A human resource budget or HR budget is a financial plan devised to determine the allocation of funds to all HR processes within the company. Human resource expenses include recruitment, wages, benefits, training, and development plan, compensation, and employee wellness planning.
A study conducted by Kronos Incorporated and Future Workplace revealed that the top three contributors to employee burnout are unfair compensation (41%), unreasonable workload (32%), and too much after-hours work (32%). These numbers show that the top contributor to employee burnout is unfair compensation, which means that with the right HR budgeting, a company can prevent employee burnout. And, thus, increase employee retention.
It is important to carefully plan a human resource budget because it will create a ripple effect on an enterprise or company. If you are assigned to develop a corporate budget or a human resource budget, we have provided you with five steps to accomplish this challenging task below.
1. Review Past Budgets
Reviewing the company’s past financial performance will help you establish goals and identify capital expenditures. To make necessary adjustments, you need to have a clear understanding of how the fund allocation. Moreover, you can learn which strategic plans you can implement for the next cycle of your budget.
2. Choose a Budgeting Strategy
There are two types of budgeting strategies, namely incremental budgets and zero-based budgeting. An incremental budget is a budget that was based on the previous cycle’s budget and adjusting it up or down based on the goals and expectations set. On the other hand, zero-based budgeting is a budget that starts on a clean slate which means that the past budget is not considered. Choose a strategy you think will work best.
3. Identify the Number of Employees
The next step is to identify the number of expected employees for the next period. Since the majority of the human resources’ funds are for the employees, it is essential to determine the specific number of employees the company will have for the next cycle. Keep in mind that the current number of employees may increase or decrease as time goes by.
4. List Down HR Expenses
Listing down the HR expenses is a crucial step in creating a human resource budget because this will determine the effectiveness of your budget plan. Usually, an HR budget has five common elements, such as employee compensation, HR technology, training, employee retention, and employee safety and wellness. Under these elements are subcategories that you should also take note of. For example, expenses under employee compensation are wage, monthly salary, bonuses, overtime pay, and insurances. Make sure that you do not overlook minor expenses for you not to end up short on funds in the long run.
5. Monitor Your Budget
After creating a sample budget plan, have it approved by the heads. After this, make sure that you regularly monitor your budget. Keep track of the expenses and compare the projected cost to the actual cost for you to tell the variance.