Using metrics to measure various aspects of your workforce and internal processes is all part of owning and operating a company. Whether your small business has a human resource manager, you are responsible for these tasks yourself or outsource HR tasks instead; you will need to be aware of these KPIs to improve your employee processes overall.
From your business’s absence rate to its employee engagement index, it is essential to know what these HR performance indicators are and how they affect your organization as a whole.
What are HR KPIs?
Human resource key performance indicators (HR KPIs) measure and assess important aspects of a business’s human resources or employees. These HR metrics gauge company performance and retention efforts by looking at its workforce.
How are KPIs Measured?
HR professionals use these KPI metrics to define and measure the company’s internal processes and specific goals revolving around its staff members. HR performance indicators help businesses assess how successful a company is based on these metrics.
Such defining standards must be implemented within the company to create a baseline to compare future findings against. To do this, your business first must understand various HR KPIs to apply them successfully.
Common HR Metrics
Familiarizing yourself with these concepts is always a good idea, even if you are not directly in charge of the business’s human resources management. Like knowing common time tracking glossary, business owners and managers should understand these concepts to manage their staff members better.
1. Absence rate
Absence rate, absenteeism rate, or absence percentage is the rate of employees’ unplanned absences from work. The absence cost goes hand in hand with this rate, as it calculates the rate and cost of absenteeism in your workforce.
To find the absence rate as a percentage, you can use the absenteeism formula as seen below:
(number of absent days / number of available workdays in a period) x 100
= Absence rate %
The final number calculated will show the percentage of time an employee has taken an unplanned absence from the company. This absenteeism rate formula is for a given period. However, it can also be used to calculate the rate for an entire year. Substitute the set of numbers for absent days and workdays in a period for the workdays in the whole year to obtain these findings.
Remember, weekends, vacation days, public holidays do not count towards available workdays.
2. Benefits satisfaction
Benefits satisfaction measures how satisfied a business’s workforce is with its provided benefits. Human resource management won’t need a formula to calculate this KPI, as it can be gauged by surveying staff to determine what they think of the associated benefit plans.
This metric helps businesses assess whether they are providing good or bad benefit packages to their employees, from health insurance and dental coverage to retirement plans. When providing benefit packages to small business employees, you should also be aware of the associated allowances come tax time.
3. Employee satisfaction index
As the name suggests, this satisfaction index measures how satisfied a workforce is within a company. Also known as ESI, this human resource metric helps companies determine their employees’ satisfaction using employee satisfaction surveys based on a scale from 1 to 10. The closer to 10, the employee rates their satisfaction level, the happier they are with their workplace.
Human resource departments use this index to gauge their team’s overall happiness and contentment while working for an organization. If businesses notice a low score, they can focus their efforts on improving the work environment, engaging employees, and showing appreciation.
Staff satisfaction goes hand in hand with employee productivity- as the happier and more engaged staff feel, the better their efforts and work output.
4. Employee productivity rate
This productivity rate measures the total work output of a company’s staff. Such HR performance indicators are useful as they help owners and managers measure the workforce’s current productivity levels while also providing a baseline metric to compare against future performance and output.
To determine this metric, you can use the labour productivity equation:
Productivity rate = total output / total input
The total output would refer to the revenue of production, while total input could represent either total hours of work or the total number of employees for the work generated.
HR departments use this KPI for labour forecasting and determining the scope of human resources needed to finish specific tasks or projects. Calculating this rate can also give business insight into employees’ work hours and productivity levels.
Businesses have found a direct relationship between the overtime hours of employees and their productivity levels. In all, overtime can actually decrease productivity as work output drops over time while hours worked increase.
5. Employee retention rate
A business’s employee retention rate measures how well companies can hold on to their workers in a given period. The higher the rate, the better a company is at keeping its employees happy and working within the company. The lower the rate, the higher amount of employees that leave the company.
Key Performance Indicators like this help businesses identify issues within the company to improve retention rate to entice talented employees to stay put.
To determine your small business’s employee retention rate, use this formula:
(number of employees who stayed for the whole period / number of employees at the start of the period) x 100 = Retention rate %
It’s important to note that this rate does not include employees hired for a position, only to be let go after the position is removed from within the company.
6. Turn over rate (voluntary/involuntary)
The turnover rate refers to the percentage of staff that leave a company within a specific period. Employee turnover is the act of replacing staff that have left the establishment. A high rate means a company is significantly hiring and rehiring, while a low turn over rate shows employees are staying in their positions for longer.
The turn over rate and retention rate are two sides of the same coin as they measure how well and how poorly a company does at keeping their employees positioned within the company.
Your business can use the turnover formula to determine the total turn over rate:
(number of employees that have left in a period / average number of employees in the same period) x 100 = Turnover rate %
In addition to the total turn over rate, this metric can further be divided into two parts: voluntary separation from the company and involuntary separation from the company. Voluntary separation refers to employees who choose to leave the company versus being laid off, fired, or those that retire.
(number of voluntary separations in a period / average number of employees in the same period) x 100 = voluntary turnover rate %
(number of involuntary separations in a period / average number of employees in the same period) x 100 = involuntary turnover rate %
7. Employee engagement index
The employee engagement index helps businesses identify how engaged their staff are from their work. The index is measured using a survey that assesses how passionate and inspired employees feel about what they do.
The Global Employee Engagement Index™ implements this metric on a global scale. This index can be used as a benchmarking tool to determine employee engagement and 21 other HR metrics throughout 56 different countries.
High employee engagement leads to an increase in performance, improved alignment of objectives for companies and their workforce, and reduced employee turnover. A higher score on this index benefits all involved, including employees, businesses, and customers.
8. Net promoter score
The net promoter score, or NPS, is an HR metric that evaluates how likely customers are to refer your company or product to others. Calculating this score can help companies determine and improve on customer loyalty, and brand recognition and trustworthiness.
To calculate your business’s NPS, follow this formula:
Net promoter score = % of people who would not recommend your business – % of people who would recommend your business
This crucial KPI helps HR gauge the business’s customer services as the score outcome revolves around the customers’ experiences. Improving your net promoter score means finding ways to improve your customer services, inspire customer loyalty, and increase your business’s trustworthiness to consumers.
Companies of all sizes often turn to CRM solutions, or Customer Relationship Management software to help them manage and improve their customer relations.
9. Internal promotions vs external hires
This HR KPI compares how often businesses promote from within their own ranks versus how much they hire outside of the company to fill job openings. The HR department can quantify the two hiring processes to determine which has worked best for the company in the past.
External hires offer a larger talent pool to choose from with a fresh outlook of internal affairs. Internal promotions illustrate employee loyalty while the company also keeps those already familiar with its processes and culture.
10. Cycle time to process payroll
This human resources KPI measures the timeframe of a business’s payroll process. This cycle time refers to the number of business days it takes to cover the payroll process from start to finish. Since every business must have a payroll process in place as a means to track work hours and pay employees, this metric is an important one.
This cycle time helps businesses determine how productive their staff are and how efficient their internal processes are. If the total duration of payroll processing takes longer than necessary, companies can alter this cycle to ensure efficiency and accountability.
11. Quality of hire
This human resources KPI assesses the value a new hire brings to a company. Quality of hire determines how much a new employee contributes to the business’s overall success. Measuring this metric is one of the most complicated HR processes, yet it is also one of the most important for evaluating employee performance.
HR can use this KPI to shed light on the company’s recruiting efforts and how successful they are in choosing the right fit of employees. By measuring this action, businesses can improve upon their recruiting processes to secure high-quality candidates for their job openings.
There are numerous ways HR can measure this quality of hire metric, including using other KPIs to aggregate this information, such as performance reviews, promotion rate, productivity rates, employee lifetime value, and more. Taking all the chosen human resources KPIs into account and finding the average indicator can help paint a clear picture of the specific employee’s overall quality of hire.
12. Training effectiveness
Training and onboarding new hires is a necessary and vital part of ensuring a company’s workforce is prepared to complete their duties. HR performance indicators like training effectiveness help businesses determine how well their training programs engage and teach new hires and how well they adjust to the work culture and the outcome of their work within the organization.
Four pieces of criteria help measure the effectiveness of a company’s training program. These are as follows:
- Reaction: How do participants and new hires react to the program? Measure this using a post-training survey to gauge how they responded to the information.
- Learning: What did the employees learn from the training? Determine their new knowledge with testing or demonstrations in the workplace.
- Behaviour: Are the staff applying what they learned in their new position? Management can observe and evaluate this application in person.
- Results: How does this impact the company as a whole? Look to productivity rate and measure management effectiveness to see how well new employees are filling their roles.
Understanding human resource management KPIs can help small business owners and managers set baselines and measure performance and output to improve their processes and productivity overall.
Since human resources are a vital part of any small business, it is crucial to give them the attention they deserve. Use tools like QuickBooks Online to help you track specific data and measure various HR department metrics.