This document discusses the important role that finance plays in human resources decisions and operations. It argues that human resources professionals need to understand financial tools and how HR decisions impact organizational finances. While HR professionals focus on areas like recruiting, benefits, and training, the document stresses that HR decisions can significantly affect a company's expenses and bottom line. It provides examples of how understanding financial implications could help HR managers make better decisions around recruitment prioritization, legal compliance, training budgets, and evaluating returns on specific interventions. The document concludes that mastering some financial literacy allows HR to optimize human capital investments and have a meaningful seat at the strategic decision-making table.

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The Role of Finance in Human Resources
Amy Knight
Concordia University, St. Paul, HRG 560
Professor Phillip Hampton
December 22, 2016

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Abstract
Often, human resources professionals overlook the role of finance in day-to-day operations.
However, it may be surprising to some individuals how impactful human resource decisions can
be to the financial longevity of an organization. Having a comprehensive understanding of the
role of finance in business as a human resources professional is an advantage to ensuring a return
on investment in the services that human resources provides. Determining which decisions are
made in the world of human resources that rely on financial information and the knowledge of
financial tools helps to provide a foundation by which business success has a better chance of
being set. Not only will this strengthen the return on investment in what human resources
provides to an organization, but it will also ensure that all strategic aspects of the business are
considered when those important decisions are made.
Keywords: human resources, finance, financial tools, impact, organization

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When a human resources professional begins a career in the field, that person often learns
aspects of the job such as recruiting, employment law, onboarding, benefits, and how to guide
managers on proper discipline, employee training, and retention. Rarely if ever is it discussed
within the human resources department how great of a financial impact human resources can
have on an organization. Often it is not until a person has made it up the chain of command to a
vice president or executive position that they learn the role of finance in human resources.
Steven Director notes that in a study conducted by the Corporate Leadership Council
(CLC), “fewer than one in five HR business partners were highly effective in their strategy roles”
(2013, p. 2). Strategy roles are those that most directly impact the growth and development of an
organization. With the advancement of globalization and effect that technology has had on the
need for organizations to optimize competitiveness, human resources must begin to realize, now
more than ever, how the decisions that are made within the human resources department
financially drive the business.
The role of finance in the life of an HR manager is complex. It begins with determining
how and which positions to recruit. The time and energy spent on recruiting can be expensive.
Having a clear understanding of the positions that have the greatest financial impact on the
organization if they are not filled is important. Having this information assists in prioritizing
recruiting efforts. For example, certain positions not being filled may have a greater financial
impact on the organization. Loss of a cashier could cause other employees to have to work
overtime or customers to get frustrated resulting in loss of sales. By understanding which
positions to prioritize, human resources play a key role in potentially limiting the financial strain
that open positions have on the organization. It is also essential that the HR manager knows the
knowledge, skills, and abilities (KSAs) that are necessary for an employee to be successful in

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those positions so that recruiting is the most efficient it can be by utilizing recruiting resources
that target those KSAs specifically.
Finance also plays a role in the life of an HR manager in the areas of employment law
and compliance. Not abiding by executive orders and labor laws can be extremely expensive.
To illustrate this point, a HR Manager can spend numerous hours investigating and preparing for
a case when an EEOC (Equal Employment Opportunity Commission) or DFEH (Department of
Fair Employment and Housing) claim is received, which costs the organization money.
Furthermore, lawyer fees and time spent defending an organization’s employment decisions can
add up. Having a clear understanding of labor laws and the financial impact that following, and
not following, them can have on an organization is essential to ensure that money is not paid out
unnecessarily in litigation and defense of labor law complaints.
Understanding the financial impact that training and employee development has on the
business is also essential for an HR manager. Retaining valued employees can help avoid the
recruiting and litigation costs mentioned earlier that can really add up if not careful. Knowing
the employee base and the goals of the organization can assist a HR manager in designing a
training program that will optimize the organization’s human capital. Not to do so could be
devastating to an organization’s bottom line by having to constantly administer to turnover and
employee errors, which could otherwise be avoided with an adequate and effective training
budget and program.
Many HR managers are not aware of the tools needed to gauge the financial impact that
the human resources department can have on an organization. Steven Director offers a
fundamental approach to understanding finance, which includes finance terminology, including
how to read a balance sheet (2013, p. 44). He goes on to say that “human resource costs

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(recruitment, selection, compensation, training, and workforce administration) are the largest
component of the firm’s operating expenses” (2013, p.5). With that significant of an effect on
the organization, it is important for the HR manager to realize that for every decision that is
made, there is a cost associated with it. The more the HR manager understands the financial
impact the department has, the better executed decisions can be.
The ability to make difficult decisions through independent and educated judgement is
one of the most important aspects of being successful in human resources. These decisions
should be well thought out and based on a thorough understanding of the potential impact that
the decision can have on the organization. For example, there is a HR manager who works for a
non-profit company that creates jobs for people with disabilities. One of her employees with
disabilities has been on a leave of absence and is in the process of seeing his physician to obtain
treatment so that he may hopefully return to work. However, since he has been off work he has
not been receiving any income. Should the HR manager utilize foundation funds to pay for a one
month bus pass that costs $122.00 so that the employee can see to his health in the hope that he
will return to work as a result? What is the return on investment of $122.00? Is it worth the risk
of the employee not returning to purchase that bus pass in the hope that he does? The HR
manager may ask the following financially related questions before coming to a decision:
 What is the cost to replace this employee vs the cost of the bus pass?
 How likely is the employee to return to work after seeking treatment?
 How much longer is it anticipated that the employee will be off work and what is
the financial impact of his absence on the organization? In other words, how
much money are we losing every day that he is not at work?
It is essential for HR managers to realize that most of the decisions that are made within

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the HR department have a fiscal impact on the organization. Understanding how those decisions
impact the organization fiscally is necessary to determine the effectiveness and return on
investment that HR provides to the company. According to Ladislay Sojka, “human resources
and the practices implemented by them are the source of sustainable competitive advantage and
significantly contribute to the firm’s economic performance” (2015, p. 102). By learning how to
decipher financial tools that are utilized by organizations to gauge success, such as balance
sheets for example, HR can obtain a seat at the table to help drive important financial decisions
within the organization.

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References
About DFEH. (2016). Retrieved from http://www.dfeh.ca.gov/about-us/
About EEOC. (2016). Retrieved from https://www.eeoc.gov/eeoc/
Director, S. (2013). Financial Analysis for HR Managers: Tools for Linking HR Strategy to
Business Strategy. Upper Saddle River: NJ. Pearson Education, Inc.
Sojka, L. (2015). Investigation the relationship between human resource management practices
and firm's finance performance. European Scientific Journal, 11(34), 87+. Retrieved from
http://go.galegroup.com/ps/i.do?p=PPGS&sw=w&u=mnaconcordia&v=2.1&it=r&id=G
ALE%7CA440509488&asid=8bf593a22b98abe269801e489501d9b1