Building the right team takes a lot of different skills, including recruiting, interviewing, onboarding, training and more. But one skill that’s often overlooked? Creating an HR budget that puts the right resources in place to let you get the most out of all those initiatives.
A critical part of your workforce planning efforts, your budget will fuel your company’s HR plans, ensuring you’ve got the funds in place to cover all of your critical People goals. With that in mind, the best HR budget planning considers many different components—including your organizational objectives, expected business growth and the industry and market changes happening around you. It will also empower your team to keep up with those changes, letting you continue to maintain and add to the talent you need to keep your business thriving. You can learn more about workforce planning in our Ultimate Guide to Workforce Planning.
The best workforce planners will implement an HR budgeting process that looks ahead, considers your business strategy, accounts for possible risks and allows for ongoing iterative changes along the way. And the best budget will in turn help you stay agile to evolutions in your business, industry and the market as a whole.
So where do you start your HR budgeting process—and what are some best practices for planning your HR costs? Start with the following:
The 3 Main Components of Any HR Budget
For most workforce planners, three categories will fuel the majority of your HR expenses. Here’s a refresher:
1. Compensation and Benefits
Not surprisingly, compensation and benefits play a huge role in your HR budget—in fact, they’ll likely represent the largest allocation of resources by far. After all, this category includes your employees’ salaries, along with any type of overtime compensation, benefits and insurance. And since salaries and benefits both hugely influence your ability to maintain and attract talent, keeping on top of industry and job-level expectations when setting your budget will be critical to getting these right.
2. Learning and Development
The best learning and development programs not only ensure your team members continue to grow and stay challenged in their roles, they also help you avoid potential turnover and let you keep up with future needs by promoting from within. Your training budget may include workshops and conferences, classes, learning stipends or certification programs that will help you build your team’s skills.
Replacing someone can cost your business as much as 33% of that employee’s annual wage. One reason why: the cost of recruitment. Your HR budget will have to incorporate not only the costs associated with advertising a new job, but allocate for relocation costs and background checks, while also incorporating any interview period or onboarding training.
Together, these three categories make up most of your HR budget. But there are other things to consider too—for example, employee relations, performance management programs and technology investments. Each category will overlap as you allocate your resources accordingly—and together, they should support your business as a whole.
5 HR Budgeting Best Practices
While the best HR budget examples are continuous and ongoing, most teams still employ an annual cadence in keeping with their overall budgeting cycle. That means you need to consider both your present needs and those for the year ahead when putting together your HR budget. Regular check-ins and adjustments can help make sure you’re still on track throughout the year, while either zero-based budgeting or an incremental budgeting approach will allow you to keep everything in balance.
With that in mind, consider these best practices when developing your HR budgeting process:
1. Start With Your Business Goals
You won’t get far in reaching your business goals without the right people in place to achieve them. So take a look at where your organization is going: are you in growth mode or holding steady, looking to develop a new product or focusing on improving sales for the one you’ve already got? Is one particular region a hotspot for growth or are there a few untapped spots you want to try tentatively dipping your toe into? How much you allocate to headcount and where you spread the wealth will depend on those goals. Being able to tie each budget allocation to a particular deliverable will empower your planning further.
2. Stay on Top of Your Actual Workforce Needs
Every department has its own HR priorities, but it’s up to you to determine which are truly urgent, as well as which will best support the company as a whole. Only by staying on top of your entire business will you be able to allocate your budget across teams and roles, planning your headcount growth accordingly. But it doesn’t stop there—you’ll also need to take into consideration salary trends across roles and regions, as well as the benefits potential new hires expect in order to make your company desirable to them. Meanwhile, including departmental leaders in the planning process—soliciting their feedback and input along the way—will not only ensure you consider everyone’s needs, but will also help build support for the budget itself.
3. Integrate Your Data
Integrating your data into a single source will let you better plan salaries, benefits and taxes, helping to ensure you stay on budget while building on your business strategy and growth. Having all of your data in one place also allows you to take a more holistic look at labor costs, create more efficient HR processes, improve your workflows and build on your technology stack. By connecting your data, you also help make the entire hiring and onboarding process easier for your team—and take the guesswork out of your workforce planning efforts.
4. Plan for Every Scenario
Just as it does in other areas of financial planning, scenario modeling can help you stay ahead of your HR budget and plan for any situation. Scenario modeling allows you to consider several different future scenarios and to stay ready for all of them in the case of potential market changes. You’ll also be able to compare and contrast possible budgeting decisions to see what makes the most sense for your organization. While there are always plenty of scenarios to plan for, focus on the ones that pose the biggest risks, assessing their impact on your plan. Through those comparisons, you can build the insights you need to make the right decisions going forward.
5. Put the Right Technology in Place
The right technology can help you put your data to work, reduce the number of manual tasks your team is taking on and let you dig into the insights you need to better align your HR budget with your business goals. It can also help you visualize your workforce planning efforts and ensure you have the resources available for every project and process you want to introduce. With the right tools in place, you can begin to plan salaries and benefits more effectively, optimize your expenses and ensure you have enough in the coffers for future training and recruitment needs. Starting with a tool that’s easy to use, such as Excel, can help get everyone on board.
How To Plan for the Costs of HR
If people are the engine that keeps every business running, your HR budget is the fuel that ensures nothing breaks down along the way. With the right budget in place, you’ll always have the team you need to move your business forward and the resources to support them at every turn—letting you maneuver through whatever changes come up ahead.
Get more out of your workforce planning with Vena.