This year, CEOs are laser-focused on growth, technology adoption, and workforce optimization. Correspondingly, HR leaders are tasked with delivering initiatives that support these priorities all while managing increasingly conservative budgets.
Shrinking HR Budgets Amid Rising Expectations
According to Gartner’s December 2024 survey of over 500 HR organizations:
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Only 35% of HR leaders plan to increase budgets in 2025, down from 40% in 2024 and 45% in 2023.
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Meanwhile, 33% expect budget cuts, up from 30% in 2024 and 29% in 2023.
This tightening of HR budgets means HR leaders must demonstrate efficiency and strategic value more than ever.
Why HR Efficiency Benchmarks Matter
To balance cost constraints and CEO expectations, HR leaders need benchmarks to:
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Validate HR’s current performance
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Inform strategic prioritization
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Identify areas for spending adjustments
Unfortunately, many HR functions lack the foundational data needed to optimize staffing and spending effectively.
Gartner Benchmarks for HR Leaders
1. HR Spend Relative to Revenue and Operating Expenses
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Median HR spend as a percentage of revenue: 0.80%
This is lower than other functions like Finance (1.25%), IT (3.14%), Sales (4.47%), and Marketing (7.5%). -
Median HR spend as a percentage of operating expenses: 1.33%
This metric offers a steadier comparison since operating expenses are less volatile than revenue. -
Industry variations exist:
Sectors with more highly skilled workers (e.g., professional services) tend to invest more in HR than labor-intensive industries (e.g., energy, consumer goods).
Note: Spending above or below these benchmarks isn’t inherently good or bad — it depends on HR maturity, workforce needs, and business context.
2. HR Spending Per Employee
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Average annual HR spend per employee: $2,908
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Largest expense areas per employee:
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Recruiting: $396
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Total Rewards: $241
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Learning & Development: $215
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A higher-than-average HR cost per employee can indicate a strategic investment in workforce capabilities or it could point to inefficiencies and a people-heavy HR function needing optimization.
3. HR Productivity and Staffing Allocation
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On average, 1 HR full-time employee (FTE) supports 58 employees, though this varies by industry and geography.
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HR staff spend most time on:
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Staffing and recruiting
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HR administration
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Employee relations
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Payroll
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Heavy transactional workloads often limit HR’s strategic capacity. Increasing efficiency through technology, automation, and shared services is essential.
Using Benchmarks to Balance Cost, Efficiency, and Quality
HR leaders should leverage benchmark data to:
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Open dialogue with CEOs and CFOs about HR performance and priorities
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Evaluate HR services not just by cost but also by quality and business impact
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Secure funding for critical, strategic HR investments, even in tight budgets
High-quality, peer-based benchmarks empower HR leaders to rethink spending and staffing, ensuring their function remains a strategic enabler of growth and workforce productivity.
Source – HR Executive
