An organization can calculate the HR-to-employee ratio to determine the effectiveness of the human resources department. The ratio measures the number of Human Resources (HR) employees per 100 employees. The measure is used to determine how well the HR department delivers services to the rest of the staff.
TL;DR (Too Long; Didn't Read)
Calculate the HR-to-employee ratio by dividing the number of HR FTEs (full-time equivalents) by the total number of employees in the organization and multiplying the outcome by 100.
Uses of the HR-to-Employee Ratio
Company executives can use the HR-to-employee ratio to trim the HR staff if it is determined that the company has hired a larger number of HR staff than is necessary to manage the HR need. Or vice versa, the company may realize that the company has grown to the point that more HR staff are needed to effectively manage the employees. Being able to calculate the ratio properly helps business owners make these important staffing decisions.
How to Calculate the HR-to-Employee Ratio
The HR-to-employee ratio is calculated by dividing the number of HR FTEs (full-time equivalents) by the total number of employees in the organization and multiplying the outcome by 100:
HR-to-Employee Ratio =
(Total number of HR FTEs / Total number of FTEs) x 100
If you have multiple part-time employees, translate those positions into FTEs for the most accurate results. An FTE is considered to be 2,080 hours worked per year. Note that this figure does not account for holidays, vacation time or sick time, etc.)
Let’s walk through this example with numbers for both large and small employers:
A Small Employer:
Company A has 1 HR FTE employee and 55 FTEs and 15 part-time employees each working 16 hours a week. One part-time employee works 832 hours annually. The 15 part-time employees collectively work 12,480 hours annually.
There are 2,080 working hours in the year, and Company A’s part-time staff works 12,480 hours during that year. To calculate FTEs, divide the hours worked (12,480) by the working hours (2,080). The result is 6 FTEs. Add 6 to the 55 FTEs for the total number of FTEs, which is 61.
Plug the numbers into the formula:
HR-to-Employee Ratio = (1 / 61) x 100
Company A HR-to-Employee Ratio = 1.64
A Large Employer:
Company B has 5 HR FTEs and 1,000 FTEs. Let’s work out the ratio for that company:
HR-to-Employee Ratio = (5 / 1000) x 100
Company B HR-to-Employee Ratio = .5
Recent HR-to-Employee Ratio Data
The Society for Human Resource Management's 2017 Human Capital Benchmarking Study shows that the average HR-to-employee ratio is 2.60. The ideal ratio varies by organizational needs. While roughly two HR staffers per 100 employees may be the norm for many organizations, it may fall short if the organization is undergoing growth and hiring new staff, or is undertaking a significant initiative such as a new training program, new cloud technology etc..
The HR Department Benchmarks and Analysis 2017 report issued by Bloomberg and the Bureau of National Affairs indicates that the median HR staff ratio remains at a record high level of 1.4 HR employees for every 100 workers served by the department.
Understanding the HR-to-Employee Ratio
As you can see from the example above, although Company A has far fewer employees and HR staffers, it is above the national median ratio. Company B, although it has more of both, is far below the median.
Smaller employers generally report higher HR staffing ratios. For larger employers, automation and economies of scale help large them maintain a lower HR-to-employee ratio.
While it is possible to calculate the ratio, the ratio by itself does not tell the business owner whether their HR department is able to effectively keep up with demand. However, being able to calculate the ratio and compare it to other organizations of similar size is useful for the business owner in evaluating whether the HR department may be under-or-overstaffed.
Since 2006, Vanessa has written for a variety of website development agencies and private clients on topics related to growth for new and underperforming businesses. Her work can be found in print publications and on websites such as Palo Alto Software and business accelerators and Chambers of Commerce in her state.