The costs of human capital administration and compliance can be significant in businesses of all sizes. Core human capital administration functions include personnel, benefits, payroll, and maintaining compliance with workforce-related rules such as employee classification, anti-discrimination, and overtime pay.
Business owners and HR professionals provide strategic support to optimize human capital. These functions include workforce planning, recruiting and hiring, talent management, training, onboarding, and time and attendance. Businesses must understand the costs associated with these important functions so they can budget for important human capital expenses like health benefits and tasks such as time management.
In particular, small businesses face numerous challenges with HR budgeting and planning. Small businesses often have limited resources assigned to human capital administration and may become overwhelmed by HR demands and costs. Especially after a year as chaotic as 2020, it may be necessary to reduce costs associated with human capital administration. Fortunately, there are two practical and cost-effective options you can choose to maintain productivity while reducing the burden of HR administration.
If your business bogged down in workforce-related administrative tasks and your labor costs are escalating, learn how to improve efficiency. Consider how a human capital management (HCM) system or HR as a Service (HRaaS) can help you improve service delivery, control risk, reduce operating expenses, and allow management and HR to focus on strategic activities.
Calculating the costs of human capital administration
There’s no question that HR costs related to human capital administration can amount to a large percentage of a human resource department’s total annual budget. Consulting firm, Ernst & Young[1] conducted a study to estimate the total costs (both labor and non-labor) associated with completing tasks pertaining to functions including benefits enrollment, time management, and onboarding new employees. The goal of the study was to determine the average cost of a single data entry associated with functions/tasks when a company does not use a fully-automated self-service HCM software solution.
The report found that labor costs represented most of the total costs related to these HR tasks. For example, inputting an employee’s I9 information during onboarding costs $8.32 on average. Of that amount, $7.85, or 94% of the cost comes from labor. Each manual timecard costs $37.07 from an employee filling it out through the employer collecting it and verifying its accuracy. Fully 99% of the cost for this timecard process comes from labor. It’s easy to see how these processes could cost much less with good HCM automation.
The EY study found that the area with the biggest potential for cost savings was benefits enrollment. Time and attendance management was another area where HR could benefit by reducing or eliminating the time associated with performing manual tasks such as calculating PTO balances and collecting and organizing time sheets.
The hidden costs of manual HR processes
Manual administration is time-consuming, difficult, and prone to error. For example, human error with HR compliance paperwork can lead to fines and penalties. And that also puts a lot of pressure on your key HR talent. According to one survey, about one-third of HR professionals consider quitting their jobs because they are forced to spend too much time on administration.
There are many other negative impacts of labor-intensive manual processes including productivity issues, payroll errors, and missed business opportunities.
HCM software streamlines HR administration
Many businesses invest in HCM software solutions to automate processes, increase accuracy and efficiency, and help manage costs. In fact, a recent survey found that 80% of U.S. small businesses now use HR software, or plan to use it in the next one to two years.
The automation of routine tasks reduces the labor costs associated with their completion, freeing up HR personnel to focus on other strategic activities. HCM software provides employee self-service portals allowing employees to directly manage their own timecards and request time off, eliminating unnecessary staff time spent on administrative tasks related to time and attendance.
HCM software also provides applicant tracking functionality to increase efficiency within the recruiting process. Businesses can leverage automated questionnaires to screen applicants, match applicant skills with job descriptions, and generate candidate communications to keep the process moving forward.
Why businesses outsource human capital administration
Many small businesses also choose to outsource certain HR functions in order to cut costs without eliminating valued benefits or diminish the employee experience. It is a popular choice because businesses can pick specific tasks to outsource such as background checks, worker’s compensation, health care benefits administration, payroll processing, temporary staffing, and much more. This outsourcing approach is also called HR as a Service (HRaaS).
The cost of outsourcing depends on the number of employees you have and the services you need. It is a flexible solution because it allows your business to delegate tasks and manage employee needs efficiently and effectively. By outsourcing specific HR functions, your business ultimately spends less on staffing in-house HR personnel and allows your current team to focus on strategic business activities. HRaaS enables your business to adapt to evolving needs by supporting a culture of continuous learning, increasing retention, reducing hiring costs, and emboldening your company’s ability to grow your workforce.
Invest in growth, not administration
If your business needs a HR solution that meets you where you’re at, Asure can help. We offer HCM software with low up-front costs and a subscription model that allows you to save cash and invest in things that drive growth. We also offer three different levels of HRaaS support for any size organization.
[1] Ernst & Young, “Estimating Labor and Non-Labor Costs Associated with Common Human Resources (HR) Functions/Tasks,” November 2018.
