HR Mavericks

Eddy’s HR Mavericks Encyclopedia

HR Budget
Are you having a hard time determining how to allocate your money from the budget? Are you overwhelmed with where to put your money for each aspect of HR? If you need answers for the HR budget, this article can paint a clearer picture for you.

What Is an HR Budget?

An HR budget is the money allocated to HR processes company-wide. Within an HR budget, a company determines where their money will be spent on the various HR aspects, such as hiring, training and developing employees.

Why Is It Important to Have an HR Budget?

Without proper budgeting, planning and meeting the needs of the department cannot happen. An HR budget sets a company up for success by taking the time to decide how much money an HR team will need and how to allocate those resources throughout the team. Here are some reasons why that is important.
  • Helps staffing needs. One of the biggest roles HR plays is handling the staffing needs of a company. When allocating funds in a HR budget, doing it correctly helps determine what the company’s staffing needs are. If more funds are allocated towards hiring rather than training or development, there will likely be more of a focus on hiring for the year. An HR budget helps determine the direction of a company’s staffing needs for the year.
  • Prevent over/under staffing. Arguably the biggest issue that can occur without an HR budget is over and under-hiring employees. Over-hiring can occur when the company simply has the funds to hire without determining if they have the HR manpower to supervise, train and develop new hires. There has to be a plan for how resources are being used. Under-staffing can have a domino effect on the entire company. Under-staffing can occur when a company doesn’t have the necessary funds to hire and train employees and can lead to employee turnover and reduced employee productivity, as employees get burned out with the workload. Better HR budgeting can prevent both of these from happening.
  • Attract talent. When competing for talent, recruiters need to be able to sell the company to candidates. This typically comes from a competitive salary and benefits. With a competitive HR budget, you will have the necessary planning and budgeting to attract the best talent through a competitive salary and benefits package.

Factors to Consider When Developing an HR Budget

When putting your company’s HR budget together, there are a lot of factors to consider. Consider how each of these factors will affect your HR budget. If you don’t take the time to plan and prepare and simply put an HR budget together to appease the finance team, you are not setting up your workforce to succeed.

HR’s Goals and Objectives

When deciding on the direction you want to take your company and its workforce, always consider how decisions relate to your HR goals and objectives. Ultimately, your HR goals and objectives should be the driving force on the decisions you make for the company. For example, if one of your goals for the year is to provide more learning and development opportunities to your employees, devote more of your HR budget to training and development.

Organizational Goals and Objectives

Another factor to consider for an HR budget is the organizational goals and objectives of the company. Some of these might align with HR goals and objectives, but there will be some differences between the two. The HR budget impacts each department, as funds go towards hiring, training, talent management, workforce engagement and employee wellness planning. When determining the HR budget, be aware of the organization as a whole, including each department and what they want to accomplish in the year. The HR budget can determine how you can best support organizational goals and objectives.
Every business has a different strategy based on the mission statement and the industry that they are competing in. For your HR budget, be aware of what other businesses in your industry are doing. You won’t be able to see their financials unless they are a public company, but you can do market research to understand their focus. Every industry is different and the workforce is constantly changing, so look at other strategies and market trends to determine what is best for your company at this time. During recessions, you’ll notice companies scaling back how much they spend on HR, which might cause you to consider doing the same.

Workforce Size, Structure and Turnover Rates

The size of your workforce and the way it is structured can impact your HR budget greatly. The bigger your workforce, the more money you should allocate to an HR budget. According to Gartner, HR typically costs from $1,350-$3,800 per employee. If your organization structure is constantly promoting new managers, devote more of your HR budget to training and development. If you're in an industry that experiences a higher turnover rate, such as a call center, you will need to consider devoting more of your HR budget to onboarding and recruiting.
A big role of HR is keeping the company compliant and being aware of legal ramifications. Some industries' compliance requirements are constantly changing. When doing an HR budget, consider the compliance requirements, legal considerations and the costs associated with them. If you need to do safety audits, re-certify employees or conduct yearly training to remain compliant, those need to be considered as part of your HR budget.

Components of an HR Budget

Every company’s HR budget is going to look a little different, not just because they choose to allocate their funds differently, but because they have different HR needs. Having said that, here are some components that are typically included in an HR budget.

Personnel Costs

This will be your largest cost in the HR budget. It includes employee salaries, health insurance, retirement benefits, bonuses and other perks or benefits. This will likely take the most time to plan for, as you need to determine if you will offer newer benefits to employees or increase current costs, such as salaries or health insurance.

Recruitment and Retention Costs

This includes all costs related to recruiting candidates and retaining talent. This can also have a high price tag, as this includes the cost of posting jobs, interviewing and hiring candidates, background checks, drug tests, onboarding, orientation and reduction of turnover. The budget should be big enough to support all of that.

HR Technology and Software Costs

This is for the cost of an HR Information System (HRIS), payroll system, benefit system and any other software costs you might have. This shouldn’t vary too much year to year unless you decide to invest in a new software. A new software will typically increase this cost, as your company’s size and needs will have likely changed since you last changed softwares.

Employee Engagement and Development Costs

The costs associated with employee engagement and development are mainly focused on the employee experience and ensuring that employees remain engaged. This might include any wellness initiatives, company parties, training, manager development programs or continued education. The funds allocated to this are a great way to retain talent because you are showing your employees that you are willing to invest in them.
These are costs associated with keeping the company compliant in industry regulations as well as business regulations. That might include Occupational Safety and Health Administration (OSHA) training, union costs and fees or legal costs for any HR investigations. It’s hard to predict how much you might pay for legal fees for HR investigations, but you can project that from data from previous years and potential lawsuits/investigations you are aware of for the coming year.

Best Practices for Managing an HR Budget

Managing an HR budget is a daunting task. It can be hard to know where to start and what should be included in it. You want to do what is best for the employer and the employees. It can feel burdensome, knowing the potential impact you will have on the entire workforce. Here are some best practices to help manage an HR budget.

Align With Company Goals

This was discussed briefly earlier, but needs to be reiterated. When managing an HR budget, your costs should align with what you want to accomplish as a company for the year. Failure to do so can create harm for the employer and employee. If you plan to double in size as a company in the year, make sure your budget reflects that. Allocate funds to recruiting, onboarding, training and development.

Make Data-Based Decisions

When budgeting, forecast based on numbers from previous years. Every year is going to be different, but using data from previous years will help you better forecast. You can’t predict the future, but you can still lay the groundwork by using past performance to predict future performance.

Plan for the Best, Prepare for the Worst

With the company budget, you have goals and things you hope to accomplish. You want to be hopeful and positive on how the year will go with goals that will stretch you that you believe your company can achieve. However, the workforce can be quite unpredictable,and sometimes things happen. One prime example is the Covid-19 pandemic of 2020. No one could have predicted it would shut down businesses and force employees to work remotely. Companies need to prepare for situations like this as much as possible. In budgeting, you might plan for huge growth for the company, but you should do what you can to prepare if that does not happen.
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Tanner Pierce, PHR

Tanner Pierce, PHR

Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.
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