Expect these HR expenses to rise

The past few years have been a period of transition for human resources departments as tight labour markets mean training and recruitment costs are taking up an increasing share of finance department budgets, and this year is unlikely to be an exception.

So where are CFOs likely to see the biggest spike in costs?

Recruitment

After salaries, recruitment tends to be the largest line item in finance budgets, according to Brian Kropp, group vice president in the HR practice of research and advisory company Gartner based in Arlington, Virginia. Recruitment budgets will be particularly high for growth companies, with more established organisations seeing a rise in learning and development budgets.

“With the advent of the global, and often remote, workforce there has been an obvious increase in HR costs as the global war for talent shows no sign of abating,” said Carlos Ruiz, managing director of UK-based HR and payroll company Portas Global. Talent acquisition and talent attraction costs in the form of higher salaries, and subsequently employment costs, tend to be the biggest items in finance budgets, he said, followed by IT systems and “robust communication infrastructures”.

In addition to the cost of recruitment programmes themselves, many employers are finding themselves paying a significant premium to attract the best talent, Kropp said. In the US, where unemployment is just 3%–4% and just 1% for some critical positions, companies are paying an average 15% increase in total compensation, benefits, and bonus to persuade top recruits to change organisations. A similar phenomenon is evident in other member states of the Organisation for Economic Co-operation and Development, he added. By comparison, annual merit increases for most employees are just 2% to 3%, a growing anomaly that could put upward pressure on all wages.

“Assuming the labour market stays roughly where it is, are CFOs and heads of HR willing to raise the salaries of tenured employees to reduce that gap?” he said. “That is the conversation that HR and CFOs need to be having.”

Analytics

Investment in new analytic technology, including new ways to collect and track data about employees and communicate information about them is likely to be another high-cost area, according to Kropp. A recent Gartner survey found that while companies spent $33 on average per employee on analytics in 2018, that amount is expected to jump to $70 per employee by 2020.

This is a result of the introduction of a number of new technologies coming online that help generate information to help employers understand their workforce.

“This is the place where the most progressive organisations are making the biggest spend,” Kropp added

Training

Learning and development (L&D) is likely to be the largest item in finance budgets in 2019 for many companies, Kropp said. “If you are a growth company and growing quickly, you will have bigger recruiting numbers. If not, L&D is likely to be bigger,” he said.

In the US, average training expenditures for large companies increased from $17 million in 2017 to $19.7 million in 2018, according to a 2018 report in Training magazine.

A key area where companies are likely to see increased spending is in diversity and inclusion training initiatives, as larger companies increasingly recognise the benefits of diverse and inclusive workforces to their businesses, Kropp said. He added that diversity training costs are likely to increase by 10% by 2020.

A knock-on effect of this development is likely to be an increase in global diversity and inclusion roles in larger companies over the same period, according to a January report in Training Journal.

— Andrea Chipman is a freelance writer based in the UK. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.