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Strategic Human Resource Metrics: Employee Benefits

Instructor: Nick Chandler
Employees get a lot from organizations: benefits, paid overtime, and even a paid education in some cases. HR metrics are a way for organizations to check that the investment is worth it and performance is improving. This lesson looks at the main types of HR metrics that companies use for employee benefits.

The Need For HR Metrics

Imagine you're an HR manager and your boss has just called you to say that the organization is paying a lot for benefits and he wants you to see if the organization is getting its money's worth. How would you get the information you need to show whether or not employee benefits are adding to the company's performance?

The answer lies in the use of metrics. A metric is a measured result, which is based on a particular objective. In this case, the metrics that we need to look at are the ones that measure employee benefits and tell us how they affect profitability and organizational performance.

Metrics For Employee Benefits

A metric is usually easy to calculate and the results can be compared with different months or years or with different parts of the organization, such as departments or business units. The cost of each benefit in an organization needs to be calculated on a regular basis, so that the costs of various benefits can be compared over time. Let's have a look at some of the HR metrics for employee benefits in more detail:

Healthcare

The main metric to give an overview of healthcare is calculated as the total cost of healthcare divided by the total number of employees. This gives us the healthcare cost per employee.

If the healthcare costs seem a little on the high side, then the HR employee may need some more metrics to understand why the healthcare cost is higher than expected. These could be one of the following: absence days per employee or unscheduled/sick days per employee. If the level of absence or sick days is high it might indicate a deeper problem that HR needs to resolve, such as people taking sick days because they are unhappy in their jobs or staff being exposed to materials making them sick, which would be a health and safety issue.

Overtime

If you were willing to work evenings and weekends, you might be able to earn more than your boss, thanks to lots of overtime payments. Overtime pay is classed as a benefit for employees. However, for the company overtime is an expense that can hurt profits if enough people are doing it.

To get a clearer picture of the overtime cost, the total figure for overtime over a given period of time is a good starting point. If a company increases production, then machinery will be operating for longer hours and lighting costs will increase, as will packaging and many other costs. To find out if overtime is riding higher than other costs, a metric can be used that calculates overtime as a percentage of overall labor costs. If this percentage increases and costs remain unchanged, then there might be too many people charging overtime, but it still doesn't give a clear enough picture. After all, if productivity or performance is much higher due to the overtime, then the additional cost is justifiable. This brings us to the metric called the employee performance/productivity index. This means that if employees generated $80,000 worth of goods with 4000 labor hours (input), we calculate the productivity as 80,000 divided by 4,000, giving us 20. If the overtime costs have gone up in one particular factory, but productivity has gone down, then we know that the company is paying too much for overtime as it receives no benefit in increased performance.

You can also use the overtime per contributor metric, which calculates the average amount of overtime per overtime-working employee, to evaluate how effective overtime is for the company. If you have several people working a large amount of overtime, it may be more cost effective to hire more staff or change part-time employees to full time.

If overtime is too costly, the HR employee will need to consider the costs of the work being done by other workers, or perhaps outsourcing the additional work, if it is found to be cheaper.

Educational Reimbursement

Companies sometimes agree to pay for employees to study courses as it will improve employee performance. As the company is investing in the employees' future, it expects some kind of return from this benefit in the long term. The tuition reimbursement request ratio indicates how many people are requesting payment of their course fees in relation to the rest of the staff.

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