HUMAN RESOURCES (HR) BUDGET

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In this digital age, organizations are paying more attention than ever to the competitiveness in attracting and maintaining talent. Executives have learned that human capital is not just an expensive cost center—it is the area of the organization with the potential to offer huge returns of productivity, innovation, and customer engagement.

How should you begin your HR budgeting exercise?

There’s no single way to prepare an HR budget. HR budgets are highly unique to a company’s strategic direction. That said, most HR budgets will involve the following steps

  • Review historical financial performance: To budget for the future, you’ll have to review past budgets and the strategic plan. You can then establish goals and identify capital expenditures based on historical performance. 
  • Choose a budgeting strategy: You’ll have to choose the best budgeting strategy for your organization. Typically, organizations choose to create incremental budgets or zero-based budgets. 
  • Analyze real-time performance data: Before you can create your budget, you’ll have to perform an analysis of HR performance data and budget actuals as they are in real-time. This analysis should include revenue, both departmental and organizational expenses, staffing (recruiting, hiring, turn-over), and employee compensation. 
  • Get a comprehensive view of how finance impacts operations: A single source of performance data will aid your analysis. When you can easily see a 360* view of all financial and non-financial information, you can:
    • Set more realistic budget caps.
    • Understand where you can build flexibility into your budget.
    • Monitor your budget’s performance in real-time.

Key HR items to consider when planning a yearly budget

While there is no fixed rule concerning what should be included in an HR budget, here is a list of the six most common elements.

1- Recruitment

Employee recruitment can be expensive. The Society for Human Resource Management (SHRM) writes that the companies spent an average of $4,129 per hire in recruitment costs. These costs include attempts to find candidates and actions to help qualify those targeted recruits, such as:

  • Advertising
  • Travel and events (ex. College job fairs)
  • Drug testing
  • Background checks
  • Agency fees
  • Relocation

2- Training and Development

Training and development is a key area of human capital; especially important to younger generations of workers Common HR budget considerations for training expenses are:

  • E-Learning, video tutorials and classes
  • Consulting fees
  • Employee turnover
  • Travel and meal expenses
  • Seminars, workshops and conferences
  • Certification exams
  • Subscriptions
  • Ongoing training, such as certifications

3- Compensation and Benefits

This category touches everything that is included in your employees’ total compensation plans. Business spends somewhere between 15 to 30 percent of its gross revenue on payroll, although companies in the service industry may be closer to the 50 percent range.

In the budget review for compensation and benefits, consider including:

  • Wages and salaries
  • Salary and promotion increases
  • Overtime pay
  • Bonuses and commissions
  • Medical, dental and vision insurance
  • Life insurance
  • Disability insurance
  • Retirement plans
  • Employee travel
  • Benefits plan administration

4- Employee Relations and Talent Management

While compensation, benefits, and training can go a long way toward improving employee morale, there are some other measures you can take to reward workers. These include:

  • Service awards
  • Recognition efforts
  • Performance and attendance incentives
  • Company events
  • Employee birthday perks and gifts

These items may not make up a massive part of your budget compared to other key HR needs, but they can be important additions to your company culture. Also, you never want to find out that you have to cancel those service awards because you forgot to plan ahead for them in past budgeting meetings. 

On the flip side, you may also want to consider setting aside a small portion of the budget in case you face any labor relations issues. Budgeting for outplacement or legal fees can help your business prepare in case you have any unexpected issues in the upcoming year. 

5- Health, Safety and Security

HR budgeting also gives you a chance to invest in the well-being of your employees by making your work environment a safer, healthier place. By putting aside some of the budget for certain programs or initiatives, your business can reap the rewards of focusing on health, safety, and security. These include:

  • Employee assistance programs
  • Safety promotion and training
  • Fitness facilities
  • Smoking cessation programs
  • Workplace violence prevention

6- Technology

HR’s progression to strategic business partner has escalated the demand for HR technology and it includes:

  • Benefits administration
  • Compensation structures
  • Employee retention
  • Onboarding and off boarding
  • Performance management
  • Recruiting
  • Training and development

A well-planned and thoughtful budget ensures that HR receives the necessary funding to support employee programs and initiatives critical to attracting and retaining a skilled workforce.

References- www.shrm.org, www.paycom.com, www.asuresoftware.com

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