Budgeting for your human resources expenditure

It is critical for a business to align its overarching business goals with its human resource strategy to achieve business success. While Human Resources requires having the right policies and forms in place, Human Resources is more than that. It also needs to be a part of every aspect of a business to support each stage, and that includes budgeting.

Budgeting involves the systematic collection of information and data so that the finances needed to support a business’ can be projected. 

Most businesses have some sort of process for developing a budget, but it needs to include human resources line items.

Prior to the budgeting process, a business should have completed their strategic planning to identify short and long term goals and objectives. That will allow departments to concentrate their allotted budgets in supporting those objectives. 

Budgeting should address the additional resourcing, be it temporary or permanent, to achieve the goals of the business and respond to changes within the market and customers. This may include the fit out of additional office space, additional system licences and technology, plant and equipment, additional training or marketing of new products and services.

The budgeting process should also include the day to day operational expenses associated with employees and management in achieving the core products and services of the business. This may include funds allocated to recruitment, salaries, social gatherings, training and development, systems, communication and engagement, as well as employee health and wellbeing.

There’s no single way to prepare a budget with human resources expenses. That said, the best practice approach to budgets with a human resources lens will involve the following steps:

  • Historical Information
  • Budgeting strategy
  • Current real-time data
  • Future forecasting

Historical information reviews historical information including past budgets and the strategic plans. You can then establish goals and identify capital expenditures based on historical performance. 

Select a budgeting strategy which is right for your business. Typically, businesses choose to create either incremental budgets or zero-based budgets. Incremental budgeting is a process of using the current budget and developing a new budget by making adjustments upwards or downwards to each item based upon expectations. Zero-based budgeting is a process whereby every item included in the budget must be justified before being included; therefore, the process begins with a clean slate.

Current real-time data is analysed including human resources performance data and budget actuals as they are in real-time. This analysis should include revenue, business expenses, staffing (recruiting, hiring, turn-over), and employee compensation. 

Future forecasting is achieved by looking at the short and long term objectives outlined in the human resources strategy to identify requirements.

Budgeting requires the collection of many forms of data. From a human resource perspective, the data needed to create a new budget include the following:

  • Number of employees projected for next year.
  • Benefits cost increases or projections.
  • Salary cost increases or projections.
  • Projected turnover rate.
  • Actual costs incurred in the current year.
  • New benefits/programs planned.
  • Other changes in policy, business strategy, law or regulation that may impact costs.

While there are many items that may or may not be included in human resources budgeting, below is a list of some of the most common ones to consider.

Recruitment and Selection 

  • Recruitment advertising
  • Agency fees
  • Temporary employees
  • Employee referral program
  • Skills testing
  • Drug testing
  • Background checks
  • Recruitment-related travel
  • Branded giveaways
  • Printing costs–applications, recruiting brochures
  • Web development/maintenance
  • Applicant tracking system costs

Equipment

  • Vehicles or travel costs
  • Plant and equipment
  • Office space and fitout
  • Systems Licences

Training and Development

  • External programs
  • Tailored programs
  • Registration fees
  • Travel expenses
  • Certification exam costs
  • Internal programs
  • Consulting fees/trainers salary
  • Program materials
  • Food and beverages
  • Supplies for attendees
  • Audiovisual rentals

Compensation and Benefits

  • Employee salaries
  • Payroll costs
  • Overtime
  • Incentive and bonus schemes
  • Medical and life insurance
  • Short- and long-term disability insurance
  • Profit sharing
  • Commuting or Telecommuting expenses

Employee Management and Engagement

  • Recognition and awards programs
  • Employee engagement survey administration
  • Performance appraisal software
  • Employment attorney fees
  • Outplacement expenses
  • Lawyers fees
  • Diversity management program administration
  • Communications

Health, Safety and Security

  • Employee assistance program
  • Fitness facilities
  • Safety training/promotion
  • Workplace violence prevention/training
  • Health and wellbeing initiatives

Other

  • Consultants (or other subject matter experts)
  • Charitable donations
  • HRIS administration
  • HR databases/subscriptions/memberships/books
  • Intranet design and maintenance
  • Team events and planning days

A well-planned and best practice budget ensures that human resources receives the necessary funding to support employee programs and initiatives critical to attracting and retaining a skilled workforce.

Contact Small Business Society today to discuss how you can get the most out of your human resources budgeting process.

The information provided in this document is for your guidance only and is general in nature. It does not constitute as legal advice. It is the responsibility of the individual to seek legal advice where required. If you are a small business with less than 15 employees your obligations may vary from the advice provided.


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About Kate Tongue

Kate Tongue is the founding Director of Small Business Society.

She is a qualified and experienced Human Resources professional with more than 10 years of experience across the private and public sectors.

Her particular interest and experience is in managing the employee life cycle, delivering process improvements, and Human Resource strategy.


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