Top 5 Critical Things to Consider While HR Budget Planning
My son wanted to understand fiscal deficit. I explained that every year, the government prepares a budget defining its expenditure and income. At the end of the year, if the government expenditure exceeds its income, that is known as fiscal deficit. The Government covers it by printing money.
My son asked, companies must also be doing budgeting every year. Do they also print money if their expenditure exceeds their income? I told him companies don’t have that luxury. They need to be much more diligent in their budgeting process.
“HR Budget planning is a critical element of overall budget planning for any company. HR expenses range from 20% to 35% of revenue depending on the organization. More so, for service organizations, HR expenses account for more than 50% of the revenue.”
This year is even more special because of the pandemic. Extraordinary circumstances have impacted most of the organizations in such a manner that it will not be advisable to adopt the practice of incremental budgeting, taking a base of last year, and adding incremental costs. I would strongly recommend going for zero-based budgeting, evaluating the business growth and business model of the company. Here are the 5 critical things to consider while HR Budget planning.
1. Business and HR Model
Economy will be in a state of recovery next year. There will be more and enough opportunities for businesses to gain ground and expand. Hence this HR budget planning will demand an active collaboration with each functional and business leader. This year will need more than just linear manpower planning. Strengthening Digital Infrastructure and change in customer behaviour will also present an opportunity to evaluate jobs, digitize processes, and optimize workforce for existing processes. Don’t forget to include redeployment and retraining costs in the budget.
Another important area will be to leverage the work from home model and explore gig contracts. This may require sharper focus on outcomes which can further optimize infrastructure cost, overall manpower cost, and the way of working.
2. Invisible Costs
There will be certain invisible costs which were not there in the HR Budget in the preceding years, so you can expect a surprise when those elements come up.
One unexpected cost will be cost of leave accruals. This year, most of the existing employees would not have gotten the chance to use their paid leaves due to lockdown. In case you are concerned about your brand image, you may like to encash part or all leaves or increase accrual limits.
The Government has also been bringing in multiple reforms. The new wage code is an indication of the same. Some companies might have to revise salary structure for their frontline workforce to comply with the regulations, while at the same time protecting the salary of the employees. Don’t miss to provision for these elements in your budget.
3. Employee Health and Safety
This year you will need to be more careful about employee health and safety. This is not limited to insurance negotiation where you must ensure coverage for COVID-19. Do provide for decent corporate buffer to support employees.
Depending on the nature of your business, you may also like to provide for pandemic expenses like COVID testing, masks and kits, immunity booster medicines, vaccination (hopefully), sanitizers, travelling reimbursements (in separate cabs/autos).
You may also like to provide some amount for creating positive healthcare experience which may include physical as well as mental health programs.
4. Digital Tools Cost
The change in environment triggers the need for digital tools. You may consider tools for communication, collaboration, work management, and data analytics. Some of these tools are available for free but they come with limitations. Limitations of users, limitation of time, limitation of functionality. Sooner or later, you will have to opt for them to enhance productivity of your employees. In some companies, this might fall under IT budget but this must not be missed.
If you are going to hire in large numbers and you are planning to do it yourself, you will experience a steep surge in the pricing of digital sourcing platforms. Please budget for it or be ready to explore some new platforms and open market techniques.
On the learning side, evaluate digital learning platforms with pre-configured content alongside traditional training approach. Even reimbursing subscription charges for digital learning platforms to employees interested in self-development can bring some value home.
5. Work from Home Cost
In case you have considered hybrid work or work from home settings, you might want to consider some expenses that will arise out of a home-office. This depends on policy decision as well. Whether the employee will be responsible of his device, connectivity, and power, or whether the company will reimburse part of the amount to employee. In case you are planning to manage the whole thing on your own, do account for maintenance expenses as well.
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