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How HR Can Increase Profitability

All too often human resources is viewed as a necessary evil. Many business leaders regard it as a department designed to provide new employee orientation and take care of laborious paperwork — nothing more.

In reality, HR plays a bigger role than most people think. In fact, HR can increase profitability and improve a company’s bottom line in several ways.

 

Insightful HR Statistics

Research from a business and legal resources webinar from HR Hero indicates that, “60 percent of executives are beginning to see that HR can partner with other departments to increase the profitability and value of a business.” The outdated notion that HR is just there for processing paperwork has given way to an understanding that it actually plays a vital role in the strategic development of a business as well as its company culture.

Another extensive study conducted over the course of two years entitled, People and the Bottom Line, by the Work Foundation and the Institute for Employment Studies found that, “If an organization increased its investment in HR by just 10% it would boost gross profits by nearly $2,000 per employee per year.”

Because HR can be aligned with other areas of operations, there’s the potential for it to have an immense impact. Here are some specific ways that HR can increase profitability.

 

A Better Employee Onboarding Process

When employees are given adequate training and equipped with the right tools, they can perform their jobs more effectively and become more productive. HR plays a key role in the onboarding process and can take measures to ensure that new hires get the training they need and are ready to perform their jobs at the highest level possible.

 

Reduced Turnover

HR is also responsible for selecting the best candidates who possess both the hard and soft skills needed for the job. In turn, they’re likely to find individuals who are genuinely enthusiastic about their careers, which increases the odds that employees will stick around for the long haul.

Reducing turnover is incredibly important because of the costly nature of replacing employees. A study from the Center for American Progress found that the average cost to replace an employee is, “16 percent of annual salary for high-turnover, low-paying jobs earning under $30,000 a year and 20 percent of annual salary for mid-range positions earning $30,000 to $50,000 a year.”

 

Minimize the Threat of Litigation

Sometimes disgruntled employees think nothing of taking legal action against an employer they feel has wronged them. An ugly legal battle can be costly even if you win and can quickly tarnish your brand’s reputation.

Solid HR can greatly diminish your odds of ever getting hit with a lawsuit by emphasizing employee relations and ensuring compliance with relevant laws and regulations at all times. HR can even develop a program to resolve employee issues before they escalate and become a serious problem. This often translates into a big profitability boost.

It’s important to recognize all of the different ways HR can contribute to your business. When functions are carried out effectively, HR can increase profitability and be the catalyst that fuels long-term growth.