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Meaning and Concept of Human Resource Accounting

Shubhangi Jain

| Updated: Oct 01, 2022 | Category: Labour Compliance

Human Resource Accounting

The recent trends in labour laws have led to a drastic shift in the overall perspective of the way the workforce is to be treated. The employers are more focused on the employees’ productivity and grabbing qualified personnel to facilitate the same. Changes in the quantum of compensation and benefits provided to the employees have impacted the overall human resource cost and the expenses incurred by the organisation. The organisations fail to keep track of the same due to the obsolete human resource management approach leading to the growth of the idea of Human Resource Accounting[1] in India. However, most organisations cannot make optimum use of this system due to a lack of clarity about the procedure. 

The article discusses the concept and meaning of Human Resource Accounting to provide a clear view in respect of the same.  

Meaning of Human Resource Accounting 

Human Resource Accounting refers to the identification, quantification and reporting of the costs incurred on the HR activities such as recruitment, onboarding and training & development of the company’s employees. It must be noted that this concept shouldn’t be misinterpreted as the common accounting involving the analysis of the financial and operational analysis as it is a broader concept which includes the collection, analysis and recording of data with regard to compensation practices, employee benefits with other general benefits.

Objectives of Human Resource Accounting

The companies must be aware of the objectives of Human Resource accounting in order to gain clarity about the applicability of the same in the organisation. The objectives of Human Resource Accounting are enlisted below- 

  • Measurement of the expenses incurred by an organisation on the human resource and the exact value of these resources to facilitate decisions regarding manpower working in a particular organisation is based on the HRA.
  • Planning an estimated budget for human resource expenses well in advance by the company. The estimation is based on the aspects such as acquisition cost, training cost, the cost for expansion of the human assets, salaries and wages etc. 
  • Improving the managerial ideology of the organisation and gaining clarity about the economic effects of human resources.
  • Assessing the employees based on their performance for incentivising them in accordance with the same
  • Estimating the value of human resources in an organisation by following the principles and procedures as per the standards set by the Human Resource Department.
  • Indicating to the authority in advance for taking appropriate steps to preserve the most valuable human assets of the organisation In case of any upcoming changes in the value of the human assets working in the organisation.
  • Scrutinise if the available human resources are being utilised in the best possible way or not to ensure the optimal utilisation of the workforce and avoid exploitation of labour in the organisation

What is the process of Human Resource Accounting? 

Companies need to be aware of the process of HRA to ensure that it provides the desired results. The process of Human Resource Accounting is explained below- 

Ascertaining the goals of Human Resource Accounting 

Every organisation needs to ascertain the goals of Human Resource Accounting, such as calculation of costs, analysis of employee performance or any other as per the needs of the organisation as they form the foundation for such accounting. 

Selecting the Method of Human Resource Accounting

After ascertaining the accounting goals, the organisation must select the method of Human Resource Accounting, which can provide the most accurate analysis per the organisation’s goals, for which the organisation has the liberty to choose more than one method required. However, the validity and consistency of the opted method should be checked before proceeding with the implementation of the same.   

 Collection of Data 

Next, the organisation’s HR department must collect the relevant data for computation of the Human Resource Accounting, which may include employee details, time management sheet, the cost of each employee working in the organisation, and physiological factors, to name a few.   

Analysing the Data 

The collection of data must be followed by the analysis of the same as per the goals of the company such as the performance of the employees can be analysed on the basis of their productive hours, the budget of the company can be analysed based on the expenses incurred on HR activities being certain examples of the importance of analysis of data. 

Reporting the Data 

The final step in the process of Human Resource Accounting is the reporting of data collected and analysed by the HR Department. The data helps the organisation make significant decisions regarding the further plan of action for the organisation, which can facilitate the growth of the business.

Conclusion

Human Resource Accounting can significantly contribute to measuring the overall costs incurred on the organisation’s humans resources. The organisation needs to have a thorough knowledge of this concept to ensure accuracy in such accounting, which can help the relevant authorities formulate a better plan of action for the growth and development of the organisation. It is suggested that the organisation get in touch with experts in the management.

Read our Article: Benefits of Using a Payroll Management Software for your Business

Shubhangi Jain

Shubhangi has completed her B. A.LLB (H) with specialization in Business Laws from Amity University. She is particularly interested in legal research and writing and wishes to utilize her knowledge to create informative legal content. She has prior experience in corporate and criminal litigation and has great drafting skills. She has also published various research papers in reputed journals.

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