| 11 June, 2020 | 5 Min Read

5 key factors that help reduce HR costs for SMBs

Discover how you can reduce your HR budget costs without compromising your organizational success. Also, find out the better alternatives you can adopt to replace expensive HR expenditures.

Before the COVID-19 outbreak, 65 % of HR personnel looked forward to having their operating budget increased. However, given the volatile economy expected after the outbreak, businesses are under pressure to cut back on operational costs.

As one of the departments with a large expenditure budget, the HR department will be severely affected by the cut in cost.

For HR in SMBs, this situation brings more challenges. They are expected to reduce expenses without compromising on talent attraction, retention, management, and development. Not doing it right will be detrimental to the company’s long-term success.

To help your business cut down on HR costs without affecting your employees, here are five factors to consider.


How to reduce HR costs for SMBs?

Here are top 5 effective ways to reduce HR budget

  1. 1
    Make smart hiring decisions
  2. 2
    Invest in HR technology
  3. 3
    Adopt low-cost benefits
  4. 4
    Prioritize low-cost professional development
  5. 5
    Engage employee

1. Make smart hiring decisions

It is no secret that recruiting and replacing employees take a significant percentage of HR costs. From posting on job boards to scheduling interviews and onboarding employees, SMBs spend a lot on talent acquisition. Replacing an employee is just as costly. In some cases, the cost could be as much as twice the employee’s annual salary.

To help your HR department cut back on recruitment costs, try getting the right talent in the right position. You can achieve this by adopting more efficient recruitment approaches. For instance, you could consider using niche job portals such as Techinasia, Dribbble or social media like Facebook, Instagram, or LinkedIn to get talents. These platforms provide little or no cost at all to get qualified candidates.

2. Invest in HR technology

According to an Ernst & Young study, a lot of money goes into manually performing HR tasks like recruiting, onboarding new hires, and performance management. This does not take into account the additional cost that comes with manual errors, decreased productivity, etc.

Investing in HR technology like an HRIS is another optimal choice to mitigate the cost of manually performing HR tasks. The automation of your core HR processes will help you cut back on the costs caused by errors, delays, and lost productivity. Employing the use of an HRIS is especially important now as businesses looking to adapt to the post-COVID need technology to thrive.

It is also essential for SMBs to employ a platform that offers a great employee experience. This would not only help them in their recruiting and onboarding talents but also in retaining them - and eventually reduce turnover cost.

3. Adopt low-cost benefits

On average, companies spend $11.38 per hour on each employee's benefits. This makes it one of the areas that should be subjected to HR cost cuts. However, cutting employee benefits is a complicated terrain for employers to navigate. Employers do not want to take away benefits that will lead to unsatisfied employees.

The first step to cutting down on benefits is by implementing efficient low-cost alternatives for employees. Benefit programs like expensive lunches, vacations, and gym memberships are unnecessary and can be cut off. While benefits such as flexible schedules, entertainment tickets, and casual dress code should be maintained as they cost less and will help keep your employees happy.

Additionally, employers can find special healthcare plans for their employees at reduced costs. Many health providers offer group coverage healthcare plans that are cost-effective for small companies. Employers may go for these types of plans or renegotiate with their providers as their employee size increases.

4. Prioritize low-cost professional development

Another way HR can cut operating costs is by applying cost-effective measures to employee development. Conferences, seminars, and professional development workshops may help with employee development but they are very costly. For SMBs, this amount could be as high as $900+ per employee.

By prioritizing low-cost professional development, HR can encourage employees to take free online courses offered by professional organizations. Other approaches worth considering include creating internal mentorship or leadership programs. Experienced members can also create internally-led courses focused on specific skills training.

In any industry where training is vital to professional growth like marketing or IT, this type of development will go a long way for the employee. The company will not need to spend on external training as they will have mentors and leaders to learn from.

5. Engage employee

Employee disengagement is a major driver of HR costs. According to a Gallup study, a disengaged employee can cost a business 34% of their annual salary in terms of productivity. Worse, the employee might choose to leave afterward, driving the cost up two-folds. This could curb the growth of any SMBs under severe financial constraints.

Therefore, HR has to keep employees engaged. Look for the reason your employees are disengaged and fix it. You may want to start by adopting the HRIS mentioned above for better employee experience.

Next, encourage regular communication from the management team, share stories of what happened around the company, or host a quarterly company-wide meeting are some of the low-cost ways to improve employee engagement. Also, verbally thanking employees that contribute ideas or sending a thank-you email can help build a happy workforce. Additionally, using productivity apps, free HR solutions, and free 360 feedback tools can help improve communication and foster a healthy work culture.


Start saving cost with Grove HR

HR departments will play an integral part in keeping operational costs down as the world emerges from one of the COVID-19 crises. Employing the use of an HRIS is one sure way to do this as without automated processes, many HR tasks are costly and time-consuming.

To help SMBs recover fast and stay productive in the post-COVID world, we are offering free and unlimited access until the end of 2020 to Grove HR's Foundation Plan. Get started now, save costs, improve employee productivity, and foster your business growth.

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Reduce manual effort with automated HR processes

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