Businesses strive to reach the peaks of success by optimizing their operations and investing the resources where they are needed. That is why the company's assets are often evaluated regularly to ensure what each asset brings to the table and how much it costs to purchase and maintain that asset. In the early years of the industrial revolution, manufacturing was the major field where most businesses were functioning. In manufacturing businesses, heavy machinery and equipment are treated as assets. Business owners invest heavily in these machinery essential to manufacturing and treat them as assets.
Fast forward to today, companies other than manufacturing have emerged in the market, and these companies were not heavily dependent on any type of machinery. Industries like the service sector treat people as their assets and hence take the necessary actions to protect, maintain and empower them. Human resources are the teams responsible for discovering and recruiting talent that can contribute to the company's profitability. But unlike heavy machinery in the manufacturing industry, you cannot purchase people. They are hired, trained, and assigned the right roles and responsibilities that best suit their skill sets and experience. As the nature of boat assets is different, it can be challenging to determine what value they bring to the company and whether it is viable to recruit them. That is when human resource accounting comes into the picture. This article will tell everything you need to know about human resource accounting and how it benefits businesses.
What is HR Accounting(HRA)?
In simple words, HRA is the process of identifying and reporting the investments made in human resources and whether they are viable. It is the process often utilized by accountancy fields to determine whether the cost of hiring employees is proportional to the value they create for companies' profits. When it says a company's profits, it's strictly numerical. Employees may bring value to the company through brand awareness or publicity, but it may be measurable, which is what HRA helps do.
HR accounting is an active and ongoing process that starts when the employee is interviewed, shortlisted, hired, trained, assigned responsibilities, and works to create value for the company. It considers several factors such as employee experience, salaries, wages, training costs, incentives, recruiting costs, exit costs, etc. It thinks about every cost when the employee is hired, when they work, and leave the company. The cost of hiring a replacement for the employee after the employee leaves is also considered. That is how HRA gives detailed insights into the employee lifecycle and the cost required throughout that lifecycle.
Employee contribution also plays a crucial role in determining whether the employee is an asset or a liability. Many companies often fail to evaluate an employee's impact on the company. There used to be no way to determine the measurable value an employee creates towards a company's profitability. Thanks to HRA, companies can now precisely determine quantifiable results that show them what contribution an employee makes to the company and whether their salaries reflect that contribution or not.
Objectives of HRA
The scope of HRA isn't limited to identifying and reporting the value of resources used by the company. It includes the enhancement in quality and quantity of the human resources and how it reflects on the company's output. Here are some of the main objectives of HRAs:
- Take critical management decisions based on the cost value evaluation to effectively discover, train, maintain and allocate human resources to achieve organizational goals.
- Achieve efficient utilization of human resources to enhance company output
- Analyze human assets and make critical decisions to preserve, terminate or appreciate the talent
- Implement and encourage management principles. Determine financial consequences based on employees' cost and contribution ratio
Benefits of HRA
Human resources are a critical part of any organization. As it governs the recruiting and terminations of talent, HRA offers the quantifiable metrics to reduce employee costs and improve employee contribution significantly. It also offers valuable information about the company's human resources cost and sets the right expectations for employee contribution. That way, companies can reduce their operational cost and enhance workplace productivity and company goals. Here are some more substantial benefits of HR accounting.
- HRA helps to plan the quality and quantity of staff based on the organizational needs and create an effective action plan to make that happen.
- It evaluates and aligns with the corporate action plan. Suppose the company plans to expand, diversify and make significant technological changes. In that case, the HRS helps to have a realistic view of the cost of making these organizational changes from a human resources perspective. It also holds power to make the necessary critical changes to the organizational plan if the proposed quality and quantity of talent aren't available.
- Provides an offset for changes and uncertainty by enabling the perfect role fit for the individuals and the company.
- Engage employees in training and development to create a scope for growth and advancement.
- Encourage employees to achieve personal and organizational goals such as promotion, project launch, etc.
- Emphasize human involvement in the organization and exhibit the metric that indicates high returns to the company.
- Motivate employees to assess their contribution and take the right actions to improve that contribution.
- Assess employees' experience, skills, and qualifications to find the right fit for the job.
- Use different testing methods to determine the candidate's eligibility, such as aptitude tests, group discussions, panel interviews, and one-on-one interviews.
- Documents the process for further use, implementation, and termination
- Derive insights, and report and business intelligence to refine future decisions and drive organizational growth
Human resource accounting is undeniably one of the most critical aspects that can drive organizational success. Companies that involve people's assets, such as service sector companies, must leverage the benefits of HRA to evaluate the cost of HR and determine company contribution. That way, companies better understand the hiring process, training and development, and talent nurturing. When a company invests in suitable HRA activities, it transforms its talent pool and achieves exceptional organization goals.
Teamnest offers a bird's eye view of your company's human resources processes. The decision-makers leverage the Teamnest platform to avail thorough insights into the cost of recruiting, training, onboarding, maintaining and relieving the employees. This intelligence allows them to have better control over the organisational processes. Teamnest's superior HRA features like payroll, employee engagement, attendance, and leave management enable companies to identify opportunities to optimise cost and make the necessary changes to achieve organisational goals.
HR processes don't have to be your headache anymore. Contact our TeamNest expert TODAY @ +91 913-786-6322 or email at firstname.lastname@example.org.