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GG 11
Reduce Human Resource Management Costs

Summary

All state agencies have human resource (HR) functions such as employee recruitment and selection, classification, benefits administration and training. HR functions in many relatively large state agencies appear to be substantially overstaffed compared to other public and private organizations. National norms suggest a ratio of one HR staff member for every 100 employees, and Texas’ large agencies should be required to meet this standard. Small agencies, by contrast, have little in the way of HR expertise and should be required to outsource their HR functions to private vendors.

Background

The Legislature sets broad staffing standards for Texas state agencies, capping each at a specific number of employees. It does not, however, set more detailed standards for specific agency functions.

For the past 26 years, the Bureau of National Affairs (BNA), a publisher of materials concerning legislative and regulatory issues, has collaborated with the Society for Human Resource Management to conduct an annual national survey of human resources (HR) units in public, private and nonprofit organizations. These surveys examine a variety of human resource issues, including the ratio of HR employees to the staffs they serve.

For the entire 26 years of the survey, the average ratio across all organizations has ranged from one HR employee per 90 staff members to 1:110. In four out of the past five years, the ratio remained constant at 1:100.[1] Organizations in the Austin area have similar ratios. At Austin’s Motorola, which employs about 9,000 people, the HR staffing ratio is 1:100.[2] Seton Hospital, with a staff of 5,814, has a ratio of 1:135.[3]

Functions

Respondents in BNA’s surveys perform a variety of HR functions, including:

  • employment and recruiting—interviewing applicants, advertising positions and handling temporary employees.
  • training and development—employee training, quality initiatives and employee orientation.
  • compensation–wage and salary administration and job descriptions.
  • benefits administration—unemployment compensation, pension and retirement plan administration, vacation/leave policies and profit sharing.
  • employee services—recreation and social programs and employee assistance services.
  • employee and community relations—disciplinary procedures, attitude surveys, Equal Employment Opportunity compliance functions and affirmative action programs.
  • personnel records—maintained by HR units.
  • health and safety programs—workers’ compensation administration, wellness programs and safety inspections.
  • strategic planning—human resource forecasting and succession planning.

Not all of the organizations surveyed perform all of these services, and neither do all of the state’s HR departments. But the list does describe the generic HR services state agencies provide. Agency HR functions, then, seem similar enough to those of the survey respondents to expect that they should be able to function at the 1:100 ratio.

Agency HR staffing

Some state agencies meet or exceed the national average; others do not. This proposal does not explore the reasons for departures from the national average. Nonetheless, the data suggest that some state agencies can and should scale back their HR departments to at least approach the national average. If each agency were to reduce its HR staffing to the 1:100 ratio, the annual savings could be significant.

Twenty-six state agencies employ 500 or more staff members. In all, these agencies employ almost 1,300 HR workers in Human Resources to provide services for about 78,900 employees, or an average of one HR employee per 60 staff members.[4]

Nineteen Texas state agencies with 500 or more employees have HR/staff ratios of less than 1:100 (Exhibit 1).

Exhibit 1
HR/Staff Ratios:State Agencies with 500 Employees or More and HR/Staff Ratios of Less Than 1:100

Agency Total Staff HR Staff HR Staff to Total Staff
Commission for the Blind 638 17 1:38
Workforce Commission 3,985 102 1:39
Rehabilitation Commission 2,486 59 1:42
Department of Insurance 989 21 1:47
Department of Protective and Regulatory Services 6,837 142 1:48
Department of Health 4,859 93 1:52
Workers' Compensation Commission 1,057 20 1:53
Building and Procurement Commission 574 11 1:52
Department of Agriculture 516 10 1:52
Department of Human Services 14,256 260 1:55
Alcoholic Beverage Commission 517 9 1:57
Office of the Attorney General 3,774 63 1:60
Department of Transportation 14,871 232 1:64
Department of Mental Health/Mental Retardation 20,414 308 1:66
General Land Office 583 8 1:73
School for the Deaf 583 7 1:83
Railroad Commission 778 9 1:86
Parks and Wildlife Department 2,883 30 1:96
Commission on Environmental Quality 3,095 32 1:97
TOTAL 83,695 1,433 1:58
Sources:Texas Comptroller of Public Accounts; Texas Department of Criminal Justice; Texas Department of Mental Health and Mental Retardation; Department of Human Services; Department of Protective and Regulatory Services; Texas Department of Health; and the Texas Workforce Commission.

Agencies with Fewer than 100 FTEs

The 75 Texas state agencies with 100 or fewer full-time equivalent employees (FTEs) face unique obstacles in HR management. Typically, these small agencies have one or two staff members who perform all human resource functions for their agencies, sometimes on a part-time basis. A lack of expertise and training in this critical area can make it difficult for agencies to comply with state laws and court rulings, fill positions with qualified individuals in a timely manner and manage their work forces effectively.

Many private and public employers are using the services of professional employer organizations and administrative service organizations, which offer consistent, legally compliant and timely HR services, including payroll, recruitment, hiring and training.

Florida is outsourcing its HR functions in every agency as a way to improve HR management and generate savings from the elimination of some positions and updated technology. Florida plans to outsource its payroll, insurance, retirement, attendance and leave and personnel records functions, and estimates that doing so will save the state up to $173 million over seven years.[5] While many of these functions already are performed efficiently by state agencies such as the Employees Retirement System, small agencies still would benefit from private, professional HR assistance.

Recommendations

A. All Texas state agencies with 500 or more full-time equivalent employees (FTEs) should adjust their human resources (HR) staffing to meet an HR-to-staff ratio of at least 1:100.

B. All state agencies with fewer than 100 FTEs should be required to outsource their HR management functions to increase their speed and efficiency.

The Council on Competitive Government (CCG) should be required to perform a feasibility study on outsourcing small-agency HR functions. Services obtained from vendors might include:
  • the development of position descriptions;
  • advertising for vacant positions, participation in job fairs and other events and other recruitment-related functions, such as application processing and screening and interviews, pre-employment testing and background checks;
  • the development of policies and procedures and employee handbooks;
  • a training plan and class development and delivery;
  • assistance in managing cyclical workloads and project demands, including the hiring of temporary and/or contract workers;
  • assistance in basic human resource management, including the maintenance of employee records and the administration of benefit plans and payroll; and
  • response to and management of legal requirements and employee-employer disputes.
Should the CCG study show that outsourcing would be cost-effective, CCG then should issue a request for proposals for a vendor or vendors to provide standard and customized HR services to small agencies. CCG would determine which services would be mandatory for agencies and which could be selected on a voluntary basis. The cost of the contract(s) would be borne by agencies out of their existing human resource budgets, reflecting whatever savings and other benefits the vendor could provide.

C. Agencies with fewer than 500 FTEs but more than 100 should be required either to reduce their HR staffing to 1:100 or to outsource their human resource functions along with the small agencies.

Agencies should report the option they choose to the Comptroller’s office and the Council on Competitive Government by September 1, 2003.

Fiscal Impact

The estimate for Recommendation A assumes a reduction in HR staffing in each agency with 500 or more employees to achieve a ratio of at least 1:100. The salary figures used for the 19 agencies in the estimate represent their average salaries for HR employees. The estimate also assumes that the measure would take effect in the first year of the biennium. Estimated savings include employee benefits of 28.3 percent.

To realize the estimated savings, appropriations to each of the affected agencies would have to be reduced. Exhibit 2 lists the affected agencies and the amounts by which their appropriations would have to be reduced, based on HR salaries and benefits from fiscal 2002.

Exhibit 2
Annual Agency Appropriation Reductions Needed to Realize Savings from Recommendation

Agency Reduction in Appropriations
Department of Mental Health/Mental Retardation $ 3,018,000
Department of Transportation $ 3,384,000
Department of Protective and Regulatory Services $ 2,741,000
Department of Human Services $ 3,613,000
Department of Health $ 1,539,000
Workforce Commission $ 2,523,000
Attorney General's Office $ 1,054,000
Commission on Environmental Quality $ 39,000
Parks and Wildlife Department $ 34,000
Rehabilitation Commission $ 1,384,000
Workers' Compensation Commission $ 307,000
Department of Insurance $ 372,000
Railroad Commission $ 38,000
Commission for the Blind $ 451,000
Building and Procurement Commission $ 169,000
School for the Deaf $ 33,000
General Land Office $ 97,000
Alcoholic Beverage Commission $ 152,000
Department of Agriculture $ 196,000
Subtotal $ 21,144,000
ERS (20.63%) $ 4,362,000
FICA (7.65%) $ 1,617,000
Total $ 27,123,000
Source: Texas Comptroller of Public Accounts.

Potential savings from Recommendation B cannot be estimated due to a lack of reliable data on small agencies’ human resource expenses. CCG could complete its review with existing resources.

Potential savings from Recommendation C would depend upon future events and decisions and cannot be estimated.

Fiscal Year Savings to General Revenue Savings to General Revenue-Dedicated Savings to Federal Funds Savings to Other Funds Change in FTEs
2004 $15,147,000 $4,006,000 $7,874,000 $96,000 -596
2005 $15,147,000 $4,006,000 $7,874,000 $96,000 -596
2006 $15,147,000 $4,006,000 $7,874,000 $96,000 -596
2007 $15,147,000 $4,006,000 $7,874,000 $96,000 -596
2008 $15,147,000 $4,006,000 $7,874,000 $96,000 -596


Endnotes

[1]Bureau of National Affairs, Bulletin to Management: Human Resource Activities, Budgets and Staff (Washington, D.C., June 2001), p. S-13.

[2]Interview with Julie Ann Dubek, HR Operations manager, Motorola Semi-Conductor Products Sector, Austin, Texas, April 14, 2002.

[3]E-mail communication from Marcia Silverberg, vice president for Human Resources and Organizational Development, Seton Health Care, Austin, Texas, April 21, 2002.

[4]Texas Comptroller of Public Accounts, computer runs of agency employment by job classification, April 4, 2002.

[5]Bill Cotterell, “New Contract to Privatize Personnel Duties,” Tallahassee Democrat (August 20, 2002), p. B-1.