How Much Should HR Cost? Benchmarks by Employee & as a % of Revenue

By Shelley Brown, CHRE, FHRPA

Is your organization concerned about increasing HR costs? Funding your human resources department takes up a big portion of your operations budget. Are you over-spending? Under-spending? HR costs can be much higher or lower depending on your business type, industry, location, and other considerations. In this post, we’ll share real numbers and tips to guide you on:

How much should HR cost per employee?
What are HR costs as a percentage of revenue?
And by size of business & industry (even geography)
HR Outsourcing cost per employee

(Looking for ways to cut HR costs? Check out part 2 of this series: HOW CAN AN HR DEPARTMENT REDUCE COSTS: 11 Paths To HR Cost Optimization)

How much should HR cost per employee?

For in-house full-time employees, you could spend well into the thousands of dollars per year, per employee. In Canada, HR costs per employee vary widely based on factors like company size, industry, and geographic location, but HR expenses generally range from $1,200 to $2,500 CAD per employee per year. Here’s a breakdown of HR cost per employee by company size:

Small Companies
(1–50 employees): Higher costs per employee, often in the range of $2,000 to $3,000 CAD annually, as HR is less scalable and many administrative functions are outsourced.
Medium-Sized Companies
(51–200 employees): Range from $1,500 to $2,500 CAD per employee, benefiting from some in-house HR and economies of scale.
Large Companies
(200+ employees): Generally see lower costs per employee due to efficiencies, with HR costs typically $1,200 to $1,800 CAD per employee.

HR costs per employee by industry

How much HR can cost per employee can be a big range. The HR cost per employee is affected greatly by industry. SHRM offers this breakdown of average HR costs for employees by industry.

Banking and financial services: $4,195.
Energy and utilities: $3,237.
Professional services: $2,778.
Technology and telecom: $2,750.
Consumer goods: $2,519.
Health care providers, pharmaceuticals, life sciences and medical products: $2,245.
Manufacturing: $2,022.
Retail: $1,900.

Employee HR Costs: Geographic Variations

Higher HR costs are seen in larger urban centers like Toronto or Vancouver.

Lower costs may be found in smaller cities or rural areas due to lower wages and operating expenses.

What are HR Costs as a Percentage of Revenue?

Research by the Society for Human Resource Management (SHRM) finds that the average HR functional spend is 0.74% of revenue. While this number may not jump out at you, it's actually a lot more money than most realize and it can vary widely based on industry, company size and HR demands. Here’s a closer look at how this breaks down:

Lower Range (0.5% to 1% of Revenue)

Seen in industries with fewer HR-intensive needs, such as manufacturing, logistics, and wholesale.

Organizations with automated HR processes, low turnover, and limited benefits might fall in this range.

These businesses often prioritize cost-efficiency in HR by outsourcing or limiting HR functions to essential compliance and payroll.

Mid Range (1% to 2% of Revenue)

Typical for medium-sized companies or companies in industries like retail, financial services, and professional services.

This range accommodates more extensive HR support, including recruitment, training, and benefits management.

Companies in this category often have a dedicated HR team and may invest in employee development and engagement programs to reduce turnover.

Higher Range (2% to 2.5% or More of Revenue)

Common in industries with high employee engagement needs, such as healthcare, IT, and consulting.

These industries often require specialized talent, higher investment in training, and comprehensive benefits, all of which increase HR costs.

Organizations with a large number of employees, high turnover rates, or complex regulatory requirements may also see costs in this range.

HR Costs as a Percentage of Revenue by Company Size

Small
Companies (1–50 employees): Typically on the higher end of the spectrum, as HR is less scalable, ranging from 1.5% to 3%.
Medium-Sized
Companies (51–200 employees): Average between 1% and 2%, benefiting from some economies of scale.
Large
Companies (200+ employees): Can often keep HR costs to 0.5% to 1.5% due to efficient internal processes and larger budgets for HR technology.

What are the Components of Your HR Costs?

Here’s a breakdown of factors influencing HR costs and benchmarks for typical Canadian organizations:

Salaries and Benefits for HR Staff: For companies with internal HR teams.
HR Software and Systems: Payroll, employee management, recruitment, and performance management tools can account for 10%–20% of HR budgets.
Training and Development: Employee training and development costs can vary widely, depending on the company’s investment in employee growth.
Recruitment and Onboarding: High turnover or frequent recruitment needs can significantly increase per-employee HR costs. For a great read on this check out “How Much Does Employee Turnover ACTUALLY Cost?” a popular post by our friends at IQ PARTNERS Recruitment.

The top areas by spending are recruiting ($425 per employee), total rewards ($213 per employee) and learning and development ($188 per employee),” finds SHRM.

How much does HR outsourcing cost per employee?

With these high costs, many companies are looking at HR cost optimization strategies to reduce their budget. One way to do this is through HR outsourcing. For smaller companies or those without a dedicated HR department, outsourcing HR functions can help contain costs. You can get the same HR functionality when needed and for a fraction of the price. Canadian HR outsourcing fees vary:

Similar to HR costs per employee, HR outsourcing costs depend on a variety of factors:

Your industry
Types of HR services required
Number of employees
Pricing models: These break down into two types:

Per Employee, Per Month Model: Commonly $50–$100 CAD per employee per month for payroll and basic HR support, leading to $600–$1,200 CAD annually per employee.

As-Needed Basis: For companies needing occasional recruitment or legal advice, fees may be on an hourly or per-project basis, ranging from $150–$250 CAD per hour for specialized consulting.

With that said, the cost of HR outsourcing per employee can range from $50 to $1000 or more, which is significantly less than typical employee HR costs.

For more about HR Outsourcing including when, how and how much, read our post on When Should Your Company Outsource Its HR? 5 Scenarios To Look For.

How can an HR department reduce costs? Stay tuned to AugmentHR’s blog as we’ll share 13 tips to reduce HR costs next month.

One way to get a more cost-effective HR model is AugmentHR’s customizable, no-commitment HR packages. We offer flexible hourly HR bundles allowing you to select only the HR services you need only when you need them.

Shelley Brown is a senior HR Consultant who has been granted the Human Resources Professional Association’s Fellow Award. She’s a sought-after speaker for her experience as an HR leader and Executive Coach. In her last executive role as HR leader at a global healthcare organization, she used her knowledge and leadership to help them become a top employer of choice in Canada.