HR analytics is the gathering, analyzing and reporting of data that surrounds the management of human resources. It is the method of getting a better understanding of the people within an organization and how well the human resources team is performing. The analysis of this data can be a huge help to giving an organization the right direction to move forward in order to maximize payroll, benefits, its ability to hire or keep employees and more.
What Is HR Analytics?
HR analytics is considered to be a systematic identification and analysis of the people drivers of any specific business outcomes. In layman’s terms, that means that HR analytics measures the successes and failures of how well the company is performing when it comes to its employees. Depending on the organization, HR analytics may also be referred to as workforce analytics, talent analytics or people analytics.
Using proper HR analytics software allows business managers to rely on actual data to make people-based decisions instead of relying on gut feelings. It can provide analysis of how well an employee is performing as well as insight into where job candidates are falling off of the hiring process. HR analytics measures a broad range of different types of data, but all of it is centered on the people function.
The Importance of HR Analytics
HR analytics came to be in the hopes that businesses could improve internal processes that relate to functions such as payroll, benefits, hiring, employee onboarding, employee performance and overall employee morale. It is the best way to use data in order to forge an understanding of how well a business is performing.
Without proper analytics, there is a high percentage chance that the business could unknowingly be losing money because of processes that just aren’t resonating or working well with its employees. Measuring data on employee processes has provided better insight and overall management to people teams everywhere.
Without proper HR analytics, executives wouldn’t be able to make proper business decisions that relate to hiring, firing or promoting employees. If people don’t feel like their job is valued or that they are performing at a high level and that the company sees that, then it can become difficult to retain high-performing employees. Without proper data oversight, it also becomes more difficult to shed the company of low-performers who aren’t pulling their weight. The right data provides legal protection against improper employee-related decisions as they are made from more than just opinions and feelings.
Key HR Analytics Metrics [With Examples]
There are a number of HR analytics that a business can measure, but the right ones for you will depend on what you’re wanting to learn and accomplish. The key HR analytics are ones that are typically measured by most organized businesses looking to keep track of their people data. Here is an overview of those key metrics that make a good starting point for most businesses to launch an HR analytics program.
1. Revenue per Employee
Revenue per employee measures how much money the business is bringing in for every employee it has on staff and is paying expenses, such as salary and benefits, for. It is calculated by dividing a company’s revenue by the total number of employees in the company. Businesses love to track this because it provides a way to see how efficient businesses are at generating revenue for each new hire.
Example: If a business has 100 employees and brings in $10 million in revenue, its revenue per employee would be $100,000.
2. Time To Fill
The time to fill metric measures how long it takes to fill an open position at the company. It is calculated by counting the number of days from posting the job to someone accepting an offer. This gives good insight into how efficient the hiring team is at finding good candidates and moving them through the hiring process.
Example: If a company posts a job on March 1 and completes its interviewing process, makes an offer, and gets that offer accepted on April 20, then the time to hire would be 51 days.
3. Voluntary and Involuntary Turnover Rates
These rates measure the percentage of employees who end up leaving the company. The voluntary rate calculates the percentage of employees who decided to leave the company while the involuntary rate calculates the percentage of employees who end up getting fired.
While the voluntary rate measures how well the company is at retaining employees, the involuntary rate measures how well it is at hiring the right people and managing them efficiently. Both are calculated by dividing the number of employees who fall into each category by the total number of employees in the organization.
Example: If 10 employees were fired in the last year, out of the 100 total employees the company had, then the involuntary turnover rate would be 10% of employees.
4. Offer Acceptance Rate
The offer acceptance rate is another hiring metric that measures how well the hiring team is at convincing the people they want to take the job. If a company is making offers to people who are declining those offers at a high rate, then the hiring process likely needs to be adjusted to move candidates through the hiring pipeline who are more interested in joining the company. It is calculated by dividing the number of accepted formal job offers by the total number of job offers made.
Example: If the hiring team has received 10 formal job offer acceptances this year, out of 20 given out, then the offer acceptance rate would be 50%.
5. Retention Rate
In contrast to the turnover rate above, it can be important to see how well the business does at keeping employees working for the business. This can be measured company-wide or on a per-manager level. To calculate the retention rate, you can divide the total number of employees who decided to stay employed over a given time period by the total number of employees over that same time period.
Example: If a business had 100 employees in the last year and 85 decided to remain employed, the retention rate would be 85%.
6. Absence Rate
The absence rate is the total number of days an employee is absent from work, not including approved time off such as vacation, over a specific period of time. This is also referred to as absenteeism and is important to measure in positions where individuals call out of work at a high rate, such as retail businesses. It is calculated by dividing the number of days worked by the total number of days that the employee could have worked over a specific period of time.
Example: When measuring the absence rate for June, let’s say there are 20 possible work days. Our worker, John, worked 14 of those days and was on vacation for another three days. This means he worked 14 out of a possible 17 days. That means he worked about 82% of the time and it gives him an absence rate of about 18%.
HR Analytics Best Practices
There is no one way to implement an HR analytics strategy. The key is finding the right balance of metrics and tools that are cost-effective while giving you the best insight into the People side of your business. While not having enough data can badly hurt your business, you can also mess up on the other side by pumping too much money into analytics oversight for the size of your business. Here are some best practices that can help.
- Require data-based decision-making. If you’re going to spend time measuring people analytics, then you need to encourage and help your managers make decisions based on that data. If you make it part of the hiring and employee performance reviews, then the entire team will be forced to measure the data and provide recommendations from it.
- Find the right mix of tools. You don’t need every tool under the sun to get better data insight into how your employees are performing and feeling. Finding the right mix for you will depend on what you need to measure and how often you need to measure that data. Many tools can even provide you with a more efficient way to manage aspects of your business, such as employee reviews.
- Ask data-driven questions. When meeting with managers, it’s important to ask questions that require an understanding of the data to answer. For example, asking managers what their time to hire was on the last role they filled requires their understanding of that metric.
- Transform data into action. Don’t just collect data and report on it. Instead, take an active role in using that data for action. When the data tells you to do something and you think it makes sense for your business, take action and make it worth the business investment.
- Get leadership buy-in. If the leadership team isn’t on board with using HR analytics as a major part of their people oversight, then it likely won’t work. It’s important to get their buy-in and make sure they continually make it a big part of their organization.
- Get feedback. You are measuring a side of your business that is entirely reliant on people. It’s important to continuously get feedback from those people so that you can adapt and make the most of your processes.
It is important to understand that measuring HR analytics can be very fluid. You don’t have to do things the same way forever and you can evolve these processes over time, especially as the needs of your people and business change.
How To Use HR Analytics To Improve Your Business
HR professionals and business managers are using HR analytics in a number of ways to improve their businesses. These data points provide better ways to serve employees, helping to maintain the best overall performers. This provides a competitive advantage as they’re able to keep the top talent from being poached by the competition. If people aren’t happy, then they are likely to seek new opportunities elsewhere.
Compiling HR analytics is also a great way to save money. Personnel are typically the largest expense of most businesses, so it is no surprise that businesses lose a lot of money that could be avoided if the leaders had better insight into that part of the business. HR analytics provide that insight and can help clean up processes or make better decisions that save the business time and money.
Something that people analytics also provides, and ties into both of those things, is better efficiency. Getting more insight into how the business is performing on the people side can help you streamline and improve the efficiency of processes. The best example of this is the hiring process. Improving efficiencies when hiring new employees can help you hire better and faster, which saves money and improves the business overall.
HR analytics provide insight into the business in a way that no other data does. It is an insight into how your employees perform and react to the business itself. Without proper people analytics tools, you wouldn’t be able to understand how the hiring process is going or how you can improve overall team performance and morale.
Frequently Asked Questions (FAQs)
What are the four levels of HR analytics?
There are four levels of HR analytics, which are descriptive, diagnostic, predictive and prescriptive. This is a good way for the HR team to break up the “how” and “what” they would like to measure, but the breakdown isn’t necessary for most managers in the organization to understand.
How are HR analytics used?
HR analytics are used by a business to understand how well the company hires, manages and maintains employees. They can identify breakdowns in processes across the organization as it relates to employees and find ways to save money on things such as the hiring process.
What skills are needed for HR analytics?
While the individual overseeing the management of HR data might need more technical skills, anyone can work with HR analytics to improve their team. Once the tools are set up, it just takes the ability to read and understand what the data is saying so that the business can take action.