Budgeting for human resources
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Effective budgeting for human resources is vital for the overall success and sustainability of any organization. The HR budget should be carefully planned to ensure the company can attract, retain, and develop top talent while managing costs effectively.
As we approach the end of the calendar year, for many companies, that means budget time for 2025. Let’s review the key areas of your “people” budgetto ensure efficient resource management and alignment with strategic goals.
1. Employee Salaries and Wages
One of the largest components of an HR budget is employee salaries and wages. This category includes the base pay for all employees, from entry-level staff to senior executives.
To budget effectively for salaries, consider factors such as:
- Annual salary adjustments: Due to inflation, performance-based raises, promotions, role expansions, or merit.
- Market competitiveness: We recommend an annual market analysis to ensure employee pay is competitive as well as a review of internal pay equity
- Overtime pay: If applicable, budgeting for overtime hours ensures that unanticipated workload surges don’t strain resources.
2. Employee Benefits and Perks
In addition to base salaries, organizations must budget for employee benefits. These benefits contribute to employee satisfaction, retention, and overall productivity. In addition to a compensation review, work with your benefits advisor to ensure your benefits are competitive and are meeting the needs of your employees.
3. Training and Development
Investment in training and development is crucial for maintaining a skilled and motivated workforce. Ongoing professional development not only increases employee productivity but may also help retain top talent by offering opportunities for growth.
Key components of the training and development budget may include:
- In-house training programs: These can include onboarding, leadership development, and job-specific training.
- External training: Conferences, certifications, or workshops that enhance employees’ skills.
- Learning management systems (LMS): These platforms can support ongoing employee development through digital courses.
- Coaching: Consider offering coaching to your star performers for a more personal approach.
Organizations should regularly assess their gaps between their operational needs and the employee skills as well as understanding skills needed for market competitiveness.
4. Recruitment and Talent Acquisition
Finding the right talent is critical for any organization’s growth, and a well-planned recruitment budget ensures that the company has the resources necessary to not only attract and hire qualified candidates but also to create a positive candidate experience.
Recruitment costs can include:
- Job advertising: Expenses for job postings on career websites, social media, and industry-specific platforms.
- Recruitment agencies: For hard-to-fill positions, companies might rely on external recruiters; be sure to review fees and the agreements.
- Interviewing and background checks: Pre-employment screening processes, such as reference checks and background verifications.
- Applicant tracking systems: Do you have up to date technology that is easy for applicants to use, does not ask for duplicate information to be entered, and only included necessary information?
5. Employee Engagement and Retention Programs
Lastly, allocating funds for employee engagement initiatives helps foster a positive work environment, which can reduce turnover and enhance productivity. These initiatives may include:
- Recognition programs: Rewarding employees for their performance can increase morale and motivation.
- Team-building activities: These help create a cohesive company culture and strengthen relationships within teams.
- Surveys and feedback tools: Budgeting for tools that track employee satisfaction can help HR identify areas for improvement.
6. Human resources team staffing
Is your HR team staffed appropriately to meet your employee and recruiting needs? If your business is seasonal, consider engaging assistance only when you need it? Are positions remaining unfilled because your recruiting team is not able to keep up? Could adding an internal learning and development function reduce your costs for external trainers and coaches?
A well-rounded HR budget addresses more than just salaries and hiring expenses. By carefully planning for employee benefits, training, recruitment, supplement staffing, and engagement initiatives, companies can create a strategic HR budget that aligns with organizational goals. With thoughtful investment in human capital, businesses can enhance employee satisfaction, retention, and performance while keeping costs under control.
JoDee Curtis is the owner of Purple Ink LLC, a full-service HR consulting firm creating strategies that inspire JoyPowered work. Learn more about Purple Ink at purpleinkllc.com.