HR Mavericks

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Salary Budget

Ever wonder how your company handles payroll planning? An employee’s salary is a large part of your organization's compensation package and budget. In this article you will learn why your organization’s salary budget is important and how to create a salary budget.

What Is a Salary Budget?

The Economic Research Institute defines a salary budget as money designated over a specific amount of time with which to pay salaries. Consider this budget when making salary adjustments.

Why Is Having a Salary Budget Important?

Salaries make up the greatest portion of the expenditure budget. It is important for organizations to create salary budgets because it helps organizations understand what percentage of their overall budget should go to payroll. Knowing your salary budget helps your company to stay on track throughout the year.

How To Create a Salary Budget

Salary budgets are generally created based on industry. To create a salary budget, you will want to review your current positions and the expenses for those positions, and to review your data for accuracy.

Step 1: List Positions

To create your salary budget, you will need to start with a list of all your current positions, sorted by department. For example, list any administrative staff, clinical staff, etc., noting the salary of each. For positions that are new, estimate the annual salary based on the salaries offered by your competitor.

Step 2: Identify Expenses

Next, identify the payroll expenses associated with each position. Most payroll service providers such as Eddy will be able to provide you with this information. During this step, factor in any bonuses and/or raises. For expenses that don’t pertain to a specific position and benefit the entire organization, use a general name such as home office/corporate. Be sure to review your totals for each position that include gross wages, taxes and benefits for month and year.

Step 3: Review Your Data

Be sure to review the data for accuracy. Share your list with the department heads for review. You will want to compare your projected budget to last year’s actual expenditures. Identify any challenges you may have previously encountered the year before to ensure that the issue does not arise again.

Tools To Help You Prepare Your Salary Budget

Depending on your organization’s needs, there are several tools out there that can be used to create a salary budget.

Microsoft Excel

Excel is a customizable tool, allowing organizations to prioritize their needs. For example, you can add specific formulas to determine your salary budget. In addition, Excel allows you to easily loop in other stakeholders for collaboration by sharing your document. Lastly, Excel is visually satisfying with colorful charts and tables, such as pivot tables, for quick view. There are cons to using Excel. It can be challenging to use for an organization that is growing due to the susceptibility of human error; in addition, when data is too large, the Excel program can run very slow, and breaking down the data into smaller files can lead to errors.

Payroll Systems

To better forecast salary expenses, organizations may opt to use a payroll system such as Eddy to calculate a more accurate dollar figure budget scenario. With these systems you can quickly gather data for any given period (e.g., annually, monthly) for miscellaneous items, such as overtime pay. You can also adjust amounts by any projected salary increase and/or decrease. Cost is a con to such systems. Cost range depends on the capabilities of the system. Many systems require an acquisition and maintenance cost that could be difficult for small organizations to cover.

Online Budgeting Tools

Designed for small businesses, there are cloud-based, online budgeting tools that can forecast expenses and provide reports for your business budget. These tools are user-friendly and let you easily track your budget and expenses. A con is that it’s designed typically for small businesses, so you will want to consider how organizational growth may be impacted. For example, as your organization grows, the volume of data needed will increase. These types of tools are often incapable of handling the volume of data required.
Wendy N. Kelly, MSHRM, PHR, SHRM-CP

Wendy N. Kelly, MSHRM, PHR, SHRM-CP

Wendy is an HR professional with over 10 years of HR experience in education and health care, both in the private and non-profit sector. She is the owner of KHRServices, a full service HR management agency. She is also SHRM and HRCI certified, serves as a HRCI Ambassador, and voted 2021 Most Inclusive HR Influencer.
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