A guide to human resource metrics

Why your HR initiatives need performance metrics

HR metrics are key figures for accurately tracking the effectiveness of your organization’s people strategy and HR programs. They offer valuable insights into your organization’s overall efforts in regards to your human capital. 

Small to medium-sized organizations sometimes overlook vital human resources metrics because they are considered too complicated or time-consuming to track. In other cases, small employers may not realize how important they are. However, the benefits of having this data are often undervalued.

It’s important to know which metrics to measure. After all, you can’t improve what you don’t track. This guide to HR metrics to track will provide an overview of the most important metrics you need to know.

Topics covered in this guide include:

• What metrics do you need to track?
• Demographics
• Employee retention rate
• Cost of turnover
• Time to hire
• Current and historical compensation data
• Training and onboarding expenses
• Recruiting expenses
• Employee satisfaction and experience
• Absence rate
• Revenue per employee
• Benefits and perks expenses
• Time since last promotion
• Effectiveness of your HR software
• Return on investment (ROI)
• Tips for tracking human resources metrics
• How to use your results
• Data management options when calculating HR ROI

What metrics do you need to track?

Choosing a few key HR metrics to track will help you uncover strengths and weaknesses within your organization and help you understand which areas need improvement. 

HR metrics help you:

• Tap into the quality and stability of your workforce
• Understand if HR initiatives are working
• Make informed decisions to recruit and retain the best staff
• Spend your HR budget wisely
• Set a foundation for long-term organizational success
• Establish a business strategy

Now that you know why gathering and tracking HR data is essential, the next step is to figure out what to track. Different data provides different insights. You should identify your organizational goals to know what data to gather and track to measure your performance.

Below are the top HR data points any business can track to provide strategic insights into HR trends, costs, efficiencies, productivity, and success. Every organization is unique, so choose the metrics that are most relevant to your goals. 

Employee demographics

Your HR department should track various employee demographics and employee headcount over time to measure growth and diversity. It is also essential to protect organizations against discrimination claims and satisfy federal and state laws.

Organizations with 100 or more employees must file an EEO-1 report each year to the Equal Employment Opportunity Commission (EEOC). This includes information such as race and gender. However, all employers should track this information. 

Potential demographics metrics include the age of your workforce, education level, and how long your employees have been with your organization. You can also collect information on disabilities and sexual orientation to better support your workforce. However, employees aren’t required to provide this information.

One way to gather employee demographic information is by conducting an anonymous survey. You’ll want to be transparent about how you will use the data. 

Employee retention rate

You can track your employee retention rate to understand how your retention strategies are performing and gauge employee morale. Pair this metric with your employee turnover rate and the average cost associated with turnover to get a sense of how much your organization spends on replacing workers who leave. 

Tracking this data helps organizations make data-driven decisions about recruitment strategy, hiring, onboarding, retention, and HR policy. 

Calculating your employee retention rate

Calculating your employee retention rate is simple. Subtract the number of employees who left during a particular time period (such as a year) from the total number of employees you started with at the beginning of the time period, then divide that number into the total employee count you had at the beginning of the time period. This will give you the percentage of employees who remained at your organization. 

Standard retention rates are anywhere from 70%-85% but vary significantly by industry and calculation method. You can even break down your retention rate by department or manager. This is known as retention rate per manager. 

Cost of turnover

Knowing and tracking the cost of losing an employee will help you make more strategic decisions about benefits and retention activities. You should also monitor new hire turnover, or what percentage of new hires leave within their first 90 days or year of employment. 

How to find your turnover rate

The example below shows a company with 24 employees. It had four workers leave during Q4.

According to the U.S. Bureau of Labor Statistics, the average total turnover in the U.S. was 3.7% in February 2023. The average voluntary turnover rate was 2.6%.

How to calculate the cost of employee turnover

The cost of losing an employee varies by industry and role at the company.

Here are estimates based on a Center for American Progress (CAP) study you can use to estimate your costs:

• Less than $30,000/year in wages: Costs 16% of annual salary
• Between $30,000 and $75,000/year in wages: 20% of annual salary
• Greater than $75,000+/year in wages: Up to 213% of annual salary

Of course, each company is unique. Some organizations have an easier time replacing an employee based on the job or location.

With the right data, you can calculate your specific cost of employee turnover by taking into account the following factors:

• Lost productivity
• Lost employee engagement
• Hiring and recruiting costs
• Orientation and training costs
• Cultural impact on your organization, which can affect overall employee performance

Time to fill and time to hire

Time to fill and time to hire are related metrics, but they don’t measure the same thing.

Time to fill is the time it takes for you to fill an open position. Similar to recruiting and hiring expenses, knowing your time to fill a position will help you understand the true cost of employee turnover. It can also help you improve your candidate experience. 

Remember that this is heavily affected by current economic conditions and the public perception of your organization. The longer it takes to recruit for a position, the more it costs to do it. 

Meanwhile, time to hire represents the time between a candidate applying for the job and signing an offer letter. If the recruitment process is long, you may lose the interest of qualified candidates.

You want to ensure your time to fill and time to hire is as short as possible.

How to calculate time to fill

You can measure the time to fill a position with a simple calculation:

Time to fill = average days a job is open before it is filled.

For this calculation, track the following inputs:

• Position and department
• Date the job is open/posted
• Date an offer is accepted and/or the candidate starts

Current and historical compensation data

Your organization should track compensation data to ensure you’re meeting the minimum wage and overtime pay requirements in your area. This also helps you understand employee growth within the organization. In addition, it’s helpful to know what other organizations pay for comparable positions so you can stay competitive.

How to calculate compensation data

To track historical and current compensation data, collect and analyze the following information:

• Employee name
• Employee class
• Position start date
• Starting salary
• Current salary
• Additional wages, such as bonuses or tips
• Other wage information relevant to your workforce

Training and onboarding expenses

Do you invest in your workers’ success from the start? If you have training or onboarding programs, you need to calculate the training costs to see how much you’ve invested in onboarding versus the program’s effectiveness.

Calculating your training and onboarding expenses is one piece of understanding your cost per hire and is important for budgeting. Successful onboarding can reduce your hiring costs, and ongoing employee training and professional development will help reduce turnover and improve the employee experience.

How to calculate training and onboarding expenses

To calculate training and onboarding expenses, include the following:

• Personnel time (time spent to train, prepare, etc.)
• Training materials and supplies, including subscriptions and memberships
• Meeting space, if applicable
• Social activities

You can collect this data in a budgeting spreadsheet or flag it in accounting software for easy tracking and analysis.

Recruiting expenses

In addition to your training and onboarding expenses, your recruiting expenses factor into your cost to hire. You can use this information and your recruitment data to see which job posting platforms your eventual hires find you on to determine which ones produce quality candidates for your organization.

How to calculate recruiting expenses

To calculate training and onboarding expenses, include the following:

• Advertising costs
• Recruiting software fees
• Networking
• Personnel time (time spent screening, interviewing, etc.)
• Any fees for promoting or boosting job ads or posts on job boards such as Indeed or social media like LinkedIn
• Any fees for screening programs

This data can be collected in a budgeting spreadsheet or flagged in accounting software for easy tracking and analysis.

Employee satisfaction and experience metrics

Employee satisfaction data, typically collected through employee surveys, is an important indicator of morale and company culture. Satisfied workers stay at your organization longer, are more productive, and help reduce recruitment and hiring costs thanks to lower turnover and more referrals. 

How to calculate employee satisfaction

An easy way to measure employee satisfaction is with a pulse survey. Free survey tools, such as Google Forms, are available online, or you can use a third-party specialist.

When creating a survey, keep it simple. Include a few targeted questions about satisfaction, culture, growth, pay, benefits, advancement, etc.

You can use the results of this survey to make improvements that boost employee satisfaction, thereby increasing retention.

Absence rate

Absenteeism is defined as workers missing work due to personal illness, personal time off, or other reasons that usually exclude pre-approved paid time off. You can measure this at your organization with an absence rate. This simple measurement helps you understand how many days employees are missing from work.

A high absence rate can indicate employee dissatisfaction and disengagement, which can lead to turnover if left unchecked.

How to calculate your employee absence rate

To calculate your absence rate, you can use the equation below.

Revenue per employee

Revenue per employee (RPE) shows you how much revenue each employee generates for your organization. A higher number represents higher employee productivity and efficiency. This metric mainly applies to for-profit organizations, though not always. 

This also lets you easily see how revenue compares to employee wages and other costs. 

It's essential to understand that some employees may not directly contribute to sales or higher revenue but are still essential members of your team. When using this metric to track individual employee performance, it shouldn’t be applied to those employees.

How to calculate revenue per employee

To calculate an average revenue per employee for your organization, you take the total revenue generated over a period of time, such as the previous year, and divide it by the total number of employees. 

For example, suppose you had $1 million in revenue last year with 20 full-time employees during that period. In that case, you’d divide $1 million by 20. This equals $50,000 per employee. 

Benefit and perks metrics

Calculating various metrics for your employee benefits and perks helps you budget better and understand how much your employees value your benefits. Calculating benefits metrics allows you to easily see which benefits contribute to employee retention and satisfaction.

Offering competitive benefits is extremely important for attracting and retaining top talent for your organization. Providing benefits to your workers can improve job satisfaction and employee happiness. You must ensure your benefits budget per employee is high to recruit and retain workers, but it should also be realistic and affordable. At the same time, you don’t want to contribute to benefits your employees see little value in.

How to calculate benefits and perks expenses

Each company has a unique set of benefits and perks. You should track how much you spend on your benefits package.

To calculate benefit and perks expenses, include the following:

• Benefits costs, such as contributions to health insurance premiums, employee stipends, tuition reimbursement, retirement, 401k matching, and more
• Any administrative costs associated with managing your benefits
• Software fees
• Supplies, such as free snacks, party supplies, and more
• Employer-provided cell phones

This data can be collected in a budgeting spreadsheet or logged in accounting software for easy tracking and analysis. 

You can also measure benefits costs per employee in various ways. Each method produces different metrics that can help you assess the effectiveness of your benefits package.

To get your benefits costs per employee, divide the annual costs of your benefits by the average number of workers you employ. You can also calculate benefits as a percentage of overall pay. To do so, divide the total amount you spend on benefits every year by the total you spend on salaries and wages. 

How to reduce benefit costs

If you have a high benefit cost per employee, you might be tempted to cut back on the benefits being offered. However, this can increase turnover and absenteeism as your workers look for new opportunities.

You can send out an employee benefits survey to determine which benefits your employees value the most. If there are benefits with little to no use, you can cut those benefits without worrying about any adverse side effects.

You should also consider alternatives to traditional employee benefits. Personalized benefits provide increased flexibility for your workers while helping to reduce your overall benefits costs. For example, you can offer a tax-free health reimbursement arrangement (HRA) in place of traditional group health insurance. This allows you to reimburse your employees for their qualifying medical expenses, such as out-of-pocket expenses and individual health insurance premiums, giving them more freedom to use their benefits on the medical expenses they want.

You can also offer employee stipends to reimburse your employees for various expenses such as health, wellness, remote work, professional development, and transportation perks. These lifestyle benefits give your employees flexibility in how they use their allowances. 

Your employees will value your new individualized benefits, and you get better cost control by setting maximum monthly allowances for reimbursement.

Time since last promotion

This metric measures the average time (generally in months) since an employee’s last internal promotion. This can help you identify if your employees have opportunities to move up within the company and grow their careers. If not, it might help explain why you have a high turnover rate.

Effectiveness of your HR software

If you utilize HR software at your organization, you’ll want to measure its effectiveness often. For example, suppose you pay for software that provides online courses for your employees to learn new skills. In that case, you’ll want to track how many employees use the software, how long they spend on the platform, and whether or not employees who use the software stay at your organization longer than those who don’t.

Measuring the success of your HR software will show you what software helps your organization grow and which doesn't.

Return on investment (ROI)

Knowing your return on investment (ROI) is key to making strategic decisions for your organization. ROI is a performance measure used to evaluate the efficiency of an investment.

How do I calculate return on investment (ROI)?

To calculate ROI, the payback (return) of an investment is divided by the cost of the investment and multiplied by 100 to get a percentage.

ROI = [(payback - investment) / investment)] * 100

Tips for tracking human resource metrics

HR metrics should be simple, clear, and connected to your organization's goals and priorities. Here are six tips for tracking HR data as you consider which data points matter to your organization.

1. Know why each HR metric matters

As you collect and track HR data, keep in mind why you're collecting the data and why it's important to your organization. If the data isn't connected to an organizational priority, don't spend time tracking or analyzing it.

Without a good idea of why your ROI and metrics matter, you won't be able to develop a cohesive business strategy.

2. Keep it simple

HR metrics shouldn't be complicated. It likely won't be used if the metric isn't simple, clear, and easily gathered and calculated. Track and collect simple, straightforward information that will provide useful insights into your HR and organizational objectives.

3. Identify how you will track data

Many tools are available to track HR data, from spreadsheets to comprehensive human resource management systems. An important step is to identify which data you will collect and how.

4. Know your audience

As you collect HR data, some information will be more insightful to HR, and others will be more insightful to stakeholders like the owner or CFO. Remember the metrics that matter most to your audience as you present information.

5. Connect HR metrics to organizational objectives

The most powerful and useful HR data connects HR metrics to business objectives. If you've collected the data, be sure to put it into use.

6. Don't just file data away - share it

You've collected a lot of great HR data. Don't just file it away. Analyze it, learn from it, and share it with your leadership team. Then create a plan with actionable next steps to get you to your goals.

How to use your results

When it comes to HR ROI calculations, the goal is to use the information to make smarter HR decisions, spend company money more wisely, and create a high-performing and productive workforce.

HR data that leads to action

Data without analysis and action is just numbers on a screen. Use your HR data to understand trends, issues, and opportunities. Then, take action to make changes based on your learnings.

To make the most of your HR ROI calculations:

• Connect the HR data to business objectives and goals.
• Use the data to drive organizational improvements. Learn about what is working and not working, then make changes based on what you learn.
• Schedule regular times to review the data and put it into action. Strong habits produce strong results.
• Communicate learnings and recommendations to key decision-makers.

Data management options when calculating HR ROI

An important step in tracking HR data is developing a system to track and record information. How you track and analyze the data will depend on what you are tracking. Don't worry; your data management system doesn't need to be overly complex. But it does need to be consistent, time-efficient, and scalable.