Key Components of HR Budgeting, New Year Checklist

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Key Components Of HR Budgeting, New Year Checklist
At present when VUCA world is at its peak, designing a successful HR budget is a phenomenal task. Nevertheless, with experience, foresight, valid assumptions and careful analytics, HR should be able to come up with a budget that supports the business to stay relevant during such disruptive times.

Key Components of HR Budgeting, New Year Checklist

There is nothing permanent except change. We have heard this umpteen time and experienced it exponentially in the past few months. Even household budgets, which seldom go through major changes, have been topsy-turvy. The definition of ‘essential items’ underwent a sea change and ‘weekend entertainment budget’ remained mostly unutilized. 

“When it was time to take stock of things for the ongoing financial year and concretize budget for the next, situation changed drastically.”

After going through prolonged and vigilant process of budgeting at the beginning of this year, most of the plans and actions remained in cold storage. At present when VUCA world is at its peak, designing a successful HR budget is a phenomenal task.  Nevertheless, with experience, foresight, valid assumptions and careful analytics, HR should be able to come up with a budget that supports the business to stay relevant during such disruptive times. Some key components to consider are as follows, though the allocation under each will depend on how companies are impacted and what are its priorities.  

Key Components of HH Budget and Planning

STRATEGY PLAN

This is one of the main filters for arriving at budget decisions. Whether talent, compensation, employee experience, or any other technological and operational aspects of HR, business strategy affects all other costs. Mckinsey’s report talks about indicators (depth of disruption, length of disruption, and shape of recovery) that business leaders should consider while framing strategy for getting ahead of the crisis.  Some more business drivers and associated cost to be considered are: 

  • Growth Prospects – consider long term implication rather than short term gains.  For instance, opting to continue with critical projects and hiring, despite challenging time, looking at future requirements.
  • People –talent strategy, depending on projected targets, growth plans or downsizing
  • Policies –review existing ones; framing new to stay relevant in the changing times
  • Processes – shift to hybrid models, hygiene and distancing measures etc.
  • Technology – upgradingto improve speed and productivity, innovation, R&D
  • Environmental factors affecting the business
  • Financials – frugality measures and other radical changes for cost effectiveness

RECRUITMENT AND ONBOARDING

Recruitment is slowly picking up which had declined by about 60% during pandemic.  About 90% of the HR professionals have said that digital and virtual interventions had a positive impact.  Looking with this new lens, need to also consider the following: 

  • Recruitment cost –based on hiring decisions;
  • Special provision for critical and senior level hiring
  • Campus drives, based on volume and business requirements
  • Advertisement and Recruitment agency/consultant cost
  • Background verification and medical examination (enhanced allocation due to additional tests, knowing travel history…)
  • Candidate Assessment and Analysis tools
  • Investing in automation and strengthening virtual platforms, for speed and experience
  • Less allocation towards candidate travel or relocation expenses
  • Training cost after onboarding

COMPENSATION AND BENEFITS

This is the major component in HR budget.  A right compensation strategy gives competitive edge and during pandemic companies had resorted to 30 to 50% pay cuts and other compensation revisions.  Depending on business scenario, companies should revisit compensation and benefits strategy.   A few other things to consider are: 

  • Total Wage Bill – existing and proposed (increase due to new hires/replacements or decrease due to reduction)
  • Incremental increase (as per Aon salary survey 87% of companies are planning to give salary hike in 2021)and ratio of fixed and variable cost
  • Possible changes to other components such as insurance,LTA, leave, etc.
  • Cost towards benchmarking compensation surveys, obtaining market data
  • Payroll expenses and other admin costs
  • Retiral and other mandated statutory funds
  • Any other allowances or benefits emerged during new normal

LEARNING AND DEVELOPMENT

The Pandemic has seen a 360-degree turnaround sparking a revolution on how to reframe spending L&D budget. About 61% of companies spent more on learning technologies, online courses, etc.   A few things to consider while designing budget: 

  • Invest in AI and ML
  • LMS that can switch between personalized and blended learning
  • Enhance budget for online certifications, tie-up with institutions; less for ILTs (Instructor-Led Training)
  • Allocate for developing internal SMEs than hiring external consultants
  • Reduce towards Executive Education, Overseas Training, travel &conference space, etc.
  • Encourage subscription of e-journals, e-magazines
  • Digital transformation and new ways of working warranting reskilling and upskilling at every level
  • Virtual Team Building sessions 

BENEFITS, WELFARE AND WELLNESS

The primary focus should be to blend frugality and productivity for enhanced employee experience. All the non-salary items such as facilities, benefits, incentives, etc., are to be considered under this. 

  • List of existing employee benefits with proposed changes, if any for instance: safety and health (24/7 Employee Assistance Helpdesk, tie-up with hospitals for critical treatment);
  • Wellbeing (programs for emotional wellbeing, online counselling facilities for employee and family)
  • Annual Health check-up – if enhancing is required
  • Insurance – premium allocation full or partial; differential cover depending on the type of job
  • Retiral and other benefits
  • Rewards and Recognition –to suit virtually platforms than in-person gathering
  • Education support to employee children

TECHNOLOGY

The best of technology for every aspect is available in the market, but organizations need not go with the best, but choose based on need.

  • Catering for improved operations
    • For advanced data and analytics that aid business decisions
    • Any equipment, process or tools that need to be upgraded

COMPLIANCES

Mandatory for routine expenses and for any unexpected employee/workmen related contingencies

  • Consider all statutory payments – PF, ESI, PT, etc.
  • Provision for any likely changes
  • Impact of new labor codes

A WELL PLANNED AND THOUGHTFUL HR BUDGET

It is one that strikes a balance between employee expectations and organizational needs; comprehensive yet vigilant to accommodate changing scenarios of how the business is impacted.  

Pandemic has affected every business in diverse ways.  With the future being ina flux, baselines and benchmarks drifting unimaginably, it may be worthwhile to opt for a zero-based budget than an incremental one, considering various business scenarios with close monitoring and scope to amend.   

1 COMMENT

  1. Hello,

    It is very nicely drafted that Budget checklist for the year 2021 I appreciate the the Sushma as the minutely she has paid attention towards budget preparation focus points. These all are very useful on the part of Budget preparation time and for new startup company

    At manufacturing industries has to paid attention on no of many more costs heads other than sushma has mentioned ex. Establishment cost, Welfae cost, Repair and Maint. Cost etc.

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