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HR at risk of budget cuts as economy worsens

More than half (55%) of HR teams across the UK expect to have their budgets cut in the next few months, according to research from Personio.

With the ongoing cost of living crisis and the devaluation of the pound to record lows making the UK's economic situation worse, less than a quarter (24%) of UK HR managers said they felt prepared to help their business stay strong in an economic downturn. 

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Paul Boustead, chief people officer at the University of Leeds, said businesses should think carefully when considering what to prioritise with their budget.

Speaking to HR magazine, he said: "As we enter into the recession and things start to stabilise following the pandemic there is a risk that investments in HR teams are taken back. There is also the ever-present matter of AI and in my view HR departments need to think carefully in the balance between the human resource – people – and the investment in technology and the needs of the organisation.

"Many of our staff still expect interaction with HR colleagues to supplement our technological innovations and this is where they see the value add. We need to demonstrate and quantify the value add the impact we are having on productivity, organisational health and resilience and organisational development in a very quickly changing world of work."

There is concern among HR managers over the impact such budget cuts will have on businesses, as 61% said they worried budget cuts would negatively affect employees’ motivation and productivity.

The research also showed that HR teams didn't feel enough support from senior leadership: 50% of UK HR managers said their senior leadership team didn't prioritise their employees while 56% thought their business didn't place enough value on the HR function. 

Pete Cooper, director of people partnering at Personio, told HR magazine companies which take their HR teams for granted may suffer in the long run.

He said: “In a forward-looking business, HR teams are recognised as the powerhouse behind a positive and productive workplace –  hiring the right employees, organising training to fill skills gaps, and building a great employee experience that keeps teams motivated. Sadly it’s clear that many HR teams are still concerned that business leadership does not realise the value that they add.

“Where business leaders underestimate the potential of HR and the importance of their people and impulsively cut HR budgets, employee experience suffers and overall business effectiveness is undermined. Ultimately these businesses will be poorly placed to weather tough economic times, defeating the purpose of seeking efficiencies through drastically reducing HR budgets.”

HR consultant and coach Gemma Bullivant said HR departments are often under pressure to deliver a measurable return on investment (ROI).

She told HR magazine: "It can be a very worrying time, when you have so much to deliver and budgets are getting tighter. HR is notoriously challenging to establish clear, quantifiable ROI metrics. When the economic forecast is volatile and likely to lead to budget cuts, we need to work even harder at identifying and communicating strong commercial benefits for the people initiatives we lead.

"Go beyond the ROI calculation, to look at the ROI timeframe. Projects with long-term benefits are most likely to be shelved first (even ones we passionately believe are of high long-term value), so think about what initiatives are likely to achieve results in the shorter term, or break these longer-term initiatives into smaller projects that still take you in broadly the right direction."

Sign up for our upcoming HR Lunchtime Debate on how HR can protect its budget during economic downturns on 26 October at 12:30pm.