How effective is your hiring process? Are your employees engaged with their work? How much revenue do you lose due to things like absenteeism and presenteeism?
These are all questions that measure the effectiveness of your human resources department, and the best way to answer them is by paying attention to essential HR KPIs (key performance indicators). By keeping track of essential HR metrics like employee turnover rate, time to fill, and recruitment costs — you’ll have a solid grasp of your strengths and top areas for improvement.
With how challenging the recruitment process has become (due to the changing employment landscape brought on by the pandemic), HR professionals need all the help they can get. Retaining employees has also been quite the challenge, with 52% of quitting employees feeling that their manager or company could have done more to encourage them to stay. Unless you pay attention to your recruitment and retention metrics, you’ll never know where you stand — which means you may have a huge problem and not even know it.
Therefore, paying attention to your HR KPIs is the best way to identify, resolve, and prevent issues like a large number of employees quitting due to feeling disengaged and neglected.
Yet, there’s no shortage of human resources KPIs out there, so how do you know which you should track?
Read on to discover a list of the most crucial HR KPIs you should track (if you aren’t already).
What are KPIs, and how do They apply to your HR department?
A key performance indicator is a metric that measures the effectiveness of something, and it can take all sorts of forms. All businesses can use KPIs, as they’re simply metrics that measure your performance.
In the case of human resources, HR KPIs are metrics measuring the effectiveness and performance of both your workforce and HR department. For example, measuring your employee productivity will let you know how much work your team can get done during the day. If your productivity levels aren’t where you want them to be, it’s clear you need to work on them.
Yet, how do you know what measures to take to improve your employee’s productivity levels?
That’s where other KPIs, like employee engagement, come into play. If your employees aren’t engaged and satisfied with their jobs, the chances are high that they won’t give 100% of their effort. That’s an example of how you can use KPIs to both identify a problem (dipping levels in productivity) and find the underlying cause (poor engagement levels).
You can use KPIs to measure the effectiveness of specific aspects of your human resources department, such as hiring, onboarding, retention, and company culture. Using HR KPIs in this way will help you stay on top of your business goals.
How is that?
It’s because the entire organization benefits from an HR department that’s firing on all cylinders. If you use HR KPIs to cultivate a motivated, engaged workforce that’s loyal and hard-working, every department will see massive improvements — leading to more sales, happier customers, and a fatter bottom line.
What are the benefits of tracking HR KPIs?
If your organization has a tight budget and not a lot of time to spare, you may wonder if it’s worth measuring your HR performance by tracking KPIs. After all, aren’t there more effective and important things for your HR teams to focus on?
It turns out there are numerous benefits to implementing KPIs, including the ability to earn more money and save precious time.
Here’s a look at the main benefits you’ll enjoy from setting and tracking key performance indicators:
They can improve profitability. Speaking of having a tight budget, using HR KPIs can help you remedy that problem. Tracking important KPIs like employee productivity, recruitment costs, training costs, and turnover rate will help you understand where you’re losing the most money. Using KPIs to improve productivity and reduce HR costs will save money and boost your profitability.
They measure the success of your HR programs. How effective are your new hire training programs? If you aren’t measuring KPIs like training effectiveness and training cost, you’ll have no way of knowing. Your HR team will spend countless hours developing training programs and working with new hires, so you need to know if you’re wasting your money or not. Tracking HR KPIs will ensure you see the highest return on investment for every HR program (i.e., recruiting, onboarding, training, etc.).
KPIs pinpoint problem areas that need your attention. Your KPIs are your first line of defense for costly issues like high turnover rates and dipping engagement levels. It’s always wise to keep an eye on things like employee retention and your absenteeism rate to ensure that everything is running smoothly. If issues arise, your KPIs will reflect them, giving you ample time to respond.
KPIs enable data-driven decision-making. The strongest decisions you can make are ones backed up by data, which is what HR KPIs provide. Setting KPIs that align with crucial HR metrics will ensure a strong understanding of your employee performance – which is instrumental for organizational success.
They provide accountability. Another perk of HR KPIs is they encourage accountability for your teams. If your HR managers can set and measure clear business objectives for team members via KPIs, your employees will be held accountable for their progress.
As you can see, HR KPIs yield many benefits that offset the time it takes to set them up. If you want to develop and implement an effective HR strategy, then tracking HR KPIs is a necessity.
The top HR KPIs to track at your organization
Now that you know why HR KPIs are worth your time, let’s look at the most important key performance indicators to pay attention to.
Pro tip: You should always set key performance indicators that align with your HR strategy and overall business goals. This means that you should check with key decision-makers at your organization to learn what they want to see out of your HR department. For example, you may discover that diversity is important to your stakeholders, in which case DEI (diversity, equity, and inclusiveness) would be a vital KPI for your organization.
There’s also an ongoing debate on which KPIs should fall under the HR umbrella and which should not. For instance, there’s an argument that the retention rate doesn’t apply to HR and is more a measure of the effectiveness of your management team. The following is a general list of HR KPIs that tend to apply to most organizations, so bear in mind that you may need to focus on other, more specific KPIs that may not appear on this list.
Workforce KPIs
The following KPIs all measure the effectiveness and performance of your workforce.
Employee retention rate
Retention rates hit an all-time low in March 2020, and 87% of HR analytics experts consider retention a top priority. Another worrying statistic is that 45% of US employees are seeking better positions elsewhere.
The good news?
Evidence shows that you can maximize your profits by up to four times with strong employee retention. That’s why the employee retention rate is a KPI worth tracking for virtually every organization.
A high retention rate means that your employees are largely satisfied with their positions and likely plan on staying loyal to your company. Conversely, a low retention rate means your employees aren’t happy with their work and are looking for greener pastures somewhere else.
Typically, low retention rates go hand-in-hand with other poor HR metrics like engagement levels, productivity, and employee performance. You can also take things a step further by distinguishing your new hire retention rate from your regular retention rate. This will let you know if you have a problem with your recruiting and onboarding processes.
Here’s a simple formula for calculating your general retention rate:
Step 1: Designate a period to measure employee retention (it could be a number of days, months, or years).
Step 2: Divide the total number of employees at the end of the time period by the total number of employees at the beginning of the time period. Multiply that number by 100, and you’ll have your employee retention rate percentage.
Absenteeism rate
While an employee taking a few days off due to being sick may not seem like a big deal, the lost productivity can add up if it becomes an excessive habit. In fact, absenteeism has an annual cost of approximately $225.8 billion in the United States, which is why it’s a key metric worth paying attention to. That’s not to say that your employees shouldn’t receive a healthy number of sick days and paid time off — just that you need to keep an eye on the numbers to ensure things aren’t getting out of control.
For example, some employees may form the bad habit of calling off work whenever they have errands to run or just don’t feel like going to work. If this habit goes unnoticed, it can bring several negative side effects. Not only will you lose productivity from their excessive absences, but you’ll likely see negative effects on your employee morale.
Every time an employee calls into work, someone else is forced to pick up the slack. Constantly being short-staffed or having to show up to work on scheduled days off is taxing on your employees, which is why you should keep an eye on your absenteeism rate.
Employee satisfaction
One of the most crucial KPIs to measure in today’s age is employee satisfaction.
Why is that?
It’s because we’re currently in a candidate-driven job market. That means your job applicants call the shots, so you’ll have to cater to their needs if you want to recruit top talent in your industry consistently.
Suppose you want your employee retention and satisfaction rates to be sky-high. In that case, you’ll need to provide things like hybrid work schedules, plenty of paid time off, and competitive average salaries. Beyond that, conducting regular employee satisfaction surveys is a must.
Also, some HR professionals have a hard time distinguishing employee engagement from employee satisfaction, but the two metrics have different meanings. Employee satisfaction measures how happy your team is with their positions, salary, company culture, and potential for future growth. Employee engagement, on the other hand, is all about how engaged employees are with their work.
This means it’s possible for an employee to be satisfied but not engaged, which is why the two metrics exist. Employee satisfaction is another KPI that affects other HR KPIs. For instance, if you have high satisfaction levels, you probably also have a low turnover rate, low absenteeism, and a high retention rate (although that’s not guaranteed).
Employee engagement
Your employees need to be both satisfied and engaged for your organization to reach its maximum potential.
Why is that?
Without strong engagement levels, your employees won’t put 100% of their efforts into their work. While they may be satisfied with their current position, pay, and work-life balance, they aren’t exhibiting any passion in their day-to-day tasks.
Conducting engagement surveys will help you form an understanding of your current engagement levels. Certain types of HR software, like HCMs (human capital management systems), can keep track of your engagement levels for you.
There are plenty of reasons why your engagement levels may be taking a hit, such as:
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A lack of proper training means your employees aren’t adequately prepared to perform their work tasks.
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You aren’t providing the necessary tools for your team to do their jobs.
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Certain staff members are creating a toxic work environment with bad attitudes, gossip, and bullying.
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Your managers aren’t providing enough feedback, guidance, or leadership to your team.
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Your performance management needs work (i.e., lack of 1:1 meetings, performance reviews, and training programs).
Whatever the cause, improving your employee engagement levels will boost morale, improve productivity, and benefit your entire organization.
Employee productivity
The last workforce KPI example we’ll look at is employee productivity. This KPI measures how productive your employees are during the workday, which is arguably the most important metric for your bottom line.
How can you track your employee’s productivity?
The most straightforward way is to compare the hours an employee works to how much work they actually produce during that time. If your productivity levels aren’t where they need to be, you’ll have to discover the underlying cause. It could be that some of your employees are committing time theft, where they’re clocked in but aren’t working (or may not even be present at the office).
A common form of time theft is ‘buddy punching,’ where an employee will ask a coworker to clock them in if they’re running late. Stolen time adds up and can seriously affect your productivity if it goes unnoticed.
Other causes for poor productivity levels include poor employee morale, improper training, and a lack of tools required to perform tasks (such as certain software programs that automate tasks so employees can get more done).
Recruiting and onboarding KPIs
Now, let’s examine some KPIs related to your hiring process, such as onboarding new employees.
Average time to hire
It’s every HR department’s goal to fill open positions as soon as possible, which is what this KPI measures. If you have a slow time to hire, your employees will have to deal with being short-staffed for longer than they should. Not only that, but your organization will experience lost productivity during the time it takes for you to find and onboard someone new.
If you’re actively measuring and trying to improve your time to hire, your entire organization will benefit — as no department will have to wait very long for you to find replacements. A great way to improve your time-to-hire KPI is to start using an applicant tracking system (ATS).
Cost per hire
In addition to how long it takes to recruit new talent, you should also measure how much money it costs.
Recruiting new employees is a costly affair that involves expenses like:
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Scheduling and arranging interviews (which can include travel fees if candidates don’t live in the area).
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Paying recruiting agencies if you don’t have a team of recruiters in-house.
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Spending money on advertising (paid job boards, banner ads, etc.).
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Onboarding new employees (putting together new hire packets, tours, introductions, etc.).
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Training new employees.
Measuring your cost per hire will help you keep track of all these expenses to ensure they don’t get out of control.
Employee turnover rate
How long does it take for an employee to quit your organization? Do you know the average number of employees that leave each year? If not, then you need to track your employee turnover rate. High turnover is an indicator that something is wrong with your organization, which requires some detective work.
The first step is to determine why resignations are taking place, which is where exit surveys come into the picture. If you can determine the reason why employees are quitting, you’ll be able to fix the problem.
Anonymous exit surveys provide resigning employees with a way to be completely honest about why they left (such as bullying, a war of attrition with leadership, or a negative employee experience overall).
Training effectiveness and cost
Lastly, you should measure the effectiveness of your training programs. If you aren’t training your employees properly, nearly all other HR KPIs will take a hit as a result. Training programs aren’t free, so keeping track of training costs is another important HR KPI.
As long as you’re tracking the results, you can do some experimenting with your training methods. For instance, you can try several training methods, paying attention to the metrics while doing so. This will help you pinpoint the most powerful and cost-effective training programs.
Wrapping up: The most crucial HR KPIs
HR KPIs serve as performance benchmarks for your workforce, which will make it easier to achieve your top business initiatives. Without them, you’ll have no way of knowing if your hiring, onboarding, and employee management programs are effective or if they’re doing more harm than good. With them, you can maximize your profits, improve your company’s reputation, and get the most out of every dollar spent.
