Have you ever thought about how much your employees are worth, not just by what they produce, but also by being an asset on paper? If you agree, it’s Human Resource Accounting (HRA).
HRA is critical because many companies have no problems measuring their assets. They know the value of physical assets, such as buildings, and digital assets. But many organisations don’t realise that the biggest investment they have is. People can and should be accounted for.
Let’s examine it in detail, including how it works & why it is important for HR departments.
What is Human Resource Accounting?
In simplified terms, it refers to valuing employees as financial assets.
This is not about turning people into numbers—rather, it’s understanding people’s value. To make smarter business decisions. Businesses spend huge sums of money on acquiring, training, & retaining talent, so why not account for it?
Why Human Resource Accounting is Important
Conventional accounting does not account for employee costs/values. However, every HR function has a cost or time value (recruit, onboard, or train…)
- HRA provides this pervasive ROI.
- It allows companies to visualize their real return on their talent investments.
- It generates accuracy in financial statements & everyone appreciates transparent accounts.
- It generates strategic planning from HR expenditure.
To recap, human resource accounting develops an alignment of HR Practices with financial performance.
Advantages of Human Resource Accounting
If you’re still not convinced as to why Human Resource Accounting deserves your attention.
1. Better Talent Management
HR will be able to see how well they are doing and measure both cost and value.
2. Better Financial Reports
Stating what facets strengthen the business.
3. Enhanced Employee Value Propositions
When organisations understand the value of their people, they can establish better employee retention strategies.
Basic Elements of Human Resource Accounting
Let’s examine the fundamental aspects of the concept.
1. Cost Approach
This approach captures & documents the costs incurred in hiring, training & retaining people. This approach provides the most direct evidence of value.
Why it’s important: This allows organizations to evaluate the cost of their hr practices.
2. Value Method
This method focuses not only on costs, it evaluates the future value! What people have to give to the company is generally measured by an employee’s productivity. Possible promotions and potential long-term contribution.
Why this matters: It reflects the actual capabilities of a company.
Difficulties with Human Resource Accounting
Of course, there are challenges.
- It is difficult to put a number on human potential.
- Not all models will get to the same number.
- There is no consistent method being used around the world.
- It is difficult to measure emotional intelligence, creativity, and leadership capability.
Yet even given the challenges, many HR professionals feel it is better to try to measure human capital instead of ignoring it altogether.
How Savvy HRMS Makes Human Resource Accounting Easy
Savvy HRMS Cost Centre feature allows you to track the cost of each employee to your business. You can keep a record of it daily, weekly, or monthly.
If you have an employee working in two departments, no worries. The system can easily split and show how much cost is allocated to each employee. You will always be aware of where the money is going and to whom.
This transparency allows you to plan, budget, and manage teams in full knowledge of costs.
How does it relate to HRMS?
This is where it gets interesting.
An HRMS, such as Savvy HRMS, can track training costs, appraisals, leaves & payroll. All this for an accurate piece of organised data needed for human resource accounting!
HRMS automates the process, reduces the risk of errors & promotes informed decision-making.
Conclusion
It is about a change in mindset as organizations become more human-centered. It is time to begin to think about employees as assets. Integrating this idea into your HR functions, you can gain insight that goes far beyond employee counts and salary tracking. Begin treating them as your most valuable assets.
Are you ready to put Human Resource Accounting into action in your organization?
Savvy HRMS was built to assist in every HR function. Allow your HR staff to do their jobs better with enhanced data-driven decision-making.
You will be amazed at how Savvy HRMS can make your human capital an indicator of your business value!
FAQs
Q1. Is HR Accounting available for organizations to use?
Not everywhere, yet. Many very large organizations use it, but small businesses are still trying to use it & see the benefit.
Q2. Is Human Resource Accounting making the old-fashioned accounting method obsolete?
No. Human Resource Accounting is ancillary to old-fashioned accounting. By using HRA, users can show the value of human capital on financial reports.
Q3. Is It legally binding?
Not in most countries, but it is gaining acceptance in progressive HR practices & financial planning.
Q4. Can software products assist in Human Resource Accounting?
Sure. HRMS platforms like Savvy HRMS have very easy styles for tracking data needed for HRA.