What is the Role of HR During a Recession?

Fears of a recession in the UK were confirmed by the Bank of England in 2022, after it had recently raised interest rates. With inflation at its highest in 40 years, energy costs soaring, GDP stagnating, and supply chain issues affecting many industries, we’re seeing a loss of business productivity and confidence.

In 2022, the pound has reached its lowest value against the dollar in 37 years while retail sales declined due to demand falling as consumers reckoned with rising prices and high energy costs. Linked to this, the latest business trends report from advisory firm BDO predicts an upcoming turn in the labour market, with hiring intentions declining for the first time since August 2020.

With the UK entering recession in the second half of 2023, it’s inevitable that many Human Resources managers felt a sense of dread. Recessions are challenging for everyone and HR teams with the fresh memory of layoffs at the start of the Covid-19 pandemic may feel anxious about the prospect of a repeat.

In February of 2024, the BCC economic forecast stated that the recession was expected to end, but the British public were warned that growth would still be weak.

Speculation about the future of our national economy aside, it’s important to re-evaluate the role of Human Resources during a recession. In spite of the obvious stresses and anxieties that a recession can bring for HR professionals, we want to make the case that recessions are also an opportunity for the oft-overlooked HR department to highlight its strategic value in any business. In this article, we’ll explore some of the ways that a recession affects Human Resources and how HR can take control of the situation.

Are HR jobs at risk?

In a period of economic decline, HR professionals like all other employees are likely to worry about their own job security. Although HR certainly cannot be considered completely recession-proof, HR job losses were fortunately minimal during the most recent recession.

HR staff are important during recessions because they manage layoffs — in the recession before this, 43% of organisations laid off 1%-5% of their workforce, while 26% laid off 6%-10% of the workforce. HR teams also have the task of making sure an organisation’s people are being managed and utilised in the most cost-effective ways and the organisation is kept on financial track. In short, an economic downturn can create more work for HR, which makes HR jobs fairly secure, especially at the beginning of a recession period.

Nonetheless, demonstrating the strategic value of Human Resources is more important than ever during these periods of high layoffs and unemployment. As members of the team who do not directly impact the output of the business, ensuring that leadership recognises the key role of HR in human resource management and HR strategy is essential for job security.

With this in mind, let’s take a closer look at the role of HR during an economic decline.

Slowing down recruitment

Recessions are characterised by a high level of unemployment and a reduced number of vacancies. Following the recent recruitment boom that marks the economy’s partial recovery from the impacts of the Covid-19 pandemic, the economic recession will again return recruitment to low levels.

A decline in recruitment poses a challenge for HR practitioners who will need to focus on identifying the perfect candidates from higher volumes of applicants for fewer roles. In a period of economic difficulty, identifying the future employees who will best benefit the organisation’s limited resources and will remain in the organisation is key to reducing future hiring costs.

On the other hand, lower levels of recruitment also means that HR may have more time and energy to put into hiring effectively. This means hiring the people who are most likely to stick around in an organisation and fulfil its future talent needs as well as the current requirements.

Alternatively, HR managers might find themselves under pressure from leadership to hire more people on part-time and freelance contracts as a more cost-effective solution. This should be done in line with talent management needs, anticipating situations where an economic reversal will suddenly require greater volumes of trained staff in a workplace.

How can HR boost their effectiveness and demonstrate their value during a recruitment slowdown? Recruitment and onboarding HR software streamlines these processes, creating a seamless and automated experience for all candidates and new employees using applicant tracking, self-service, and more. Most importantly for HR leaders, a leading Human Resources Information System provides configurable reports and dashboards so you can easily track recruitment trends and inform decisions with data.

You may be interested in: How HR software can improve recruitment processes

Making the most of data

At all times but especially during a recession, HR needs to be taking steps to be more data-driven. This doesn’t just mean tracking a few metrics and employee data but rather enhancing HR strategy by rooting it in data analytics. With only 30% of firms currently having a well-articulated data strategy, despite more than 90% accelerating their spending on big data and AI, an effective use of HR data is essential to add value and demonstrate the importance of HR functions in your business.

Tracking the right metrics and people analytics eliminates guesswork and gut instincts from HR and allows data-driven HR strategies to prevail. There are a wide range of metrics that are useful for HR professionals to track during a recession, but some of the key ones are linked to productivity, performance, and compensation. Keeping an eye on employee data allows decisions about layoffs and promotions as well as compensation management to be kept free of bias from individual managers and instead linked to objective performance data. With recessions impacting margins and reducing budgets, HR needs to be literate with data to identify the top and bottom performers in the business to inform those difficult but inevitable decisions.

Using HR software with powerful predictive analytics capabilities is also key for talent management. Despite the uncertainty around the economy during a recession, it’s still important for HR teams to forecast and prepare for future talent requirements. Even in a recruitment freeze, predictive HR analytics can help organisations proactively plan ahead for future talent needs.

You may be interested in: How HRMS analytics data can improve your HR strategy

Optimising performance management

Performance management is an important process in a recession where employee productivity and engagement may suffer due to a decline in funding for learning and development initiatives or a reduction in compensation and bonuses. It’s down to HR teams and policies to keep employee performance on track during this time.

To optimise performance management during a recession, HR software is a necessity. HR software streamlines performance management with easy-to-use configurable forms that allow for constant feedback alongside real-time analytics such as time tracking. Automated alerts remind employees and managers to submit their discrete contributions to feedback forms, eliminating the need for HR teams to waste hours chasing and waiting for actions.

Moreover, HR software holds records of an employee’s performance throughout their time in a role. In the unfortunate event that an employee’s performance is below standard and performance management interventions are unable to help, this documentation of performance issues is important to reduce employer liability to lawsuits after terminating their employment contract.

You may be interested in: How to make performance management perform

Stepping back from admin; leaning into strategy

As we’ve made clear, the strategic role of human resource management cannot be overstated during the financial challenges of a recession. To ensure your own job security as an HR professional during a period of decline for the economy, demonstrating your value as a strategic player in line with business goals is essential. This means reducing the administrative chores that plague HR teams to allow you to lean into the creation of strategic HR policies. How can you do this? A high-functioning cloud-based HR software can help.

At a time of major financial difficulties, spending money on a new HR system may seem counter-intuitive. However, here at XCD we’ve seen time and time again how implementing HR software can be an essential money-saving strategy in the long run.

In a period of economic recession, businesses need to be able to do more with less. A high quality HR software allows a time-poor and overstretched HR team to transform into a strategic powerhouse, boosting Human Resources’ capabilities and efficiency.

Which HR processes can be streamlined using HR software? Let’s look at a few.

Automation

Automating HR processes can save teams thousands of hours each year, freeing up time usually spent on admin to be more efficiently spent elsewhere. A good HR software can automate hundreds of workflows such as time-off requests, performance review feedback, payroll processing, onboarding, and much more, all while remaining GDPR-compliant and secure.

Self-service

HR software with self-serve capabilities frees up HR time by empowering employees to take control of their HR processes. From editing and updating employee information to ensure payroll runs smoothly to easily submitting expenses using a phone camera and mobile app, self-service HR systems take the burden of admin off HR staff and onto the employees themselves.

What about HR job security?

If you’re worried about Human Resources jobs being eliminated thanks to powerful HR software, you can put your mind at rest. HR managers’ jobs are on the list of the safest careers that are least likely to be replaced by robots. Human Resources will always need a human touch; HR software simply allows people to do their jobs more effectively.

Conclusion

An economic recession will have a major impact on businesses around the country and world, but with the right tools and strategies HR professionals can respond effectively to the situation. While HR initiatives such as learning and development, training, and diversity and inclusion may be some of the first to have their budgets cut as financial pressures rise, HR teams can stand their ground by emphasising their work’s strategic benefits through performance management, powerful HR data, talent management, and more.