Despite the important work they do, many human resource (HR) departments don’t get the respect they deserve. The HR department’s budget is perceived to be overhead costs by many executives as their administrative functions do not generate any revenue for the business. Contrary to popular perception, human resources do more than just hire and fire employees. Many HR functions can impact a company’s financial ratios, influencing a business’s future viability.
Strategic HR functions ⎼ like workforce optimization and risk management ⎼ can positively impact a company’s financial ratios, promoting business growth and success. Studies have found that companies with highly-skilled HR departments generate 3.5 times more revenue and 2.1 times more profit than businesses with ineffective HR practices. Below, we will discuss which strategies contribute to positive financial ratios to maximize the return of your HR budget and improve business profitability.
Recruiting the Right Candidates
The HR department’s recruitment strategies can have a significant impact on a company’s financial ratios. The tight labor market has made hiring harder and costlier than ever before. Recruiting the right candidate can help boost workplace efficiency while a wrong hire will cost your business thousands of dollars in lost profits. According to the US Department of Labor, a bad hire can cost the business at least 30 percent of the employee’s first-year salary.
Smart HR hiring practices, like creating a budget plan for recruitment, using applicant tracking systems (ATS), and conducting skills tests can improve your chances of employing the right candidate for the job. Recruiting a quality employee over an average one can increase business profitability by 67 percent. Developing an effective recruitment strategy for your company can contribute to positive financial ratios by increasing a business’s profit margins.
Offering Competitive Benefits
Not only do businesses have to fight for acquiring the best candidates, but they should also strive to retain highly-skilled employees in the company. Talent acquisition and retention are critical for business success. A recent studyconducted by Mckinsey has found that top talent is 400 to 800 percent more productive than average employees. The HR department’s talent acquisition and retention strategies can affect a company’s financial ratios by influencing business productivity.
Developing competitive employee benefits packages is one of the most effective HR strategies for attracting top talent and keeping your best employees. Many employees are willing to accept lower pay if the company offers more desirable perks and benefits. From paid time off to health and life insurance benefits, there are many perks the HR department can offer to improve employee attraction and loyalty. A competitive benefits package can keep employees engaged and productive, generating more revenue for your business.
Processing Payrolls
Other than developing initiatives to improve workforce quality and productivity, the HR department is also responsible for processing employee payrolls. Calculating salaries and complying with the latest tax regulations, like the new COVID-19 relief law, is a daunting task for the HR department. Efficient payroll management can reduce the risk of inaccurate reporting and tax non-compliance, which can impact a company’s financial ratios.
The development of an effective payroll system by the HR department can improve a company’s financial ratios by helping you avoid hefty IRS fines and penalties. Establishing a payroll calendar, using tools like timesheets to record employee attendance, and adopting software solutions to automate the accounting process can help accelerate the task and reduce human error, saving the company valuable time and money. You can also outsource payroll processing to an accounting firm to stay compliant and improve business efficiency.
Providing Employee Support
The business world’s incessant focus on efficiency often results in sacrificing employee wellbeing and happiness. Many businesses forget that employees are not cogs in a machine but people with health, family, financial, and many other life problems. Unhappy employees cost US businesses more than $550 billion in lost productivity every year. Supporting employee wellbeing is one of the most important HR functions that can impact a company’s financial ratios.
Developing wellness programs to improve health, offering financial guidance, and providing career growth opportunities are some strategies the HR department can implement to support workforce wellbeing. Your HR team can schedule regular meetings with employees to create an investment plan for their retirement or discuss the company’s continuing education programs to promote career development. The HR department’s employee support strategies can promote a happier and more productive workforce, helping the business prosper and thrive.
Strategic HR Practices Can Help Businesses Grow
Human capital is the most important asset of any organization, and the HR department works to optimize that asset to add more value to businesses. While their work does not directly lead to revenue generation, many HR functions can impact a company’s financial ratios by influencing business efficiency and productivity. Your HR department is not an administrative backwater, but an important determinant of business profitability and success.
Developing effective strategies to improve workforce quality can make your HR budget an investment in business success. Smart HR strategies help you attract top talent, boost workforce satisfaction, and reduce employee turnover, which all impact a company’s financial ratios. If HR inefficiencies are draining your budget, you need a strategic overhaul. Consult with experienced HR specialists to seek professional guidance for helping your business grow.
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