizing your ability to manage these functions accurately. In fact, Bloomberg's survey indicated that 63 percent of HR departments relied on an outside service provider to handle at least one program or activity in 2017. Further, these HR functions tend to remain outsourced once the initial shift to a third-party provider has taken place, indicating that employers that take advantage of HR outsourcing generally have a positive experience with the transition.

Seeking assistance with human resources may allow your company to control HR costs, such as payroll administration, employee benefits, and staying compliant with regulatory demands. If your company is looking for ways to optimize these costs, consider an HR service provider that can help your business manage these functions so you can focus your efforts on more strategic priorities.

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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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