HR Budget Planning: A Complete Guide
Planning an HR budget may appear to be a time-consuming task, but this is not always the case. A strategic and thoughtful HR budget ensures that sufficient funding is available to support employee initiatives and projects.
HR budgets are created to highlight how much money should be allocated for various expenses and employees over the course of the fiscal year.
This enables you to avoid any surprises that could jeopardize your ability to build a highly skilled workforce. Implementing an HR budget will be easier if you have a strong grasp of the organization’s plans and objectives. If your company is still dealing with uncertainty, it’s an even better reason to formulate a flexible HR budget.
What is an HR budget?
If you’re unfamiliar with the concept or need a refresher, an HR budget allocates funds, particularly to all human resource processes throughout an organization. Because a company’s most valuable asset is its people, this budget must be meticulously planned, communicated to, and authorized by the leadership team.
Organizations typically use two types of HR budgets. The type you select is determined by a number of factors, including funds available, anticipated expenses, and profits.
Incremental HR budget: It is possible to make adjustments to the numbers for the upcoming year by using data from previous years’ HR expenses. If there are any funds left over, you can include them in your budget as well. Based on HR objectives, the new budget includes increases (or decreases) from the previous year, such as increased costs for benefit premiums.
Zero-based HR budget: This is for a new HR budget or one that requires to be completely revamped. Begin with a blank report with only the new year in mind. Begin by allocating funds to the areas of the budget that require the most assistance. The year 2022 may be heavily focused on recruitment. As a result, your budget will need to include plenty of funds for recruitment marketing, administrative management of interviewing and screening candidates, and efforts to enhance onboarding.
In either case, planning the HR budget is a methodical process that includes a close examination of previous years’ expenditures, current year expenses, projected employee numbers, and other future projections to ensure that HR functions are not underutilized.
What is included in an HR budget?
Even though human resources encompasses so many areas, how can you be certain that an HR budget includes everything? Even small businesses can neglect the costs of recruiting, hiring, training, and other requirements to provide a positive employee experience. It is also an area that, as we saw during the pandemic, can quickly throw a company into disarray from both internal and external sources.
To ensure effective HR management throughout the year, all organizations must reevaluate their HR budgeting strategy in light of shifting priorities.
Having an HR budget framework on hand can help you plan a reasonable budget for the coming year. The following are the components of a typical HR budget:
Recruiting and acquiring talent
This is a high priority for most organizations but at a high cost. Planning for new hires necessitates a human resources budget that can cover everything from job advertising to onboarding. Because competition is expected to increase, you should allocate a significant portion of your budget here. You should budget for the following:
- Job openings advertising
- Candidates’ interview and screening
- Performing background checks
- Onboarding new employees
- Fees for agency services
- Employee relocation or the establishment of a remote office
- Marketing for recruitment
- Lowering turnover
Development and Training
According to a Gartner survey conducted in 2021, 68% of HR leaders plan to develop critical skills and competencies in the coming year. Set aside a reasonable amount of money for training and development efforts that provide a positive investment return. Take into account:
- New employee training
- Filling skill gaps
- Employee accreditation
- Implementing learning management systems
- Transition to e-learning
HR upskilling
Human resources must address not only employee skill gaps but also their own. If you want your HR team to have a real impact on the organization, you must make sure that the employees of your department have the future-proof HR competencies that will help your business succeed – business experience, digital competency, people advocacy, and data literacy. That is why you should plan for HR upskilling opportunities in your budget.
- A team or enterprise license for HR e-learning courses
- HR certifications
- Personal training budgets for HR employees.
- Workshops
- College courses
Compensation and benefits
Increase your HR budget by around 3-5% based on last year’s hires and the cost of employee compensation and benefits to ensure you have enough in 2022. Consider the following:
- Employee salaries
- Health insurance
- Life insurance
- Retirement plans
- Paid time off
- Overtime pay
- Bonuses
- Other perks
Diversity, equity, and inclusion
The push for greater diversity, equity, and inclusion is expected to continue. Contribute to DEI education and cultural efforts by allocating a portion of your human resources budget:
- Increasing hiring diversity
- Putting in place inclusive hiring practices
- DEI training and culture development
- Leadership DEI programs are available
Employee and talent management
When it comes to rewarding employees, compensation and benefits are just the beginning. Employees must also feel appreciated. When planning the budget for this segment of expenses, consider other ways to increase incentives and recognition for your best employees.
- Employee engagement
- Making a good working environment
- Coaching and team building
- Candidate placement that is precise
- Building management relationships
- Workplace relations
Employee safety and well-being
All employers have a legal obligation to provide a safe and secure workplace. Audit the policies and systems in place as part of your HR budget preparation to evaluate the costs associated with improvements.
- Physical safety compliance
- Mental well-being
- Employee health
- Security at work
HR tech
With new products being introduced on a regular basis, this could be an excellent time to upgrade your old HR systems and invest in a system that automates human capital management.
- Human Resources Information Systems (HRIS)
- Technology for learning management
- Payroll and benefits administration
- Remote working applications
HR Administration
Make room in your HR budget for the costs of running an HR department. Whether it’s for a single department in a small business, a large team at a large corporation, or handling a large team of recruiters and HR specialists, everyone must feel supported as the working world changes.
- HR communications
- General HR administration
Why is HR budgeting so important?
Preparing an HR budget is just as important as costing any other aspect of your business; in fact, it’s at the heart of why your company thrives. The main reasons why you should start thinking about your HR budget early are:
Handling human capital costs – Mitigate overspending or, worse, not having sufficient funds to go around. When things change, a well-planned HR budget allows you to upforredistribute resources.
Trying to ensure HR operational efficiency – You have a clear picture of where and how much money you can spend, allowing you to operate effectively and efficiently.
Accomplishing organizational success – By improving HR efficiency, organizations can get the most out of their employees, be more productive, and achieve their objectives. This also gears you up with regulatory changes that affect various aspects of human resources.
Take a seat at the table of decision-making – With 60% more business leaders intending HR to be partners, being capable of presenting a well-developed budget plan can increase your organizational value.
Steps in Preparing An HR Budget
Budgeting for human resources can be difficult if you don’t have a strategic plan. Precise estimates of future expenditures are a challenging issue in HR budgeting.
Estimating expenses in an HR department can be especially difficult. Salaries must be accounted for at the start of the period, reviewed halfway through, and evaluated at the end.
The following are the steps that HR managers can take to organize an HR budget:
1. Examine previous performance and forecast future expenses
Gathering historical data and analyzing past performance is the first step in developing an effective HR budget. Analyze the data and identify the key areas for improvement.
The following step is to decide where to invest the funds. Salary and benefits, training, facilities, and equipment, or any combination thereof, could be included.
An HR audit can also make it easier to analyze previous performance.
2. Assess the company’s needs and priorities
After you’ve decided where the money will go, consider the funding’s specific purpose.
Is the expenditure sufficient to ensure high levels of staffing with ongoing growth? Can the funds be used for initiatives that will benefit your organization in the long run?
Having a clear understanding of the organization’s needs and priorities will make budgeting easier.
3. Determine the optimal fund allocation
It is impossible to provide benefits and other incentives to your employees without the proper allocation of funds.
A common HR budgeting goal is to allocate funds strategically in order to get the most out of them. It is critical that you understand how to spend your human resources budget wisely.
It is critical to understand the costs associated with your business. Before making an optimal allocation of funds, you should also understand how they affect different departments.
The amount of money you set aside for employee salaries will also differ depending on the size and type of business.
4. Make any necessary adjustments
The human resources budget should not be static. The HR manager must be able to propose budget changes based on the needs of the company.
These modifications should take into account the evolving workforce and business environment. The HR budget must also reflect an organization’s ability to compete in today’s economy.It must also be flexible to changing circumstances.
Best HR budgeting software
HR budgeting does not have to be a difficult task. The software can assist you in tracking your costs, creating forecasts, and ensuring that you stay on track.
Among the software packages available are:
These tools start around $ 20 per month, with additional features costing more. Moreover, many of these tools provide free trials, allowing you to test them out before committing to anything.
When it comes to selecting budget software, there are a few things to consider. First, consider what features you require. Do you require something simple or something with more extra features? Second, consider your budget. There are budgeting tools available at various price points, so find one that fits within your budget.
Conclusion
HR budgeting’s primary goal is to allocate funds within an organization. It ensures that the organization’s mission and goals are met while reducing ineffective or wasteful activities.
Employee productivity and morale can suffer if proper budgeting procedures are not followed. It will eventually result in reduced productivity and an inability to perform at their best.
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