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HR Metrics: Formulas & Examples

Instructor: Adam Gifford
One of the major challenges of the Human Resources department is to measure how well they are doing their job. In this lesson, we will cover the formulas that are used by Human Resources in order to measure their effectiveness and efficiency.

Measuring the Value of the Department

Craig is the Human Resources Manager for Discount Purses, Inc. One of Craig's many tasks is to monitor the effectiveness and efficiency of the Human Resources department. He does this through the calculation of HR metrics. Human Resources metrics are formulas that are used to show the effectiveness and efficiency of the Human Resources department. Since Craig's department doesn't directly generate any income for Discount Purses, Inc., he must be able to show how his department adds to the mission of the business.

Two Types of Formulas

The formulas to determine the HR metrics can be broken down into two types:

  1. Formulas that measure the effectiveness of the Human Resources department
  2. Formulas that measure the efficiency of the Human Resources department

Formulas to Measure Effectiveness

Craig must be able to measure how good his department is at completing their tasks. The formulas that allow him to do this generally revolve around how well the employees within Discount Purses, Inc. perform. This is because it is the job of the Human Resources department to recruit, hire, and train all of the employees. The formulas that Craig uses are as follows:

  • Turnover Rate - This measures how often employees quit or get fired and need to have new employees take their place. The formula to calculate turnover rate is:

Turnover Rate = Number of Employees Who Leave / Total Number of Employees

Last year there were a total of 100 employees and 12 of them needed to be replaced.

Turnover Rate = 12 / 100

Turnover rate = .12

Turnover rate = 12%

So last year's turnover rate at Discount Purses, Inc. was 12%.

  • Absentee Rate - This measures how many days employees take off. This only counts unscheduled days off, not holiday or vacation. The formula to calculate absentee rate is:

Absentee Rate = Total Unscheduled Days Off / Total Number of Employees

Last year there were a total of 100 employees and they collectively took 170 unscheduled days off.

Absentee Rate = 170 / 100

Absentee Rate = 1.7

So last year the average number of unscheduled days taken off by each employee was 1.7.

  • Employee Return - This measures how much revenue each employee generates as compared to the costs they generate. This formula is a bit more advanced since it requires Craig to first determine the average cost for employees before being able to calculate the employee return. The formula to calculate employee return is:

Employee Return = (Total Revenue / Total Number of Employees) / (Total Employee Costs / Total Number of Employees)

Last year there were a total of 100 employees. Discount Purses, Inc. spent a total of $500,000 on employees and earned a total revenue of $2,500,000.

Employee Return = ($2,500,000 / 100) / ($500,000 / 100)

Employee Return = $25,000 / $5,000

Employee Return = 5

This means that for every $1 spent on an employee the company earned $5.

Formulas to Measure Efficiency

Craig must also be able to measure how good his department is at keeping costs within the company down. The formulas that allow this generally revolve around how much money is being spent on each employee at Discount Purses, Inc. The formulas that Craig uses are as follows:

  • Hiring Cost - This measures how much money it costs to hire and train a new employee. This is often a hidden expense, so it is important for Craig to calculate this number. The formula to calculate hiring cost is:

Hiring Cost = Total Hiring and Training Expense / Total Number of Employees Hired

Recall from the turnover rate that there were 12 people hired last year. Last year's total hiring and training expense was $30,000.

Hiring Cost = $30,000 / 12

Hiring Cost = $2,500

So last year it cost $2,500 to hire and train a new employee.

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