HR costing and accounting refers to all the costs involved in different HR processes. The main objectives of this HR costing and accounting are to assign monetary value to employee behavior like absenteeism, turnover, job-performance and employee attitude and to assign monetary value to HR activities like recruitment, training and appraisals.
Objective of HR Costing
To reduce the costs of HR by devoting resources to the more controllable factors.
Identify for each HR decision, which costs are controllable and which are not.
Measure these costs at a time prior to some intervention designed to reduce controllable cost and then again after the intervention.
Behavior Costing Approach
Controllable Costs: The costs that are controllable through prudent HR decisions. Examples of controllable costs are employee salary, more opportunity for promotion and career development or greater job challenge.
Uncontrollable Costs: The reasons for these costs are beyond the control of HR department. Examples of uncontrollable costs are poor health, sudden death, sudden transfers etc.
Employee Absenteeism refers to failure of an employee to report for or to remain at work as scheduled, regardless of reason. The advantages of reducing absenteeism include improved productivity of supervisors and reduced stress and wear and tear of employees.
Cost factors to be considered due to employee Absenteeism
Employee hours lost due to absenteeism.
Cost of employee salaries and benefits.
Supervisor salaries and benefits.
Other costs, such as overtime, wages for temporary help, production loss, inefficiency of temporary substitute and maintenance of resource pools.
Employee turnover refers to any permanent departure beyond organizational boundaries. It is calculated as
Rate of turnover = (No. of turnover incidents per period/Average Work Force Size)*100
Employee turnover Types
Voluntary or controllable.
Involuntary or uncontrollable.
Functional: Turnover beneficial to organization.
Dysfunctional: Organization may like to retain the employee
Components of turnover cost
Separation Cost – Exit Interviews, Administrative functions related to termination and Separation pay
Costs to recruit employees to replace those who have left
Training Cost to provide adequate training for the new employees
The main recruitment costs are
Communicating job availability
Pre-employment administrative functions
Entrance tests and interviews
Travel and moving expenses for interview panel and HR personals
Post employment acquisition and dissemination of information
Premium for fresh insurance scheme for new employees
Expenses for Induction trainings and other training