What is HR Analytics and Why Do You Need It?

With the advancement of technology, the way human resources managers work has changed dramatically in recent years. Although HR professionals focus primarily on the human aspect of running a business, they have become increasingly reliant on technology.

According to NetSuite, 58% of businesses use HR technology to find, attract, and retain top talent. The report also indicates that 74% of companies plan to increase spending on HR technology.

But why are more and more businesses investing in HR technology, HR analytics to be specific? In this article, we will discuss exactly this.

By the end of this article, you will have a better understanding of what human resource analytics is, the importance of human resource analytics, and how you can get started with it.

What is HR Analytics?

HR analytics is a data-driven method that helps businesses make better, more informed decisions related to HR functions.

Also known as human capital analytics, HR analytics focuses primarily on the HR department of an organization.

It involves measuring and analyzing a range of HR metrics, including

• Time to hire
• Time to fill 
• Offer acceptance rate
• First-year turnover rate
• Revenue per employee
• Involuntary turnover rate
• Average absenteeism rate
• Training expense per employee
• Training efficiency
• Human capital risk

Source: Toolbox.com

Together these insights help businesses fill vacancies faster, improve retention rates, reduce expenses, and boost efficiency across the organization. 

Key HR Analytics Metrics

We discussed the key metrics that human resource analytics measures, let’s understand them in detail. 

• Time to hire: It is the number of days it takes to approach a candidate and onboard them. This data can help recruiters determine why it takes so long to hire a candidate, enabling them to create a better candidate experience. 
• Time to fill: Like time to hire, time to fill measures how long it takes between advertising a job opening and hiring a candidate to fill that position. Measuring time to fill helps recruiters identify areas that take the most time (e.g., finding the right candidate) so they can optimize their recruiting strategies.
• Offer acceptance rate: As the name suggests, it indicates the percentage of candidates that accept the offer. It can be calculated by dividing the number of accepted offers by the number of offers given in a given period. Anything above 85% is a good ratio. If it is lower than that, you might need to dig deeper to understand why candidates are not accepting your offer.
• First-year turnover rate: It indicates the percentage of employees who leave within their first year (or as soon as they complete one year). It can be calculated by dividing the number of employees who resign within one year by the total number of employees in your organization.
• Revenue per employee: You can calculate the average revenue each employee generates by dividing the company’s income by the total number of employees in the organization. It helps determine how efficient the employees are.
• Involuntary turnover rate: When you terminate an employee (for breach of code of conduct or any other reason), it is considered involuntary resignation. You can calculate it by dividing the number of employees who left involuntarily by the total number of employees. This metric is directly linked to the recruitment strategy and should be used to improve the quality of hires.
• Average absenteeism rate: It helps determine how productive and happy your employees are. A high absenteeism rate indicates that they’re not happy in the organization (or might be facing personal problems). HRs need to identify people with a high absenteeism rate and sit with them to understand their issues and come up with a solution.
• Training expense per employee: It can be calculated by dividing the training expenses by the number of employees who received training. You’d want to minimize it while still ensuring that the training is effective. 
• Training efficiency: It helps determine whether the training program is effective or needs changes. Calculating the training efficiency includes analyzing multiple factors, including employee performance improvement, test scores, and upward transition in employee roles.
• Human capital risk: This includes employee-related risks, such as lack of specific skill, lack of qualified employees for any given role, chances of employees leaving the organization, etc.

What Data Does an Human Resource Analytics Tool Need?

The data an human resource analytics tool needs can be divided into two categories:

• Internal data
• External data

However, to get the most out of a human resource analytics tool, you need to ensure that you’re collecting the right data and that it is accurate. 

Let’s understand the type of data you need to collect. 

Internal Data

It refers to the data that are available within the HR department. For starters, here are some metrics that you can get from the HR department.

1. Average employee tenure
2. Employee compensation
3. Employee training records (including expenses)
4. Performance appraisal 
5. Reporting structure
6. High-value, high-potential employees
7. Any disciplinary action against an employee
8. Employee attendance records

The only challenge in HR data and analytics is ensuring the accuracy of data. Therefore, you need to ensure that the data you’re collecting (and providing the analytics tool) is as accurate as possible.  

External Data

Any data collected outside of the HR department is considered external data. It also includes data from outside the organization as it offers a global perspective that working solely with company data cannot. 

Here are some types of external data that you’ll need. 

1. Financial Data: It is crucial to track the company’s financial data, including the revenue and profit margin. This will help calculate metrics like revenue per employee and the cost of hiring. 
2. Passive data from employees: Employees continuously generate data that can help you determine how happy they are in the organization. For instance, their social media posts (especially LinkedIn) can be used to guide HR data analysis. 
3. Global data: It includes global economic, political, and environmental factors that might impact employee behavior. These insights can help you guide your HR strategies in a way that internal data cannot. For instance, 2021 saw such high resignation rates due to the pandemic that it was termed “The Great Resignation.”

These insights together can help predict how employees might react to similar situations in the future. It also enables you to determine trends related to voluntary and involuntary turnover. 

How HR Analytics Helps Human Resource Management?

As the HR industry continues to meet the demands of the remote working and digital era, HR professionals need to leverage data to meet their strategic goals. 

In a nutshell, analytics transforms HR management by enabling HRs to: 

• Make data-backed decisions
• Create better recruitment strategies
• Test the effectiveness of these strategies

Here’s an in-depth overview of the importance of HR analytics. 

1- Improve Employee Retention

HR analytics measures metrics that can help you improve employee retention, ultimately leading to cost savings (related to recruitment). 

For example, as a recruiter, you might want to track the retention rate by source. As you collect this data, over time, you may find that candidates from certain sources (e.g., referrals) stay in the organization longer compared to other sources (e.g., advertisement on job portals).  

With these insights in hand, you can prioritize candidates who come via referrals over other sources, thereby increasing the retention rate.  

2- Enhance Your Recruitment Strategy

Apart from helping you increase the employee retention rate, analytics can also enable you to improve your recruitment strategy. 

For instance, analytics gives you insights into hiring duration, hiring effectiveness, offer acceptance rates, applicants hired by sources, and more. 

You can use the information to focus on sources with the most hires (previously) and a high acceptance rate to improve your time to fill and save on recruitment expenses.  

Similarly, you can use the average hiring duration to start looking for potential candidates before even the position gets vacant. 

3- Create a Better Employee Experience

Human resource managers do more than just find suitable candidates for the organization. They also focus on enhancing the employee experience continuously. 

The better the employee experience, the higher the retention rate. 

Metrics like attendance, absenteeism, and productivity can provide HR professionals with a better understanding of the overall employee experience. They can use this information to find areas of improvement and create strategies to enhance employee experience and satisfaction. 

HRs can also use these insights to optimize compensation, benefits, training, and leave policies in a way that meets employees’ expectations. 

Role of HR Analyst

HR analysts plays a vital role in collecting and analyzing HR processes and data. They also ensure every process aligns with the organization’s policies and objectives.

Here is a detailed overview of the role of HR analysts:

• Working with the HR team to identify and resolve HR-related issues.
• Collecting and sharing information on new employment regulations, labor laws, government regulations, etc.
• Creating and analyzing employee surveys, exit interviews, and staffing policies.
• Helping with job audits and HR investigations.
• Providing support and advice to different departments in the company regarding HR policies and best practices.
• Assisting the HR team with optimizing operating policies, guidelines, and systems to ensure best practices are followed throughout the organization.
• Creating assessments for potential and current employees.
• Managing HR reports filed by employees.
• Analyzing employee relations within the organization.
• Monitoring competitor practices to give suggestions to the upper management.

Additionally, HR analysts might even keep tabs on new employees and evaluate their performance. They can also decide to find replacements for employees who are not performing as they should.

How to Get Started with HR Analytics?

While you will need an HR data analyst to get the most out of HR analytics, you can also consider training existing HRs in HR data analytics.

Additionally, here are some tips to help you get started with HR analytics.

1- Prepare Your Team

The first step to adopting human resource analytics is ensuring that everyone is on the same page.

It begins with involving C-suite executives in the discussion of the need for HR analytics. You will need to make them understand the benefits of analytics in the HR department and how it can benefit your organization as a whole.

You also need to prepare your team for the change. They should be able to deal with the amount of data (and analyze it) to measure the progress.

2- Involve Data Scientists

Data scientists play a crucial role in helping you get the maximum benefit from HR analytics. They can monitor the quality and accuracy of the data, helping you get up-to-date, accurate insights. Furthermore, data scientists can guide HR professionals on using the data to their benefit.

3- Start Small

One of the best ways to start with HR data analytics is by implementing a small project. For instance, begin with tracking one or two metrics and analyze how effective the insights from the analytics platform are. Gradually, you can implement analytics in the entire HR department.

4- Ensure Legal Compliance

You will need to ensure legal compliance to avoid breaching employees’ rights and privacy. Here are some legal considerations to keep in mind when implementing HR analytics.

• Taking consent from employees about the data you’re collecting.
• Ensuring employee privacy and anonymity.
• Establishing goals for data collection and informing employees about the same.
• Ensuring data privacy and security (from unauthorized access).
• Location of the HR analytics vendor where the data will be stored and complying with their local laws.

Furthermore, you should ensure transparency concerning the type and amount of data you collect.

5- Choose an HR Analytics Tool

Last but not least, you will need a robust HR analytics tool to streamline everything. Make sure to compare the best HR analytics software to get a higher return on investment.

What to Look For In an HR Analytics Tool

To help you choose the right HR analytics tool, we have curated a list of things that you must look for. 

1- Real-time Analytics

Opt for an HR analytics tool that provides you insights into necessary metrics in real-time. This will help you make decisions quickly and ensure you’re atop everything happening in the HR department.

2- Role-based Access and Collaboration

To ensure data privacy and security, you will need a tool that displays information based on roles and functions. For instance, a CHRO might want to see more high-level data, whereas an entry-level HR may not need access to all the information.

3- Predictive Analytics

Instead of spending hours organizing data and generating insights from it, let the technology do the work. Predictive analytics help you prepare for unknown future events. For example, it will help predict if the current termination rate will increase in the coming months. This way, you can anticipate and prepare rather than react.

4- Easy Visualization

Working with data can be tiresome. However, with a smart and interactive visualization dashboard, you can understand data better and identify trends quicker. Besides, charts and graphs help you explain the data to non-technical people easily.

5- Intuitive UI and UX

There’s no point in investing in a tool that is difficult to use. Not only you’ll have to spend hours learning it, but you’ll also have to spend a lot of time finding necessary data.

One way to ensure the tool is easy to use is by trying it. Most HR analytics tools offer a free trial, so you can get a gist of the software before investing in it.

6- Reliable Support

No matter how easy the tool may be to use, the chances are you will run into problems now and then. Or you may require help in configuring a new data set.

This is why choosing a platform that offers all-round support is essential. It would be great if they offer live chat and phone support as they are among the fastest support channels.

Summing Up

Human resource analytics has become more important than ever. It fuels various HR strategies, including recruitment, retention, and employee experience. However,  you need to ensure the data you feed to the analytics tool is up-to-date and as accurate as possible. Also, don’t forget to choose the best HR analytics platform for your business.