What does personnel cost include? The secret to optimizing personnel costs effectively

1. What is HR cost?

Personnel costs are the total amount that an organization or business has to pay to hire, manage, and maintain the employees working in that organization. This cost is divided into direct and indirect costs (overall costs).

Specifically, personnel costs include:

• Recruitment cost
• Training and retraining costs
• Salary
• Allowance
• Expenses for providing working facilities for employees: uniforms, computers, stationery,...
• Periodic health check costs
• Insurance: health insurance, social insurance, unemployment insurance
• Welfare: are allowances for employees' life: birthdays, funerals, filial piety...
• Bonuses for employees such as emulation bonuses, year-end bonuses, travel...

In addition, businesses also have to pay other hidden costs such as meeting costs, overtime costs, idle costs, asset costs, facilities, etc.

2. Steps to manage and optimize personnel costs

Currently, many businesses implement strict personnel cost control in order to optimize personnel efficiency and increase their profits. Below, let's find out the steps for effective employee cost optimization that are most applied by many units.

2.1 Set up a plan to manage personnel costs

Budget planning helps to minimize spending too much and stabilize capital so that businesses can rotate in business. A detailed budget plan will also help each business allocate resources effectively in the face of changes. Besides, this also has the effect of improving the initiative of personnel in work plans and saving as well as optimizing staff costs.

• Positioning the business mission: planning the human resources budget in accordance with the business targets from which it is possible to adjust, allocate or implement effective human resource activities.
• Measure the needs of using budget resources: These needs are the main ones related to human resources such as recruitment costs, training, salary and bonus policies and other benefits...
• Setting up a contingency plan: Enterprises create budgets to be able to stand firm in the face of unforeseen difficulties. Typically, the mass recession during the Covid-19 epidemic period.
• Consider long-term investment sources: This can be an investment in human resource management software to improve processes and increase the efficiency of internal management at the enterprise.
• Review feasibility: Businesses should ensure appropriate budgets as well as properly cut unnecessary items to avoid waste.

2.2 Set a budget for each item of personnel expenses

Performing employee expenses in detail is one of the best ways to control employee costs. This strategy will include establishing and conserving in advance the maximum possible budget for each type of personnel expense such as travel expenses, bills, purchasing equipment and supplies, etc.

In each type of expense, businesses should let employees know how much they are paid from the company budget and will not be reimbursed if spending exceeds this limit. Currently, many basic expenses can be pre-approved by the business, and other out-of-pocket expenses require explicit approval from the manager.

Thus, businesses should build a budget for each item of personnel in an easy-to-understand manner as possible. This will make it easier for employees to memorize and memorize them.

2.3 Outsourcing non-core activities

Currently, many businesses choose to outsource their activities and jobs. This has helped businesses significantly reduce costs such as recruitment, training and insurance...

For example, in the period near Tet, businesses will often need more workers than usual to keep up with a large number of orders. Therefore, many businesses choose to outsource employees to save costs without having to sign a long-term contract.

In addition, businesses instead of choosing to build software themselves, can hire a reputable technology company to write new software or buy existing software to cut unnecessary fees.

2.4 Optimizing recruitment costs

It can be said that the key to an effective recruitment process is the optimization, consistency, consistency and synchronization in personnel costs . Here are a few things that businesses should do to have the most cost-effective recruitment process.

• Set up a standard calculation formula and apply it to many recruitments for easy evaluation and comparison with previous or subsequent recruitments. If there are new expenses incurred, enterprises should automatically adjust the formula in close relationship with the old formula and not change too much for easy comparison later.
• Calculating periodic costs so that the HR department can see the overall picture of recruitment activities as well as help businesses capture the efficiency and improvement in the recruitment process such as evaluating the effectiveness when applying the components. recruitment software, participating in recruitment events, etc.
• In addition to the average costs, businesses should calculate the costs for each department or position. Because the cost of hiring a salesperson is different from hiring a marketing person.
• Calculating costs based on each recruiting source to find the highest or lowest cost of recruitment to compare with the effectiveness of each channel. From there, businesses can eliminate ineffective channels and focus more on important recruitment channels.

Readers can refer to the article 10 effective human resource recruitment solutions after the wave of resignations to understand more how to effectively recruit but still ensure optimal costs.

2.5 Optimizing training costs

There are many ways that businesses can apply to optimize employee training costs. Here are a few ways you can help your business:

• Choose online training to optimize employee training costs, for employees who take online classes or courses to help employees master new skills and tools at work. 
• Train employees in forums so they can communicate whenever they want without spending too much money on events, catering and venues.
• Use the right employee training system to track employee performance for mutual benefits.
• Leverage internal resources without the need to hire outside experts. This helps you cut huge costs.

2.6 Optimizing salary and bonus policy

The enterprise establishes a salary and bonus policy to ensure fairness for both the enterprise and its employees:

- Pay wages by working time, by month, day or hour. Employees will be deducted according to the time off, if they do enough according to the regulations, they will receive full salary.

- Pay-by-product payments help incentivize workers to increase their productivity while doing their jobs.

- Payment of wages in the form of contract means that employees will receive wages according to the amount of work that the company assigns. When the worker completes will be paid the corresponding salary.

- Salary payment based on revenue according to the goals and policies of each company. Usually applied to sales staff, sales staff…

- 3P salary payment includes salary by title (hard salary), capacity and work results.

Thus, through the above article, it can be seen that if businesses want to develop stably and sustainably, they should plan a detailed budget and optimize their personnel costs .