Human Resource Accounting | UGC NET Commerce Preparation Course PDF Download

Human Resource Accounting - Overview 

Human resource accounting is a tool used to manage human resources effectively to achieve desired results. The information it provides helps in making informed decisions. Organizations invest in developing their workforce according to their needs.

This tool helps organizations recognize the true cost of their human resources. It is instrumental in enhancing performance and employee satisfaction levels, thereby aiding in achieving organizational goals and fostering growth and development among employees.

The concept of Human Resource accounting emerged in the 1960s to acknowledge the contribution of human resources towards goal attainment. This accounting method regards employees as valuable assets that can generate revenue for the organization.

Features of Human Resource Accounting

Human resource accounting manages the human capital of the organization effectively. It involves recording data related to human resources to facilitate the development of employees through the creation of improved policies and programs. Here are the key features of Human Resource Accounting:

• Recruitment and Selection of Human Resources: Human Resource Accounting (HRA) employs various methods to screen job applicants and ensure their suitability for organizational roles.
• Records for Management: HRA maintains day-to-day records of equipment usage for effective management.
• Continuous Information Updates: HRA involves keeping track of employee records, including skills, knowledge, and experience, which are essential components of human capital listed in financial statements. Regular updates are crucial for accurate human resource accounting.
• Evaluation of Human Resource Practices: HRA methods assess the effectiveness of organizational human resource practices, offering feedback on employee performance. This evaluation helps identify areas for improvement in policies and employee performance.
• Payroll Management: HRA maintains comprehensive records of human capital within the organization. These records assist in calculating payroll taxes, overtime costs, compensation-related expenses, and the overall cost of payroll processes.
• Employee Benefits: HRA encompasses benefits such as retirement plans and health insurance provided by the organization to its employees.
• Human Capital Monitoring: Through HRA methods, organizations can track aspects like employee work hours, turnover rates, and absenteeism, providing valuable insights into human capital dynamics.

Objectives of Human Resource Accounting

Improved Decision Making:

• Human Resource Accounting (HRA) involves maintaining comprehensive records of employees, spanning from recruitment to training and development. These records offer insights into employee performance and the efficacy of organizational policies.

Enhance Employee Performance:

• The primary objective of Human Resource Accounting is to boost employee effectiveness. By utilizing HRA records, strengths and weaknesses of employees are pinpointed. Subsequently, tailored policies and programs are crafted to enhance employee performance in areas of weakness.

Better Resource Allocation:

• Human Resource Accounting aims to optimize human resource allocation by identifying areas requiring additional human capital. This strategic approach ensures that human capital is deployed where it is most needed, maximizing returns on investment.

Value of Human Resource:

• Through meticulously maintained records, HRA reveals the value of human capital within an organization. It assesses and measures this data both collectively and individually, accurately reflecting the value of human capital in the company's balance sheet.

Providing Incentives to Employees:

• Human Resource Accounting assists in evaluating employee performance through its recorded data, facilitating the provision of suitable incentives to motivate and reward employees effectively.

Human Resource Management:

• Human Resource Accounting plays a crucial role in meticulously documenting all aspects of human resources within a company. From the employee's recruitment to their training and development, up until their departure, every detail during their tenure is systematically recorded.

Methods of Human Resource Accounting

• The Present Value of Future Earnings Method: Under this method, human resource accounting determines the value of employees by estimating their future earnings potential. It focuses on projecting the company's future earnings based on the skills, knowledge, and experience of the employees.
• Replacement Cost Method: This method calculates the cost of replacing an employee with a similar one. It encompasses expenses such as recruitment costs, training expenses, and other benefits associated with bringing a new employee onboard to replace an existing one.
• Cost-Based Method: This approach involves identifying and quantifying the expenses incurred in recruiting, training, developing, and retaining employees. It also includes accounting for the benefits provided to the employees.
• Income-Based Method: Under this method, the value of human resources is assessed based on their contributions to the organization's revenue and profits. It primarily considers the revenue generated by employees and the cost savings resulting from their efforts.
• Market-Based Method: Under this approach, the organization determines the cost of its human resources based on the salaries, wages, and benefits provided to employees in similar positions in other companies.
• Historical Cost Method: Historical cost method involves calculating the expenses incurred by the organization in recruiting, training, developing, and retaining human capital. It encompasses various employee benefits and compensations.
• Recruitment Cost Method: This method includes the expenses related to recruiting and selecting new employees within the organization. It covers costs such as job advertisements, travel expenses, and the time spent by HR staff in reviewing resumes and conducting interviews during the recruitment process.
• Economic Value Method: The economic value method operates on the premise that employees can contribute to the organization's profitability through their skills, knowledge, and experience, thereby generating revenue for the company.

Benefits of Human Resource Accounting

Human resource accounting plays a crucial role in enhancing employee productivity and efficiency. Implementing human resource accounting within an organization yields a multitude of advantages. Below are some key points elaborated:

Competitive Advantage:

• If a company effectively manages its human resources, it gains a competitive edge by attracting top talent and cultivating a skilled workforce. This, in turn, boosts productivity and enhances revenue generation for the organization.

Cost Savings:

• Human Resource Accounting methods aid in identifying areas where costs can be trimmed, particularly in recruitment and training processes. By optimizing these processes, costs can be reduced while meeting organizational requirements effectively.

Reduce Turnover and Absenteeism:

• Human Resource Accounting plays a vital role in minimizing employee turnover and absenteeism. It achieves this by offering proper training, motivation, growth opportunities, and improved compensation and benefits for employees.

Better Decision Making:

• By maintaining records of human resources within the organization, Human Resource Accounting facilitates informed decision-making. It assists in strategic planning for recruitment, training, and employee development, enhancing overall decision quality.

Proper Allocation of Resources:

• Through Human Resource Accounting methods, organizations gain insights into their human resource needs, enabling efficient and timely allocation of resources as required within the organization.

Compliance:

• Human Resource Accounting ensures organizational compliance with legal regulations, promoting effective and efficient utilization of human capital in alignment with the established rules and guidelines.

Enhanced Employee Engagement and Retention:

• By leveraging Human Resource Accounting records, organizations can identify areas for improvement and address factors contributing to job satisfaction and employee engagement. This valuable information aids in enhancing employee retention rates and reducing turnover-related costs.

Conclusion

The significance of human resource accounting is increasingly recognized in today's economy. It offers insights into the total human capital within an organization, aiding in informed decision-making and enhancing various aspects of human resource management. Human resource accounting proves valuable for assessing the costs related to recruiting, developing, and retaining human capital within a company. However, its implementation can be resource-intensive and costly for smaller organizations. Therefore, the adoption of human resource accounting practices should be tailored to suit the specific needs and circumstances of each organization.