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How can the HR department optimize costs
  • Reading time:16 mins read
  • Post category:How to
  • Post published:February 15, 2024

How can the HR department optimize costs?

In India there are currently more than 410.1 million employees (as of March 2023), which account for close to 56.9% of the total operating expenses in small companies, according to the Economic Times. It is foreseeable that personnel costs will continue to grow in the coming years.

This makes reducing human resources (HR) costs a priority for companies. Staff cuts are controversial, because although they may provide savings in the short term, they reduce the competitiveness of the business in the medium and long term. However, organizations have other solutions at their disposal to optimize and reduce personnel costs.

Main costs of the HR department

Beyond salaries and social contributions, which are inevitable and offer little room for maneuver, the main costs that HR departments have to deal with are: H H. They are mainly related to talent management.

Highlights include:

  • Staff turnover: in India, the voluntary staff turnover rate ranges between 20-21%, depending on the sector. This means that companies must constantly invest in the selection and training of new employees to fill vacancies.
  • Absenteeism from work: the great workhorse of productivity in Spain. Sick leave, whether justified or not, represents the loss of more than 16.4 days (male = 16.5 & female = 16.2) of work per year per employee and costs companies more than Rs. 14000 crores per year according to Delloite.
  • In-person absenteeism: more difficult to quantify, but equally problematic for companies. It encompasses all the hours spent at work in which productivity is low for different reasons, from lack of motivation to leadership or organization problems.
  • Administrative burdens: despite the boost of the pandemic, 48% of companies have not yet started their digitalization process, according to the Economic Times. This translates into inefficient processes and repetitive tasks that drive up costs.

Although some of these problems are beyond the scope of human resources, the HR area. It is the one in the most appropriate situation to lead improvement efforts and try to reduce this type of costs related to personnel management. Keep reading to see how.

Control operations expenses
Control operations expenses

Key aspects of cost optimization in HR

Firstly, before applying any cost reduction measures, the HR department, you must carry out the relevant analyzes to obtain a global vision of what is happening in the company.

Secondly, it is important to keep in mind that not all cost optimization initiatives will deliver the same business benefits.

For this reason, before carrying out a cost reduction measure, you must evaluate and compare the different proposed alternatives based on the level of benefit, cost, risk and visibility of each one.

In this sense, those responsible for HR the following questions should be asked:

  • What savings in personnel costs will the measure mean?
  • What impact will it have on other areas of the business?
  • What will be the return on investment period?
  • Can the initial investment be converted into a pay-as-you-go payment?
  • What flexibility does the solution offer to adapt to the future?

In short, it is about presenting a “business case” that helps convince the company’s management of the need for change and justifies the return on investment in the proposed measures.

Implement mandatory working hours
Implement mandatory working hours

How to reduce costs in human resources

Reducing costs in HR. can be achieved both through organizational measures focused on optimizing personnel management, and through tools that facilitate achieving this objective. Below are some good practices that companies can apply in both aspects.

1. Minimize employee turnover and demotivation

As we have pointed out before, resignations and lack of motivation of employees are two of the main costs of companies in which the HR area can have a more direct impact.

The development of a work motivation plan focused on reducing these levels of dissatisfaction is a relatively simple and inexpensive measure that can benefit the company as a whole and achieve a significant reduction in costs from the HR department.

Often, it is not so much about introducing novel measures, but rather ensuring that employees’ professional needs and motivations are taken into account. Also focus on workplace discrimination.

2. Opt for outsourcing some services

Like any other department of a company, the HR area. faces the challenge of doing more and more tasks with limited resources. This is due to the development of more advanced and mature human resources policies, such as active listening to employees, 360˚ evaluations, continuous training and retraining, etc.

With the aim of offloading part of this volume of daily work, and at the same time reducing costs in Human Resources, many companies choose to outsource services in this area. Some activities that can be outsourced are, for example, payroll preparation, legal, tax and labor advice, and internal communication plans.

Although it largely depends on the type and scope of the tasks chosen, experts point out that outsourcing can achieve a reduction of up to 30% in spending.

In this way, the employees of the HR department can stop spending time on mechanical tasks or tasks that require highly specialized skills, in order to focus on aspects of greater added value for the organization.

3. Make the workforce structure more flexible

As we pointed out at the beginning, the possibilities of reducing costs in Human Resources by influencing the restructuring of the workforce are limited and add dangerous tensions to organizations. However, those responsible for the HR department do have the possibility of reducing personnel expenses through a more flexible approach, which aligns personnel resources with the changing needs of the company at different times and scenarios.

For example, instead of having specialized departments that function as rigid compartments (something that may make little sense in small organizations), you can create cross-functional teams capable of covering different tasks and roles at different times.

Another strategy that companies can use to reduce costs in the company is to employ a combination of permanent and temporary workers, depending on market demands and the volume of work.

Offer flexible pay
Offer flexible pay

4. Go for flexible remuneration

Is it possible to reduce costs in Human Resources without cutting salaries or laying off workers? The formula that more and more companies are opting for is flexible remuneration, in several dimensions:

  • Remuneration by objectives: when these objectives are set in a consensual and realistic manner, they are an incentive for productivity and motivation.
  • Remuneration in kind: social benefits such as restaurant vouchers, health insurance, childcare aid, etc. This allows them to be more competitive without increasing the wage bill, while at the same time building loyalty among their employees with incentives that have a direct impact on their quality of life.
  • Emotional salary: for example, flexible schedules, work-life balance, training, equal opportunities or professional development options with career plans. This “emotional salary” has a growing weight in the retention of professionals.

Flexible pay measures are relatively easy to implement and have little impact on the human resources budget. However, they can achieve great results in terms of attracting and retaining talent, increasing the well-being and commitment of the workforce.

5. Control expenses

At the end of the year, work expenses represent a non-negligible part of the human resources budget. Furthermore, its management usually involves an excess of internal bureaucracy; while excessively restrictive policies end up generating the rejection of the workforce.

However, companies have room to improve expense management and reduce costs across the business through clearly defined expense control policies, including:

  • Clear guidelines on the expenses assumed by the company: per diems, parking, telephone etc.
  • Agile procedures to present, justify and reimburse expenses
  • Effective alternatives, such as replacing some work trips with virtual meetings
  • Established criteria for choosing suppliers and purchasing management
  • Raising staff awareness about the importance of spending responsibly

It is not about being “stingy” when it comes to paying expenses, but about managing them with greater efficiency, turning employees into allies to reduce costs and improve transparency.

Digitalize business
Digitalize business

6. Opt for digitalization

If there is an area within companies in which digitalization is lagging behind, it is undoubtedly human resources procedures. Especially in small and medium-sized companies, procedures based on forms, templates or, at most, Excel sheets continue to dominate.

The result? Thousands of work hours invested throughout the year in repetitive tasks such as organizing work shifts, managing vacations, presenting expenses or requesting trips. This represents a waste of time for employees in all areas, who are forced to deal with ineffective procedures; as well as for the HR department, who has serious difficulties in maintaining the necessary visibility among such a barrage of papers and spreadsheets.

One of the ways that the human resources area can reduce the time and effort dedicated to these activities is to reduce inefficiencies with the help of new technologies.

Currently, there are a large number of digital platforms and solutions on the market that allow you to automate and manage the bulk of HR activities efficiently. In the next section we will see some examples of this type of tools that are increasingly used.

Outsourcing HR services
Outsourcing HR services

Technological solutions to reduce costs in human resources

Currently, there is a wide variety of digital tools that have the ability to contribute to the reduction of costs for the human resources department at a specific level, and personnel expenses at the company level in general. In most cases, they are easy to implement and affordable, thanks to software-as-a-service models.

Below are three examples of solutions widely used in companies today to reduce Human Resources costs.

Payrolls and remuneration

Among the administrative tasks that require more dedication from HR, without a doubt the calculation of remuneration and the preparation of payrolls lead the classification. Traditionally, this task required one or several administrative profiles dedicated almost exclusively. In other cases, it was decided to outsource payroll to a specialized agency or provider.

Currently, the vast majority of payroll programs have made the leap to the cloud and are available as a pay-as-you-go service. This considerably reduces the complexity of payroll management, which reduces costs for the HR department and free up resources.

Expense management

Without a doubt, managing employee expenses is one of the human resources tasks that have benefited the most from new technologies. Instead of cumbersome expense sheets, today there are many solutions that allow you to present, manage and pay travel, subsistence, mileage and parking expenses quickly and easily.

Along with the reduction of costs in Human Resources while this simplified management entails, the digitalization of the expense management process offers other additional advantages. For example, better control of expenses reduces administrative errors and mischief when claiming these items.

Time control

Tracking employee work hours is crucial and can be made readily accessible through digital systems. This benefits both employees and HR: employees see workload transparency, while HR sheds manual processes and gains integration with payroll and expense tools.

The system further streamlines tasks like leave requests, scheduling, and overtime control, even enabling salary registration. This tech adoption becomes vital in a changing job market with trends like flexible pay, objective-based work, and remote collaboration. It not only reduces HR costs but also supports the future of work.

Final Words: How can the HR department optimize costs?

Remember, cost optimization in HR isn’t just about cutting corners. It’s about making strategic choices that enhance efficiency, boost employee satisfaction, and ultimately, contribute to the bottom line. By implementing these 6 easy ways, you can streamline processes, empower employees, and create a cost-effective, high-performing HR department. Remember, the human touch remains crucial. Use these strategies alongside continuous evaluation and adaptation to create an HR function that serves both your budget and your people effectively. Happy optimizing!