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Understanding Direct HR Costs and Their Impact on Business Performance
- Team of keyHRinfo.com
- May 29
- 2 min read
keyHRInfo.com is a Hungarian HR and Payroll Consultancy company for local and international startups and SMEs
Human Resources costs are typically categorized as either direct or indirect. Direct costs are those that can be clearly attributed to specific HR activities, such as salaries and benefits, while indirect costs are those that are not tied to specific activities but still impact the overall HR budget, like recruitment and turnover.
Indirect HR costs are expenses that, while not directly tied to specific HR activities, still impact the overall HR budget. These costs include recruitment, turnover, and absenteeism.
Which are the direct HR costs
Direct HR costs are the expenses that are directly associated with employees and their employment. These costs are often the most significant part of an HR budget and include salaries and wages, benefits, and training and development. Salaries and wages are the basic pay that employees receive for their work. Benefits are additional compensations given to employees, such as health insurance, retirement plans, and paid time off. Training and development costs include the cost of onboarding new employees, ongoing training programs, and professional development courses. These costs are often the most straightforward to calculate and manage.
Salaries and Wages
This is the most significant direct cost and includes the basic pay that employees receive.
Benefits
These are additional compensations given to employees, such as health insurance, retirement plans, and paid time off.
Training and Development
This includes the cost of onboarding new employees, ongoing training programs, and professional development courses.
These costs are often the most significant part of an HR budget, but they are also the most straightforward to calculate and manage.
Understanding both direct and indirect HR costs is crucial for effective budgeting and financial management within an organization. By accurately calculating and managing these costs, companies can better allocate resources, improve efficiency, and ultimately, create a healthier and more productive workforce.
You can read more here:
Hidden HR Costs that Impact Your Business
Analyzing the Hidden Costs of HR in Finance
HR Costs breakdown and overview
FAQ about HR direct costs:
What are direct HR costs?
Direct HR costs are expenses that can be directly attributed to specific HR activities, like salaries and benefits.
Are training costs considered direct HR costs?
Yes, training costs are considered direct HR costs as they are directly linked to employee development.
Do direct HR costs include employee benefits?
Absolutely, employee benefits such as health insurance and retirement contributions are part of direct HR costs.
How can a company reduce direct HR costs?
Companies can reduce direct HR costs by improving efficiency, such as streamlining recruitment processes or investing in employee retention.
Why is it important to track direct HR costs?
Tracking direct HR costs is crucial for effective budgeting and financial management within an organization.
keyHRinfo.com offers innovative HR and Payroll services for startups from reviewing the needs, to the solution proposal, implementation and operational phases. Also ongoing assistance for operational, audit and Mergers and Acquisitions.
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