Headcount planning: a complete guide for HR

Under-hiring strains employees and impedes your company’s growth. Over-hiring squeezes budgets and threatens your profitability. So how can you make your workforce’s size and structure a Goldilocks-approved just right?

The answer: headcount planning. Since labor costs typically account for up to 40% of revenue, it’s vital to figure out which roles your company needs to hire for, how many employees you should manage at once, and what compensation packages you should offer.

If you want to flesh out your hiring goals while staying within budget and aligning every team member involved in the hiring process, this guide has you covered. We’ll touch on what headcount planning is, why it’s so important, and how businesses can ditch manual processes in favor of an automated solution that can help keep your workplace adequately staffed year-round.

Benefits of effective headcount planning

Headcount planning can help businesses:

• Hire the right people: You can align teams on hiring the best candidates to fill available roles—and onboarding the right number of employees with complementary skill sets.
• Stay within budget: Control costs by ensuring you’re not hiring too few or too many new employees and offering sensible compensation packages. 
• Clarify organizational structure: Headcount planning is sometimes called “org charting,” because it lets teams visualize hierarchies and team sizes. 
• Fill hiring gaps year-round: Prepare for new product launches, sales sprints, and leaves of absence that may require you to hire more (or fewer) employees. 
• Promote equitable hiring and compensation: Ensure equitable pay ranges across different employee attributes by visualizing compensation bands across roles.

10 headcount planning best practices

Get headcount planning right and your company can flourish. Here are some pointers. 

1. Determine your business goals

First things first: set up a roadmap for how you’d like your business to evolve. Think about measurable KPIs like sales revenue growth rates and cost of hiring to help tease out both who  and how many people you need to hire. 

Keep in mind that in order to set achievable company goals, you’ll need as much employee data as you can gather. So tap into your different workforce management tools—like your HRIS, ATS, and spend management system—for metrics that inform your headcount plan (salaries across departments, annual budgets, attrition rates, etc.) While these systems are often scattered across different tech stacks, you’ll save time if you can consolidate them into a unified platform.  

2. Solicit employee feedback

In your fact-finding mission, it’s also crucial to hear from current employees about their workload, engagement, and how they view company culture. This way, you can better assess whether teams could benefit from adding employees. And while hiring managers and others involved in the headcount management can’t talk to every employee, surveys can help you cast a wide net.

3. Identify skill and hiring gaps

When assessing your current workforce, measure the skills you have against the skills you need. Look at your org chart by department and see which attributes can round out teams. If your marketing team struggles churning out audience-engaging LinkedIn posts, consider hiring a social media specialist. If you’re looking to scale, prioritize growing your sales team. 

You should also research pay scales for roles you’re looking to fill—so you don’t over-budget or offer an aberrant rate. If you could use a hand, look out for software platforms with compensation band data built into hiring workflows. 

4. Align with HR, finance teams, and recruiting teams

With a lack of proper communication between every department involved in the hiring process, headcount planning can quickly go awry. If a department head isn’t on the same page with a hiring manager about skill gaps, the finance team about compensation packages, or HR professionals about headcount, you’ll struggle to find the right hires to meet your strategic goals. 

To ensure easier collaboration, look for headcount planning systems that let you share plans across your organization and tee up approval workflows to make sure hiring managers and recruiting teams have sign-off before posting a new role or sending an offer letter. 

5. Forecast costs

While individual departments may want to grow their headcount, you need to see what makes financial sense for the whole business before going on any hiring sprees. That means heeding your cash flow statement, pulling reports on your revenue, and monitoring all your expenses—from labor costs to employee spend. 

Once finance teams figure out how many new employees your company can take on, talk to HR about compensation bands and work salary expectations for new roles into your headcount modeling. It’s important to envision both present and future needs, thinking about contingency plans in case of a market downturn, spike in sales, or even a slew of employees taking leave at around the same time. 

6. Use data-driven insights for future planning

You can use more than financial figures as data points in headcount planning—HR data like recruitment metrics, attrition rates, and employee engagement scores combined with market trends and business goals can help you take a big-picture approach to forecasting both short- and long-term hiring needs. 

Platforms with HR analytics, sometimes called people analytics or workforce analytics, can help you tap into metrics that may impact your hiring plans. Employee engagement can help you monitor attrition risks that might distract from recruitment for newly created roles, for example, and time-to-hire metrics can steer you toward the most efficient recruitment channels while helping you establish realistic long-term roadmaps for carrying out your plans.

7. Factor in succession planning for critical roles

The higher you go up the corporate ladder, the more costly turnover becomes. In fact, executive turnover can cost more than 200% of an employee’s annual salary, compared with less than half of a year’s salary for more-junior employees. That said, it would be a big mistake to simply assume that employees in critical roles are going to stick around. Better to plan for their exit so you can minimize the fallout if they depart unexpectedly.

To build a succession plan, start by identifying the most important roles in the organization. Those are likely executives, but they can also include high-performing or highly specialized individual contributors. For each, flag potential in-house replacements. If there’s a gap between the replacements’ skills and what’s required for the role in question, put the successors on a career-development plan to narrow the gap. 

Some roles may not have in-house succession options, and for those you’ll want recruitment plans—job descriptions, salary bands, and possibly a recruitment agency to turn to—ready and waiting so you can move fast when you need to.  

8. Leverage HR technology for real-time tracking and analysis

HR technology can help you keep your finger on the pulse of key metrics that influence workforce planning. For instance, you can measure employee engagement with surveys to detect dips that might portend higher attrition rates, and take corrective action to proactively reduce turnover. You can also gain insights into skills gaps that need filling, study employee performance trends, and identify overloaded high-performers that need support in the form of added headcount. All of these insights can be applied to your hiring plans as needed, so you remain connected to what the business needs at any given moment.

9. Track your progress

Headcount planning works best when you can monitor progress toward goals. Look for ways to maximize visibility with dashboards that visualize relevant data like open vs. filled roles by team, headcount budgets by department or location, planned vs. actual spend on headcount, and total compensation packages (including salary and equity compensation).  

10. Reassess headcount needs as business conditions change

Headcount needs change as businesses change due to shifts in the competitive landscape, the macro economy, go-to-market or product strategy, and other factors. Growth-oriented businesses that are scaling up and learning what works and what doesn’t in real time are especially prone to pivots. Make sure you regularly revisit headcount forecasting to ensure it’s aligned with the most up-to-date needs of the business, the growth outlook, and other factors.

5 essential headcount planning metrics

To ensure that your headcount planning is as accurate and data-driven as possible, consider factoring these metrics into your analysis.   

• Employee turnover rate: the share of employees who left the company during a certain period of time. To calculate it, divide the number of employees who left by the average number of employees during that period, and multiply by 100. Use this to measure fluctuations in turnover over time and to gauge the overall stability of your workforce. Organizations should strive for a turnover rate below 10%, according to some experts.
• Attrition rate: just like the turnover rate, but it only accounts for employees who leave on their own accord. To calculate it, divide the number of employees who left voluntarily during a given period by the average number of employees during that same period, and multiply by 100. A low attrition rate is a positive sign that implies high employee satisfaction and engagement—and it means you can dedicate more time to hiring for new roles vs. backfilling old ones.  
• Cost per hire: the total cost of hiring a new employee, including expenses like recruitment, agency support, advertising the role, and software used during the hiring process. Use it to make sure your team has the budget required to carry out your hiring plan—and to track hiring costs over time as you learn the most efficient recruitment channels, partners, and tools. 
• Time to fill roles: the average amount of time it takes to fill a vacancy. Use it to measure the efficiency of your hiring process. In most cases, a lower number is better. You can also use this metric to set timeline expectations with managers leaning on you for hiring support. 
• Ramp rate: the time it takes a new hire to ramp up to full productive capacity. This will vary based on team, role, and other factors. It’s an especially helpful metric for planning for revenue-generating roles because you can use the ramp rate combined with time to fill averages to back into a hiring timeline that maps to future sales or expansion targets, which are often only attainable with added headcount like salespeople or account executives.

The challenges with headcount planning

A thoughtful headcount plan is crucial for managing and growing your business, but executing against it can come with a host of challenges. Understanding them ahead of time can help you factor them into your plans and succeed anyway. 

Dealing with economic uncertainty

A bright macro outlook can be a boon for business and spur demand for new talent. A downbeat economy can stall expansion plans and lead to cuts. You can adjust your workforce plan based on either scenario, but it’s impossible to predict which one you’ll be facing. Your best option is to be prepared either way by understanding the current macroeconomic environment, and how your industry stands to gain or lose from any changes.

Plan ahead by identifying parts of the business that might freeze hiring or shrink in a downturn. And conversely, map out where to invest if growth picks up.

Protecting data privacy

As HR becomes increasingly data-driven, people departments have access to a trove of employee data they can factor into workforce planning, from info captured during the hiring process and performance data to financial and health data. Use and storage of that data carries security and data privacy risks, as well as ethical considerations. Leaders should aim to use the data in a secure, transparent, and legally compliant way. 

Data breaches can be catastrophic, so you’ll want to adhere strictly to your organization's security protocols for any tools housing employee data. Follow best practices like the principle of least privilege, which stipulates that sensitive data is only accessible to those who really need it. 

Some markets require extra vetting and consideration before storing or analyzing employee data. EU employees are governed by General Data Protection Regulation (GDPR), for instance, while US workers fall under a patchwork of state and federal privacy laws such as the California Consumer Privacy Act CCPA and Health Insurance Portability and Accountability Act (HIPAA). 

Budget constraints and financial planning

Workforce planning has to be undertaken in close collaboration with finance teams to make sure you’re aligned on available headcount spend in any given area. You may find that your plans are out of step with existing budgets. If that’s the case, you may have to find middle ground, curtail your hiring plans to fit within budget, or make a case for how added headcount can fuel growth, boost margins, or improve productivity. Wherever you land, make sure you have a shared source of truth with finance so HR budgets are transparent and aligned going forward. 

Managing data across systems

Headcount plans can hit roadblocks if they involve org charting via spreadsheets or disconnected HR and finance systems. When data is siloed, it’s hard to get all your hiring stakeholders on the same page, leading to a tedious back-and-forth to align on approved hires, compensation packages, and open vs. filled headcount. 

And this misalignment can be costly. Without proper information, hiring managers can potentially greenlight out-of-plan hires at compensation packages noncompliant with company policies, failing to get needed approvals from the finance team. You also run the risk of paying two employees in the same role dramatically different salaries. 

Manual processes like approving requests over Slack or scrambling to find the right approvers can also slow you down. This drains time that could potentially be the difference in landing a talented new hire, since stellar candidates aren’t always available for long. 

Tracking progress and adjusting plans

Your headcount plans may serve as an effective roadmap for hiring, but reality will probably throw you a few curveballs as you execute. To name a few: tough competition for talent, higher-than-expected salary requirements, unplanned attrition, lengthy recruitment, and reorganizations that can invalidate portions of your roadmap. For that reason, make sure you have a tracking system in place to measure progress against your hiring plans so you can easily assess progress and pivot as needed.

Optimize hiring with Rippling’s headcount planning software

Luckily, you can offload the most tedious parts of headcount planning by using software. With the right solution, you can track approved headcount and compensation bands from a single source of truth.

Ditch opaque spreadsheets

Instead of poring through multiple Excel documents looking for the data you need, headcount planning solutions help hiring managers, finance teams, and HR teams view all plans across departments within a single dashboard. 

Standout software systems take things a step further by letting you assign role-based permissions that ensure employees can only see information relevant to their job. For instance, while a sales manager can see headcount plans for their department, they won’t be able to access hiring information for available engineering roles. 

Seamlessly track headcount progress

Headcount planning software can also help teams quickly access data-driven reports on their hiring progress. You can track remaining headcount by location, start date, and cost, factor in “new joiners” who haven’t started work yet, monitor budget by department, and chart target headcount against current headcount (while visualizing attrition rates and transfers). 

Customize approval chains to enforce your plan

Instead of waiting for approvals for each potential hire from finance teams and other stakeholders, premium headcount planning systems can trigger them for you automatically based on the agreed upon plan. If a prospective new hire meets headcount planning criteria you set for their job family, seniority level, and location, you can automatically send them an offer letter. If they don’t match the plan (e.g., their compensation is above or below the usual pay range or the role isn’t within the headcount plan), the platform can automatically route the request to the appropriate approver. 

Align with recruiters

Headcount planning solutions can also keep recruiters in the loop so they know what kind of talent to source. Look for systems that can automatically notify talent acquisition teams when headcount is approved, listing the appropriate department and role details. Once the position is filled, it helps to use a platform that automatically notifies recruiters so they avoid any redundant hiring. 

Control headcount costs with compensation bands

Headcount planning tools are most handy when they help you manage pay scales for prospective hires. Rippling Headcount Planning, for instance, has a Compensation Bands feature that lets HR, recruiting, and hiring managers know exactly how much they can (or can’t) pay new hires—based on their role, level, location, and more. 

Rippling also flags out-of-band compensation offers so you can catch inequitable or out of policy pay. And with role-based permissions, only the appropriate employees get visibility into the pay bands. What’s more, Rippling Headcount Planning can integrate with our HRIS, Rippling Spend, and our entire suite of products—allowing you to leverage employee data as your single source of truth to automate the most time-consuming aspects of hiring, paying, and managing your workforce.

Headcount planning FAQs

What is the difference between workforce planning and headcount planning?

Headcount planning is typically thought of as a subset of workforce planning, which is the broader process of not just hiring talent, but implementing retention efforts, providing professional development opportunities, and gaming out succession plans when employees churn. Headcount planning is more about hiring logistics while workforce planning also involves talent management.  

How do you determine your workforce’s headcount needs?

To figure out staffing needs, companies need to determine their business objectives, identify skill gaps, gather feedback from employees, source revenue data from finance teams, and forecast costs. 

Who is responsible for headcount planning?

Headcount planning is typically a collaborative effort between HR, recruiting, finance, business leaders, and department managers looking to fill a role. This is why the most effective headcount plans come from a single source of truth that every party can use to collaborate.

What is the formula for headcount planning?

There is no one-size-fits-all formula for headcount planning, but at the most basic level, it’s the amount of money available for new hires divided by the average cost of an employee. A solid hiring plan goes far deeper and factors in your organization’s strategic priorities, your growth trajectory and the amount of people it will take to achieve those targets, skills gaps that need to be filled, HR metrics like attrition that affect headcount, and the expected return on investment on some hires.

This blog is based on information available to Rippling as of November 11, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.