1. What are KPIs in human resources?
A KPI, or Key Performance Indicator, is a way to measure how well someone or a business is doing in achieving specific goals and objectives.
Let’s go to the roots, the Cambridge Dictionary, which defines KPIs very simply:
“abbreviation for key performance indicator: a way of measuring a company’s progress towards the goals it is trying to achieve:
A KPI is a performance metric for a specific business activity.
Key performance indicators (KPIs) provide managers with advanced warning signals that there may be problems ahead.”
Key performance indicators are usually used to determine a company’s financial, strategic, and operational efforts, especially in competition with other organizations from the same market/industry.
Returning now to human resources, an HR KPI will be dedicated to the HR department, thus measuring results regarding recruitment, retaining talent, training, talent management, payroll processing, etc.
The established KPIs for HR will show how the human resources team contributes to the company’s overall performance and how they complete their department strategy.
As a rule, the HR strategy (and, therefore, KPIs) will follow the business’s strategy. You cannot have an HR department setting up imaginary objectives that do not align with the company’s overall objectives.
2. How to set KPIs in human resources?
For a successful HR department and motivated HR managers and professionals, the established KPIs must be, from the beginning, a reflection of the greater goals of the company and the HR department. We loke to draw your attention to into consideration that a SMART KPI's be:
- Specific - to a particular aspect that your want to measure or optimize.
- Measurable - a KPI cannot be vague; you need to know precisely what you are measuring and how(way/method/measurement unit).
- Attainable - you need to be realistic when setting up the KPI.
- Relevant - measure only the things that make a difference to the company as a whole, don’t focus on small metrics.
- Time-bound - setup a deadline for achieving the expected goal, don't let it be indefinite.
When you want to become a pro in the goal setting process
, you can check our in-depth-guide.
3. Top 10 HR KPIs
While every company has individual needs, which means no size fits all, there are some common HR KPIs that every HR department should consider.
The HR key performance indicators that we will exand on this article, with formulas, concrete examples, and impact each metric has on the overall business, are the following:
- Employee turnover rate
- Rate of employee absenteeism
- Employee satisfaction level
- Employee productivity level
- Average recruitment time
- Cost of recruitment
- Employee engagement levels
- Workplace accidents
- Employee Net Promoter Score (NPS)
- Diversity KPIs.
Update: We have added 23 new KPIs that are also relevant and important to be measured, plus additional ways to track them. You will find them below the list.
Let’s talk about the most important ones:
1. Employee turnover rate
Measuring turnover has always been important, but more so after the pandemic.
Turnover refers to the percentage of employees leaving the company over a certain period. A high turnover rate brings high costs for the company and can also generate a lack of motivation and productivity among the employees.
While there are many reasons for an employee to leave a company, this does not mean you stop monitoring this indicator. Maybe not everything is in your control as an employer, but you can try to find the root cause of the problem.
How do you measure the turnover rate?
It is not difficult at all:
Turnover rate (%) = (Number of Leavers/Avg. Number of Employees) x 100
If the rate you get is high (more than 10%), you should try and find the weak spots within your organization. These could be unfair compensation, a low benefits package, a good work environment, etc.
Learn more about employee turnover: including the voluntary and involuntary types.
2. Rate of employee absenteeism
Employees not coming to work (regardless of the reason: sickness, personal days, burnout) will always cost a lot for any company.
Causes of absenteeism are several, and we detail them toghether with effective solution to this problem.
When deciding to establish this KPI, you will be able to find out the real impact absenteeism has on your organization, then predict absences and take steps to correct them.
How can you measure the absenteeism rate?
Absenteeism rate(%) = Total number of lost days of work due to absence/Number of available workdays in an organization x 100
This HR KPI is a very relevant indicator for every company. Make sure you consider it.
At LeaveBoard, we can make your life easier with our modern leave management and reporting software. Spot absenteism, reduce burnout, plan effectively, control time-off balances.
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3. Employee satisfaction level
Employee satisfaction is determined by many factors, not just the financial part. Besides the salary, you should also consider the benefits package, the overall work climate, and the relationship between the employee and the direct manager.
Keeping a high level of satisfaction among your employees will result in a better attrition rate.
How do you measure employee satisfaction?
The Employee Satisfaction Index (ESI) asks three questions to determine how pleased your employees are with their jobs:
- How happy are you with your current job? (Rate between 1 and 10)
- How effectively does your workplace suit your requirements? (Rate between 1 and 10)
- How close is your current job to your ideal job? (Rate between 1 and 10)
Tip: Reward good work, be flexible, invest in staff development, allow employees to shape their own roles, and avoid micro-management are just 5 of the 10 ways to improve employee satisfaction at work.
4. Employee productivity level
This KPI is meant to measure how efficient your workforce is by tracking how long it takes an employee to complete a specific task and accomplish the goals set up for him at the moment of hiring.
It’s all about how much an employee works and how performant they are in their daily activity. The quality of the work they finish is an additional element you need to keep an eye on, especially if you’re a manager.
The most transparent way to go about this indicator is to create a policy to improve productivity levels.
How do you measure employee productivity?
A commonly acknowledged formula to measure productivity is Productivity = Inputs / Outputs.
Based on this formula, you can calculate labor productivity per hour or per employee, as you see in the example provided by SmartSheet.
Note: Please make a distinction between knowledge workers and manual workers, as one is based on quality and another on quantity.
5. Average recruitment time
It’s essential to keep track of the time that goes by between the moment you advertise a new job and the moment the selected candidate starts work on his first day.
Using such a KPI will help improve the recruitment process and save time and money for the company.
To obtain this indicator, for each job you put up for advertising, you have to calculate how many days elapse from the point the job is displayed to proper channels up to the day the new hire starts, then calculate the company average.
Indeed some positions are harder to fill than others, but that is why we work with average rates, not isolated numbers.
Monitoring recruitment can be challenging for many HR professionals, but technology helps in most cases. Using HR software can help enormously.
How do you measure the average time to hire?
Time to hire formula = The day the candidate accepted the offer - The day the candidate entered the pipeline.
Time to fill formula = The day the candidate started working - The day the role was approved.
Average time to hire formula = (Time to hire 1 + time to hire 2 + time to hire 3 + ...)/Total number of jobs.
6. Cost of recruitment
Another crucial KPI to consider if you are an HR professional.
When discussing these costs, we need to consider two kinds of expenditure involved: the recruitment and the training costs.
When advertising a new job, your company will spend money on the actual advertising, subscriptions to job platforms, social media enhancement, and possible software. Training costs consist of fees for trainers, training courses, and materials.
How do you measure the cost of recruitment?
Cost of recruitment = total costs of internal recruitment + total costs of external recruitment) / total number of employees recruited over a period of time.
7. Employee engagement levels
While it’s true, it’s a manager’s job to recognize demotivated and dissatisfied employees, the HR professionals, are again the ones to help for improvements in this area.
A higher level of engagement among your employees can only have benefits: higher performance, lower turnover rates, and reduced absenteeism.
Employee engagement is different than job satisfaction, which is easier to measure.
Analytics firm Gallup, highlights the benefits of employee engagement within a visual graphic making it easy to understand the importance of this HR KPI.
You need more than one survey to check if your employees are truly engaged. You need constant surveys on different topics, constant discussions between managers and employees, and further initiatives to improve this area.
How do you measure the employee enagement levels?
There are two ways to measure engagement: a. Direct: engagement surveys, pulse surveys, employee net promoter score, and b. indirect methods: 1:1 meetings, exit interviews, stay interviews, turnover rate, employee absenteeism, and employee analytics. Note that indirect ways to measure engagement require analysis, interpretation, and more work than direct ones.
We will focus now on measuring engagement using surveys:
Step 1: Run an employee engagement survey. Find below a sample of how it shall look like.
Step 2. Add scores to responses
A Likert scale is a tried-and-true approach for assessing attitudes and levels of agreement with a given statement. A typical Likert scale has five response alternatives, which look like this:
- 5 points for a strong agreement
- 4 points for agreement.
- 3 points for being neutral
- 2 points for disagreement
- 1 point for strong disagreement
Step 3. Determine the score per employee, teams or department.
To compute the score for employees, teams, and departments add the points from their responses. It's a basic formula that will provide insight into how each employee feels.
Gallup Q12 Employee Engagement Questionnaire Scores via Effy
Step 4. Analyze results and take action
The average response is based on a five-point scale (for a specific person, a specific question in the context of the entire firm, or a specific department in the context of the entire survey).
With such data, we may determine the ratio of engaged to non-involved persons to identify high-risk locations, critically low engagement rates, and the most significant concerns.
8. Workplace accidents
Workplace accidents are among the most difficult to handle challenges for the HR department. Employee absenteeism is the major problem that results from workplace accidents. Then you need to consider lower productivity, slow performance, and overall bad morale.
Take a given period of time and see how many workplace accidents happen in your organization; this way, you can determine how safe your workplace is. If you need to improve this area, ask for help from your company’s health and safety department.
Some industries are particularly sensitive to this topic, so be sure to pay attention to this KPI.
9. Employee Net Promoter Score (eNPS)
The employee NPS is the metric that indicates the probability of employees recommending their company to other possible candidates.
Your employees should be seen as ambassadors. They are in contact with your clients, vendors, and maybe even stakeholders. If they are loyal, this will be visible.
A great way to measure the eNPS is by conducting various surveys on diverse themes, all with the end question if they would recommend their organization.
How do you measure employee eNPS?
NPS = % of promoters – % of detractors
A simple question will give you the answer you need: "How likely are you to recommend your employer to others as a place of work?" Workers are asked to rate themselves on a scale of 0 to 10, with 0 being a very low likelihood of recommending and 10 representing a high likelihood.
Your organization's employee net promoter score (eNPS) would be 20 - 5 = +15 if it had 80 employees, 20 of whom were promoters, 5 of whom were detractors, and the remaining were neutral.
10. Diversity KPIs
Diversity is a very sensitive topic in every organization, and as usual, it is the HR department’s job to ensure it doesn’t become an issue.
While it’s difficult to measure if you are “diverse enough” as a company, here are some metrics you can look into:
- percentage of women in management
- percentage of employees from different ethnicity, religion, or age.
How to measure Management roles by gender?
Female managers(%) = Total female managers/Total number of employees x 100
Example: (12 female managers/100 employees)= 0.12*100=12%.
Such measures help us to adjust our decisions when it comes to hiring, promoting, training, and decisions adjusted to long-term business goals.
As an CEO or executive you should make and implement improvement plans if you find gaps in this area.
Share of male vs female in management roles via Datapine
Tip: After your HR department has the frameworks and skills to measure KPIs accordingly, it can transition from reporting to forecasting throughout the whole HR company. They intend to focus on more predictive analytics for select groups, such as projecting turnover or proactive assessments of top talent.
Additional HR Analytics, metrics and KPIs
Other analytics, and KPIs that HR managers, people ops, or CEOs that help from an operational, strategic to drive better decisions are:
- The average tenure of employees. How long do your employees stay in your company?
- Average age range - Based on the date of birth how many employees are within the following age categories: 26-30, 31-40, 41-50, 50+. Some companies also track the average age, and if they want to metric, they wil make more senior/junior hires.
- First-year turnover rate - The number of employees lost within the first year of employment
- 90-day failure rate - This metric is directly related to the onboarding process, supervisor style, and business culture.
- Cost of the workforce - The percentage of personnel costs should comprise salary, training, recruitment fees, benefits, and bonuses.
- Pay gap analysis - Differences in pay between males and females or different ethnicities.
- Learning and development time - Measuring time spen (hours) on training can improve the overall learning plans.
- Training effectiveness - Not all training programs are successful. Training has related costs. You must monitor the success of your training programs to ensure that they produce the expected results.
- Training costs - Check to see if your investment in employee training pays off in the form of superior skills, increased productivity, and improved performance. The training costs can be calculated at company level or at employee level.
- Internal mobility - Show how employees move within a company, across organizations, and up career ladders - also known as internal promotion rate.
- Compensation metrics - How a company compares to the rest of the market in terms of salary.
- Benefits satisfaction - Understand your employees' demands and identify the best benefits package to fulfill them.
- Headcount analysis - These trends examine year-to-date headcount, hire, and turnover trends for your company's employees for each month of the chosen year.
- Absence cost - The cost of total absences over a particular month. Companies also trace this number versus the last month's number.
- Overtime hours - Overtime hours also have an impact on the company's bottom line.
- The number of leave taken. This employee KPI is all about striking a good work-life balance. Some organizations calculate also the average number of leave staken per quarter, or year.
- The availabily rate.- Also known as utilization rate is the percentage of an employee's total working hours spent productively, i.e. the hours billable to a client.
- Sick leave costs - costs associated with sickness/medical leave.
- Team/Department/Location distribution - See how your workforce is organized by teams, departments and location and analyze if there are any unbalances.
- Average salary/comensations - When it comes to the paycheck - you might look at the average pay per employee, and this KPIs evolution over time. Some organizations track this figure at yearly scale.
- Contract type - While some employees might be hired as permanent employees others are temporary hires.
- Employment status - The number of full time vs the part time hires impacts the overall productivity and administrative costs.
- Performance rating - Some organizations use the 9 box performance grid to determine low performers and superstars. Such tools provide insights about firing and promotions.
HR KPIs play an immense role in supporting you in measuring business performance. Make sure you analyze these core KPIs and see which are the most needed in your organization.
Take your time, and don’t rush the process of setting the KPIs.