The HR Ratio Or “How Many Employees Does It Take to Screw Up an HR Department?”

by Michael Haberman on October 14, 2010 · 4 comments

Ok, ok, I know this title made some of you bristle with outrage. But calm down, it was more to get your attention. What is the proper HR-to-Employee Ratio is a question frequently asked by people new to HR. Sometimes it is even asked by people not so new to HR. And if you ever get it asked by your CEO you had better know the answer.

This is the calculation. Though it is seldom expressed in terms of this calculation. It is generally experessed in terms of 1:100 or 1:250 or 1:400….. you  get the idea.

But knowing that calculation is not the answer to the question. Because the answer is “It depends.” But if the CEO is asking you the question that is not what you say. Because you should know what the “DEPENDS” factors are for your company, your company size, your leadership, your industry and your sophistication. For example in The HR Scorecard: Linking People, Strategy, and Performance authors Becker, Huselid and Ulrich talk about research that shows that companies that had low quality of HR leadership had a ratio of 1:253.88. Companies that had high quality HR leadership had a ratio of 1:139.51. Research as also shown that the ratio also depends on these following factors:

  • Company size. Smaller companies may actually have a smaller ratio because much of the process are not automated and therefore require more people to get them done. (Either that or the person works themselves to death. A situation often expressed to me.)
  • Sophistication. Companies that are technologically adept may have smaller ratios due to automation, such as self-enrollment or online performance evaluation.
  • Level of Outsourcing. Obviously the more funtions of HR you have outsourced the fewer HR people you need on staff.
  • Service model. Your model for delivering HR services to your “customer” base will require different levels of staffing and hence a different ratio. A company I once worked for had 30 HR members for 1000 employees. A ratio of 3:100. That was because we had a “high touch” service model. The more complex or sophisticated your employee perhaps the higher the ratio.
  • Dispersion of the employees. If you have a decentralized structure and want to have a decentralized HR department you will probably have a larger ratio than will a centralized structure.

You do have to be careful, regardless of the reason, to not have HR people for the sake of having HR people. You must remember that there needs to be an appropriate Return-on-Investment (ROI) for the number of HR people you have on staff. So that requires you to be able to determine what that ROI is and if it is desirable in your organization.

So gather your information. One source of information, and the inspiration for this post, was SHRM’s benchmarking reports . They are available to both members and nonmembers. (I get no compensation for suggesting them.)

If you want to read another blog post that does an excellent job of talking about this subject click on HR Ratio versus HR Contribution. This is a well written post by Magdelena Meller of breakpoint HR from about a year ago.

By the way, the answer to the question of “How many employees does it take to screw up an HR department?” is “IT DEPENDS.” It is your call.

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{ 3 comments… read them below or add one }

Cathy Missildine-Martin, SPHR October 15, 2010 at 8:11 am

I think another factor is are you trying to be strategic or if you are moving from transactional to Strategic. The common assumption i when you make a move to being strategic you can do so with less people, but as you say, it really depends…on the other factors you listed like organizational structure…say centralized vs. decentralized. Great post!

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Andy Spence November 3, 2010 at 8:58 am

Hi Mike – this title post does sound like the beginning of a dodgy joke involving a ‘light-bulb’! But completely agree with your article, yest it depends. In assessing a HR function against its organisational goals, it is crucial to ask the right questions. Simply asking “what is our HR Ratio?” and how does it compare to others will not help achieve organisational goals.
Too often organisations start with the answer, for example “100 employees to 1 HR FTE”
rather than obsess about asking the right questions.

Great article which was chosen as one of the Top 10 HR Transformation articles in October from HR Transformer Blog.

Thanks
Andy

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Rachel Fawcett November 4, 2010 at 5:21 am

Great posting. I am right in the middle of that debate with my CEO. The economic conditions have meant a tough year for us and as a consequence we have reduced in size. But reducing the HR function based on ratios assumes that the workload goes down in direct correlation. It is an assumption which is not stacking up. A renewed focus on performance and absence management, driving employee engagement in such tough conditions, improving flexibility (skills and working patterns) as well as looking at organisational capability in light of the market changes have all increased workload. I have ended up trying to focus the conversation more to priorities and what we can afford. A debate about ratios takes you down dead ends!

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