HR budget planning is always a guessing game, and the rules, players, and resources change every single year. Even if you have a pretty good handle on what the year ahead will look like, budgeting is often done without all of the details handy, and can feel like walking across an on-fire tightrope while handcuffed and blindfolded: the stakes are high, the execution is difficult, and the results are oh-so worthwhile. But planning a comprehensive and successful HR budget can be simple as well as effective, with just a little analysis and foresight.
HR Budgeting Basics
The most basic definition of an HR budget (experienced HR leaders can skip to the next paragraph) are the “...funds which HR allocates to all HR processes enterprise-wide.”1
Because the human power of an organization is everything, the HR budget covers pretty much, well, everything. This includes hiring, salaries, benefits, talent management, training, succession planning, workforce engagement, and employee wellness planning. It is a complex undertaking, but not rocket science once you have your essential priorities sorted out. Done right, an HR budget will help to prevent over-hiring and understaffing, give a picture of an organization’s staffing needs, attract top talent, and reduce turnover.
If you’re gearing up to plan your next year’s budget, you will need the following data (at minimum) to make your best-informed strategy:
- Number of employees projected for next year.
- Projected cost of benefits.
- Projected turnover rate.
- Costs incurred in the current year.
- New benefits and other new programming.
- Changes in policy, business strategy, law, or regulation which might affect costs.
- Cost of systems and technology.
From here, you might use one of two methods for budget planning:
- Incremental budgeting - Based on the budget from the previous fiscal season, you adjust your budget by category to compensate for changes being made or projected in the new year.
- Zero-based budgeting - Everything included in the budget is accounted for and justified, meaning you start from scratch and with a clean slate. This method might be ideal for newer companies, smaller businesses, or organizations going through widespread strategic overhauls.
While the focus of the HR department is nominally an organization’s personnel needs, the effects of Human Resources can impact the company as a whole. HR planning must align with the broader business goals of the larger enterprise.
HR Budget Planning: How to Make it Happen
The intricacies of HR budget planning require the strategic separation of the general allocations into categories to address various human needs across the organization. No two companies will have identical requirements and priorities for their budget, but the most common elements included in a budgeting strategy include the following:
Compensation and Benefits - This is almost universally the greatest cost to any business, and will likely be the top priority when planning your HR budget. This category includes such considerations as:
- Employee salaries.
- Overtime pay.
- Medical insurance.
- Life insurance.
- Disability insurance.
- Retirement funding.
- Employee travel.
All expenses which fall under this section apply, with some degree of variation in terms of the individual cost, to every employee on staff at a given organization. These may also be subject to external circumstances changing: wage laws may be enacted, your insurance provider may increase their premium, etc. All personnel decisions including recruiting, hiring, and promotion will be affected by compensation budgets. Subsequently, this line item must be reviewed carefully.
Training and Development - In recent years, companies have been increasing general expenditure on employee training: 2015 saw a 14.2% increase across U.S. corporations in their T&D budget, indicating an increase in the valuation of thorough coaching. These individual expenses may include:
- Ongoing education classes, video tutorials, and training seminars.
- Workshops and conferences.
- Travel and meal expenses.
- Certification programs.
- Costs due to turnover.
This category can shift dramatically from year to year depending on your hiring and recruiting needs. If one year you recruited 35 new employees, but the next year only 7, the expenses allocated for training & development will demonstrate a sharp decrease. Planning for this category should be primarily based on projected hiring numbers for the upcoming fiscal year.
There are additional ways to save money in this category. For example, one of Checkster’s solutions for retention, Exit Insights, can help manage your turnover expenses by providing a deeper look into the reasons top talent may be leaving your organization. In addition, New Hire Insights gathers feedback at the beginning from new employees (and their coworkers and hiring manager) about what is going right during the onboarding and training process (and what is going wrong). That data can be used to make decisions regarding what programs or processes need to be scrapped or overhauled to improve retention. Are you spending money on training seminars or onboarding programs that aren’t working? Now you can easily find out.
Recruitment - This is another heavy-hitting expenditure. Employees are an investment, and any company hopes that the value generated by a new hire will eventually outweigh the costs of bringing them onboard. Typical recruitment budget considerations include:
- Job advertising.
- Employee relocation.
- Drug testing.
- Background checks.
- Interview and training periods.
Final Thoughts: HR Budget Planning
Recruitment budgeting should be based on an amalgamation of expenditure from past years, and estimates based on your organizations recruitment goals for the upcoming year.
Again, Checkster’s New Hire Insights pays for itself by garnering valuable feedback about your recruiting and onboarding process from recent employees. It aggregates and analyzes all your new data points into easy-to-read dashboards to reveal important trends. You can use that information to create an immediate action plan to improve your recruiting and onboarding methods and even increase time to productivity. With New Hire Insights, you can ensure your newly hired talent is welcomed and trained efficiently and, therefore, more likely to be retained for years to come.. Sign up here for a customized, 15 minute demo.