Standards Development

Scope

This international technical specification describes the elements of workforce costs and provides comparable measures for internal and external reporting.

The TS also highlights issues that need to be considered when interpreting the cost data especially when deciding on the appropriate intervention internally and when reporting these to external stakeholders (e.g. regulators, investors).

Purpose

This proposal builds on the work of ISO/TC260 WG2 metrics. At the Bali Plenary 2017, WG 2 proposed that future NWIP for metrics should be clustered according to the requirements of standards being developed. The initial clusters would be according to the reporting requirements of ISO/AWI 30414 – Guidelines – Human Capital Reporting for Internal and External Stakeholders. See Resolution 78. WG 2 also proposed that all metrics developed follow a defined template including: the name of the metric; definition; formula; purpose and how to use the metric (intended users and contextual factors for interpretation). See Resolution 79

ISO/DIS 30414:2017-10 Human Resource Management — Guidelines for Human Capital Reporting for Internal and External Stakeholders includes the following clusters:

1. Compliance:

2. Costs:

3. Diversity:

4. Leadership:

5. Occupational health and safety:

6. Organizational culture:

7. Productivity:

8. Recruitment, mobility and turnover:

9. Skills and capabilities:

10. Succession planning:

11. Workforce availability:

This TECHNICAL SPECIFICATION focuses on the Costs Cluster.

In this TECHNICAL SPECIFICATION you will find the description of the internationally accepted metrics, and indicators which describe the Costs of workforce in organizations.

ISO/DIS 30414:2017-10 Human Resource Management — Guidelines for Human Capital Reporting for Internal and External Stakeholders defines the Costs associated with workforce in organizations in the following ways:

4.7.3 Costs

Costs for workforce are one of the most critical factors for HRM, with a direct influence of the earnings or value preposition of an organization. Investors are interested to see, the amount an organization invests for employment to receive a certain profit. The extent of reporting on total external workforce costs should be determined by the organization itself. However, future direction indicates importance of this metric, e.g. in terms of digitalization. The objective of this HCR-area is to quantify an organization’s total expenditure on people and to understand if HC costs are consistent with equal opportunities and fair wage policies of an organization. To report the HC costs, means that HC can be imaged as investment account and that employment costs, which are a major influencing factor in HRM, can be easily calculated.

Where applicable to collate the costs and where it is material to the organization the costs relating to service workforce (e.g. outsourced workforce) should be reported as a separate item.

For the area costs the following metrics are recommended for internal reporting (unless otherwise stated):

1) Total labour costs or total workforce costs (recommended for internal and external reporting by large organizations and SMEs)

This metric is a key indicator of the financial value the organization places on managing, maintaining and developing its workforce. Total workforce costs include external workforce costs (see 2). These costs include only the actual amount paid for all workforce wages.

In order to aggregate the salaries of workforce from different countries, this data has to be weighted by the international salary differentials. In some countries, the spread between low income and high income is relatively large (e.g., in Eastern Europe), in some other countries it is relatively small (e.g., in Scandinavia). These labour cost do not only influence the international division of labour, they also have an immediate impact on foreign direct investments. For an international comparison or benchmark the levels of salaries are important. If the salary reference level is for instance in Great Britain with 100%, the relative weight of Norwegian salaries would approximately be 130%, the weight of Spanish salaries 60%. The UBS study [6] compares wages (amongst other things) on a global level. Workers in cities with high relative gross salaries (Zurich, Geneva and Luxembourg) receive pay that is on average 19 times those in Nairobi, Jakarta and Kiev.

Total workforce costs = Total compensation cost + benefits cost + external workforce costs

2) External workforce costs, such as independent, contingent, third party contractors (recommended for reporting by large organizations and SMEs)

Because of the need of more flexible reaction of organizations to changes in their economic context the traditional employment system with permanent employment has changed dramatically. This development also changes the cost structure of employment. External workforce costs in relation to internal workforce costs show the dependency on external workforce. External workforce costs are also considered in total costs of employment.

The metric ‘external workforce costs’ means for instance the expenses for contractors, consultants, temporary workers, cloud workers, etc. It is defined as the sum of external workforce related expenses as e.g. employee leasing expenses, temporary (agency) worker invoices, independent contractor costs, consultant costs.

3) Ratio of the basic salary and remuneration for each workforce category (recommended for reporting by large organizations)

Ratio of basic salary of e.g. women to men within the same job categories (according to Global Reporting Initiative (GRI)[5]) and total compensation of all employees to the annual total compensation of the chief executive officer. This metric helps to understand if an organization is implementing an equal opportunities' policy.

4) Total costs of employment (recommended for reporting by large organizations and SMEs) This metric includes the actual amount paid for all workforce wages and benefits (e.g. wages, salaries, employer match of taxes such as social security and medical care, employer paid insurance premiums, pension deposits, expenses for human resources development, all other fringe benefits etc.).

5) Cost per hire (according to ISO/TS 30407) (recommended for reporting by large organizations)- Cost-Per-Hire Comparable: measure to identify costs associated with recruitment among organizations. - Cost-Per-Hire: measure to identify costs associated with recruitment. It is calculated by taking the average of total costs divided by the number of hires.

6) Recruitment costs (recommended for reporting by large organizations) The sum of all internal and external recruitment costs (finding and hiring employees). These both factors are defined in ISO 30407.

7) Turnover costs: (recommended for reporting by large organizations and SMEs) The metric for turnover costs can be as simple as the NET of exits minus entries by timeframe, or more sophisticated models are provided by ISO/TS 30413.