9 Essential HR Metrics and How to Calculate Them
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HR metrics provide organizations with valuable data about their workforce and human resources initiatives. Understanding how to use different metrics provides HR professionals with the skills to analyze this data and advise companies on a wide range of topics that can help improve employee performance and reduce costs. If you're considering a career in human resources or you want to learn some new skills to advance in your current role, being familiar with different metrics may benefit you.
In this article, we define these metrics, explain their importance, explore a list of nine metrics, and offer tips for recording them.
What are HR metrics?
HR metrics are measurements that show how the human resources department is performing. They usually provide information related to employee turnover, hiring rates, and training costs. Companies use these metrics to evaluate the performance of their employees and managers, as well as human resources initiatives. They also use metrics to measure the effectiveness of different HR processes, including recruitment, employee communication, training, and compensation.
Why are metrics important?
Human resources is one of the most important departments since it deals with people. There are several benefits to using metrics, including the following:
Help you make informed decisions about the team
Metrics can help you make better decisions. For example, if you're curious about increasing or decreasing salaries within the team, tracking salary data against performance reviews can tell you how closely they relate. If the average employee with a high-performance rating has a relatively low salary compared to others in the industry, increasing salaries may attract higher-quality talent.
Improve communication throughout the organization
Metrics help ensure that everyone in the organization agrees by providing data about how well employees perform and what people may require to succeed. For example, if you notice that a large percentage of new hires have a lot of the same questions within the first six months, you can use this information to start retention initiatives for new employees or work with managers to identify ways they can reduce turnover. It also helps managers start the conversation about performance more effectively by providing objective data they can reference during discussions with their employees.
Outline training needs
Metrics can help you identify areas where team members may require new training. For example, if surveys show that many employees are struggling to meet deadlines, it may indicate an area for training or organizational improvements. You can use the data you collect about why some employees are struggling to meet deadlines to assess your current training programs and add more where necessary.
Measure return on investment for different HR initiatives
You can use metrics to measure the success of different HR initiatives and identify which programs provide the biggest return on investment. For example, if you invest in a leadership development program, you can track how it affects employee turnover or retention rates. If your metrics show that this program has a positive impact in these areas, you can invest more resources into it.
Improve productivity and employee engagement
Using metrics also helps improve productivity and employee engagement because it allows you to see how employees perform. If an entire department's performance is plummeting because of a lack of training or ineffective management techniques, this data may help you find a solution quickly before problems create a larger issue for the company. It also helps you find and resolve issues before they become major problems.
Types of human resources metrics
If you're considering a job in human resources or looking to hone your skills, being familiar with different metrics can help set you apart from other human resources professionals in your industry. Here are nine types of metrics you can learn:
Revenue per employee
This HR metric is one of the most effective ways to measure a company's workforce productivity and innovation output. The higher the revenue per employee, the more productive and innovative a workforce is. CFOs commonly use this HR metric as the standard workplace productivity metric. To determine the revenue per employee, you can use the formula below:
Revenue per employee = annual revenue / number of employees
The turnover rate is the rate at which employees leave an organization. This metric can provide valuable insight into a company's work culture, management, and development. You can calculate turnover rate using the formula below:
Turnover rate = (number of departures during a specific time period / average number of employees during the same time period) x 100
Cost per hire
This HR metric shows how much it costs a company to hire a new employee. It may also illustrate the efficiency of the recruitment process. To determine cost per hire, use the formula below:
Cost per hire = total cost of hiring / number of new hires
Time to productivity
Time to productivity measures the number of days between a new employee's start date and the point at which they reach a satisfactory level of productivity. This metric can show a company how successful their onboarding and recruitment programs are. To calculate the time to productivity, you can use the formula below:
Time to productivity = number of days between the start date and when an employee reaches a satisfactory level of production / total number of days in the month of production
Performance turnover in key roles
Performance turnover in key roles examines whether new hires outperform current employees who hold the same job role. This type of metric is important because it shows how an organization's succession plans are working, allowing for quick identification of any issues. The lower this percentage, the better an organization's succession plans to retain skilled and productive talent. To determine performance turnover rate in key roles, use this formula:
Performance turnover rate in key roles = number of employees who left a job role because their performance was unsatisfactory / number of employees in the same job roles
This HR metric shows how long employees have been working in a company. This metric can point out how productive and innovative an industry's workforce is. For example, if you determine that most workers stay with a company for less than two years, it may be difficult to improve employee retention rates without changing workplace culture or compensation. To calculate it, use this formula:
Company tenure = (average years of service of all full-time employees) / total number of full-time employees
HR professionals can use various tools, such as surveys, to determine the engagement rating of a company's workforce. This metric is important because engaged employees are often more productive and happy with their work, leading to higher retention rates. It helps HR professionals understand an organization's work culture and how well managers treat employees. The higher this percentage, the better the company's work culture and the happier its employees are. To calculate engagement rating, use this formula:
Engagement rating = (average of all responses to survey questions / number of surveys sent) x 100
Cost of HR per employee
Companies can use this metric to determine the cost efficiency of HR. It helps HR professionals understand how much their department costs per employee. Since HR is often a significant expense for many companies, it's important to keep this number as low as possible so the company can continue to be profitable. To calculate the cost of HR per employee, use the following formula:
Cost of HR per employee = total HR compensation / number of employees
Absenteeism measures the percentage of employees absent from work. While sometimes unavoidable, a high number of unscheduled absences may mean issues with recruitment or onboarding programs. To measure absenteeism rate, use this formula:
Absenteeism = total number of hours lost due to unscheduled absences / total number of scheduled working hours in the month
Tips for recording HR metrics
Calculating HR metrics requires accuracy and attention to detail. To complete the process, it's important to:
Use a standard and consistent timeframe. This can help you measure the metrics accurately. For example, you may use one month or one quarter per year, depending on what works best for the organization's workflow and budget.
Track data accurately. Results may affect future decisions. You can track metrics quarterly to ensure a manageable workflow and still get the information you require.
Plan how you may use the metrics. This makes it so that everyone knows what they mean and how they can influence future decisions, such as those within hiring practices. You can identify which metrics are most important for different business areas to better understand how various decisions affect the company.
Be open to adjustments in your process. Making adjustments, such as using multiple data sources or adjusting the timeframe to measure results, helps ensure your metrics generate accurate results without overwhelming you or other employees.
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