HR Costs and Strategic Ways to Reduce Them

Murtuza Topiwalla
May 25

The Human Resource Department of any firm is responsible for a plethora of tasks that include but are not limited to recruiting, planning and budgeting for employee training and developing employee-related company policies. In a nutshell, the HR department superintends the company’s most valuable asset, their employees.

 Of course, there are costs associated with the operations of the Human Resource Department. This article highlights the ways in which Human Resource Management Software (HRMS) can be used to optimize HR costs. 

Before moving on to exploring the cost-minimizing benefits of HRMS, let's first have a quick look at what are the different types of HR costs. 

Types of HR costs

Human resource costs can be categorized into five main segments; recruitment costs, retaining costs, training costs, employee benefits and HR-related admin costs. Recruitment costs refer to the administrative and logistical costs incurred by the firm while conducting the recruitment or hiring process; the costs of setting up job interview sessions. The costs of strategies adopted by firms in order to retain their employees are referred to as Employee retaining costs. Employee retaining costs can include the costs involving salary increments, bonuses and paid vacations.  Training costs refer to the expenditures made by firms in regards to arranging coaching sessions for their employees. Employee benefits may sometimes fall into retention costs as their prime goal is to make the job attractive for the employees by offering them fringe benefits in addition to their designated salary amount. Last but not least, HR admin costs include the costs of maintaining employee data, HR team salaries and operational costs.

What is HRMS?

The human resource management system is software that firms can use in order to digitize the functions of the HR department, hence, improving the efficiency of the department’s operations.

Key features of HRMS

Most HRM software offer features such as recruitment management (e.g. applicant tracking system), attendance tracking, payroll, compliance management, employee portal, onboarding, employee performance management, employee data and document log, leave management and reporting. 

Cost Reduction Benefits of using HRMS

In addition to reducing the workload of the HR team, HRMS allows firms to reduce their HR costs in the following ways:

  1. Recruiting in itself is a tedious and costly affair. Recruiting the wrong person for a job, however, costs even more to the firm as it reduces the overall efficiency of the firm. Recruitment management systems offered by customized HRM software enable firms to publish job opportunities on different online platforms, hence, enabling them to gather CVs more efficiently with an increased number of applications for each position. Specialized recruitment software also provides useful statistics about job applicants, which helps reduce the time spent scrutinizing applicant CVs manually. This helps reduce the administrative costs associated with the recruitment process. 

    Recruitment management systems such as the ATS (applicant training system) allows the firms to compare the applicant traits to those of existing high achiever employees hence, allowing the employers to make better and well-informed recruitment decisions.

  2. The Employee Portal allows employees to manage their holiday or sick leave applications through the software, giving them more independence. The portal also allows employees to check in their time-in and timeout virtually and digitally, even when they are working from home or are travelling for work-related purposes.

    This system increases the efficiency of the HR department in handling leave applications and queries regarding holidays through the software, as compared to manual operation. This also eliminates the chance of human error in regards to overlooking any specific leave requests.

    This information is stored online and is made use of for payroll calculations.

  3. Timekeeping is a feature offered in some HRMS that allows for the HR team to digitally monitor the time-in and timeout for all employees. This feature provides statistics that help the HR team determine which employees need to improve their punctuality and which employees need to be rewarded for their overtime hours.

  4. Payroll management allows firms to digitize the entire process of payroll management that includes collecting information regarding any changes required in the payslips, tracking incidences, separating pay slips for temporary and permanent employees, recording medical reports and forwarding payroll information to the accountant for salary disbursement. This results in a significant decrease in the workload of the HR team as well as HR-admin costs as manual record keeping of leave applications and holidays can be a tedious task that adds to administrative HR costs.

  5. Employee data log reduces the administrative costs associated with manual record-keeping while also saving the time required for manually updated employee records.

  6. Performance management software allows the firm to digitize the process of evaluating the performance of each employee by monitoring their achieved targets along with the feedback from colleagues. 

  7. Reporting and analytics feature allows the HR teams to generate various meaningful reports to keep a tab on employee performance. For example, this feature can provide data about the regularity and punctuality of an employee, which can be a key indicator for evaluating an employee’s performance.

In addition to the above-mentioned benefits, HRMS can be customized to allow for other cost-optimizing benefits such as managing training session logs for each employee. Since it is not a hidden fact that setting up training sessions for the employees is a crucial part of human capital development and has a direct impact on the improving efficiency levels of employees.

However, it is a costly affair. With the help of customized HRMS, training logs can be kept that would allow the firm to keep track of employee training and avoid repetition or irrelevant training for each individual employee. 

HR software also allows firms to maintain a log of an employee’s individualized information such as their tenure with the firm, the compensations that they received and the duration since their last promotion.

This information is then processed by the HRMS to calculate the ‘flight risk’ of each employee, hence, enabling the firm to plan its retention strategy for each employee.


In essence, it is safe to state that HRMS can be effective for HR cost reduction as well as improving the efficiency of the HR department. Such a system can also eliminate the risk of human interference in giving certain favours to specific employees and helps improve the levels of transparency and accountability. It has several other benefits as mentioned above, which can enhance the productivity of an organization and reduce HR costs. HR costs can be reduced significantly by moving to an advanced management system that refines the processes and limits actual human intervention, thus making it easier to achieve desired results. 

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