Calculating and tracking the employee utilization rate

Can you imagine looking after 2.3 million team members?

That’s how many people work for Walmart. 

Whether you’re looking after 2.3 million people in a multi-national organization or just five in a corner of a co-working space, what’s important isn’t so much the number of people but how you make the most of them and their talents.

You might’ve hired some of the best talent available. But without knowing how to utilize their skills to benefit your company, you risk letting their talent go to waste—like driving a Ferrari at 10 miles per hour.

And that’s what employee utilization is all about. 

By calculating and tracking the employee utilization rate, you’ll know whether you’re getting the most out of your people and what may be stopping them from performing at their best—all of which directly impacts your organization’s profits.

Let’s take a closer look at calculating and tracking the employee utilization rate and the impact this can have on your business.

What is the employee utilization rate?

The employee utilization rate metric measures the percentage of time that a person spends being productive and generating revenue for your company. 

But doesn’t all your team members’ time generate revenue? 

Not quite. 

Besides the work you invoice your customers for, your team members spend time on administrative tasks like emails and meetings. They’ll also take sick leave when they’re under the weather and go on vacation. 

Calculating the time your people spend generating revenue will give you a clearer picture of employee productivity levels. You’ll also know whether you’re allocating resources and managing projects effectively. 

How do you calculate the employee utilization rate?

To calculate the employee utilization rate as a percentage, use the following employee utilization formula:

Utilization Rate = (Actual billable hours / Available hours) x 100

It’s helpful to track work hours, project hours, and administrative activities to accurately calculate the employee utilization rate. That’s why people analytics is an integral part of helping your people perform at their best. With the data you gather from people analytics, you can glean insights into your organization’s performance—allowing you to make informed decisions that are truly effective. 

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What is a good employee utilization rate?

While average employee utilization rates vary by industry, 80 percent is generally a good rate to aim for.

But why?

An 80 percent utilization rate means your people are spending most of their time on work that generates revenue for your company, proving the value of investing in people. Any more than 80 percent and your people’s wellbeing can suffer. 

Maintaining the right employee utilization rate protects your people from overwork, burnout, and illness. It improves the quality of their work, reduces staff turnover, and promotes your employer brand. 

That 20 percent of downtime might be important to track on an administrative level, but it’s even more important when it comes to ensuring your people’s wellbeing. And it gives them the space for creativity—resulting in more innovative work.

On the other hand, a low employee utilization rate could mean something stopping your people from being productive. There may not be enough work to go around, or you may need to take a look at people’s workloads. It’s vital to check in with your people and see how they’re managing their workloads—too much work could burn them out, and too little could have them second-guessing their position’s stability.

Utilizing your team’s talents appropriately helps ensure they’ll continue to provide your business with a strong return on its investment in people.

Employee utilization is a delicate balance and it’s important to hit the right mark: 80 percent.

Which factors affect the employee utilization rate?

Once you calculate your company’s employee utilization rate, you might wonder what influences it. This is why tracking the metric is so useful: It helps you identify areas to improve.

Factors that affect the employee utilization rate include:

• Project planning. How you plan your projects can have a significant impact on the utilization rate. Workload distribution, budgeting, and timelines make all the difference. 
• Resource availability. Are there enough people working on the project? Do they have the resources they need to carry out their work? Too many resources available means utilization rates go down. But not having enough resources means your people may have to overwork to get a project over the line. The scope of a project may also change, which can mean reallocating resources to keep utilization rates at the right level. 
• Workforce size. If there aren’t enough people to get the work you need done, you may end up over-utilizing certain team members. Too many people in the same role may cost your company more than the revenue they’re meant to generate.  
• Training and development. Some skills may be more in demand than others. This is why training and development are important. Robust L&D programs ensure there are enough qualified people to carry out the work. Otherwise, a small number of team members will be over-utilized.
• Vacations and time off. Vacations and time off are essential for your people’s wellbeing and productivity. But their utilization rates will necessarily go down while they’re away. It’s essential to create a system for scheduling time off among your people so no team member handles all the work alone while the rest of the team is on vacation. 

Why track employee utilization?

Tracking employee utilization can benefit your entire organization and improve operations:

• Finances. It has a direct impact on your organization’s finances. You’ll be able to invoice your customers accurately and maximize productivity, boosting your revenue. 
• Resource optimization. You’ll be able to allocate resources effectively, avoid bottlenecks, and improve project timelines. 
• Productivity. You’ll receive a more accurate picture of your people’s productivity and discover what may be affecting it—so you can take the necessary steps to boost organizational performance. 
• Workforce planning. Tracking employee utilization allows you to identify your most talented and experienced team members—and those in need of more support. By tracking it, you’ll know when to hire more people to ease the burden and distribute work more evenly across your teams. 
• Workplace satisfaction. Understanding your utilization rates can tell you whether you’re overworking your people or whether there’s potential for making better use of their talents and skills. This leads to greater satisfaction among your people in the workplace. With a good balance of employee utilization, you’ll have a healthy workplace culture that’s stimulating but not stressful. 

How to track employee utilization

To track employee utilization within your organization, it’s essential to gather people analytics data with HR tech. 

For example, using a solid HR system can assist with attendance tracking. Programs like time-tracking apps, performance management and goal-tracking tools, and resource management software allow your people to record hours spent on admin and revenue-generating work so you can calculate the utilization rate. 

Project management systems and resource management software can also help you track factors that affect the employee utilization rate, such as workload, deadlines, and resource allocation.

There’s also specialized employee utilization software available that comes with an employee utilization dashboard. Like an HR dashboard, it lets you easily keep track of the latest rates. 

People analytics software plays a central role in gathering the essential data for accurate employee utilization tracking, automatically generates employee utilization reports, and gives you the insights you need to optimize employee utilization within your organization. 

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Optimizing employee utilization

Once you calculate the employee utilization rate, you can develop an employee utilization plan to optimize it. Below are some key strategies to keep in mind:

• Project planning and resource allocation. Monitoring employee utilization allows you to identify which projects and team members need more support. What’s important is adapting to the changing demands of customers and keeping an eye on your team’s capacity to handle projects—adjusting workloads, resource allocation, and team structures as needed. 
• Workforce planning. With the insights gathered from employee utilization tracking, you’ll know which departments need new hires for extra support and which roles to tailor your recruitment strategies toward. This will help maintain the right balance for employee utilization, ensuring you have the right number of people to carry out the work. 
• Training and development. Rolling out training and development initiatives can make it easier to spread the workload among professionals and reduce burnout. A well-trained workforce is also more productive. 
• A supportive working environment. Creating a supportive company culture encourages your people to perform at their best and makes them more productive at work. A healthy work environment that supports your people’s wellbeing also benefits your organization’s bottom line.

A compass to keep you on course

Tracking employee utilization can be your compass as you help your organization navigate toward its goals. 

It can tell you whether you’re off course when it comes to project management, resource allocation, workload distribution, or your people’s wellbeing. 

By tracking and optimizing your organization’s employee utilization rate, you’ll be putting your organization’s most valuable asset at the helm—its people.