HR Budget Planning

Knowledge about what tools are used to carry out human resources management activities and what funds have been allocated so far within these processes to prepare the budget for the next period properly. In this article, the expert discusses the HR department's expenses and information necessary to conduct a personnel cost analysis.

The controlling department supports people responsible for the implementation of the personnel policy, including in the area of preparing cost budgets. Preliminary in the case of HR expenses has two perspectives. The first concerns the HR department's cost budget, which contains the resources needed to perform the functions assigned to this section. The second perspective concerns the expenditure on human resources for other departments in the company. The necessary budgets included in this group are:

1) the remuneration budget,

2) recruitment budget,

3) health and safety budget,

4) training budget,

5) account for incentive tools.

These lists are prepared based on employment, demand for employee development, and motivation tools. The heads of individual departments should provide such projects. Of course, these plans result from previously prepared operating budgets. For example, the demand for production workers is determined by the production plan, and the need for sales representatives depends on the sales plan. These projects affect the amount of expenditure included in personnel costs budgets. For example, the establishment plan involves the salary budget. However, it also affects the costs of recruiting or training new staff.

HR and budget planning

What does the term HR mean in a given company? The approach to HR operating costs is entirely different from the budgeting personnel costs in the enterprise:

To a large extent, operating costs are the HR director’s responsibility, mainly related to the department’s expenses, subject to the company's general budgeting principles. The proposed budget is analyzed by the finance department and approved by the management board.

Personnel costs - are a more complicated process that requires constant and smooth cooperation between the finance department, HR, and functional directors. What does this process look like? The HR director must know the business plan for a given year and the multi-year project. The best solution is for the HR director to participate in their planning. The next step is to work with the finance department to create a budgeting schedule. The practice of companies shows that most often, these works start in August or September. First, commercial budgets are developed, and then the focus is on personnel costs. Responsibility for personnel costs is divided between the various departments and depends on the nature of the expenses.

An HR budget is one of the largest, if not the largest, account of a company. It includes remuneration costs for employees, recruitment, training, employer branding activities, and sometimes even internal communication activities.

Big money is also a big responsibility. The more that flawed financial assumptions and decisions drag not only behind you but the whole team throughout the year. So how to plan well?

Every year, HR specialists manage more prominent and bigger budgets. Research by Deloitte shows that only the grants for employee training have been growing continuously for several years. Expenditure on activities increasing competencies reached an 11% increase year-on-year In total, over the last five years, investments in the development of competencies have increased by as much as 49%. And budgeting is like walking in the woods. The deeper you go, the more trees you see. Therefore, it is worth approaching the process systematically.

1. Take a step back

Before you start working on a new budget (regardless of whether it should apply to an entire department, department, or just a project), consider the company's expenses in a given area in previous years. It will allow you to get a broader picture of the whole situation and answer, among other things, to such questions:

Did the budget include expenses that were ultimately not incurred? Why?

Did the budget not include the expenses that had to be incurred in the end anyway? Why?

Although it will involve additional work - it is worth investing your time and preparing solid foundations for budget work. If your task is to estimate costs for the coming year, you need to know what they looked like in previous years.

2. Define your goals

With the budget in the past years in mind, it's time to set goals. Of course, a well-structured account is to help you achieve your professional goals. However, there is one "but.” It is okay if the HR team’s purposes correspond with other teams’ goals: finance, marketing, and sales. The assumptions of the budgets of individual units in the organization should not be mutually exclusive.

3. Check where you have flexibility in action

In many cases, you already know during budgeting which costs you will have to pay for sure (salary for employees, salary for trainers conducting training), and which projects or initiatives may be suspended or reformulated (evening integration event instead of a 3-day trip for the entire team). It's good to be aware of this and then redeploy the available funds at the right moment.

4. Verify subcontractors and partners

Apart from strategic planning, it is good to use the budgeting period to verify existing business partners. It is worth renegotiating signed contracts at least once a year, checking whether new players have appeared on the market, offering more competitive prices, or new e-solutions that facilitate cost-cutting and increasing work efficiency.

5. Monitor your expenses

After the budget is approved, introduce a monitoring system. Check if and how much you have spent. Make sure you don't have to make additional changes to your budget. Thanks to this, when you are asked to update a document, you will know where you are in the budget implementation instead of panicking.

Make sure what information each budget must contain.

The first is the salary budget.

Its central element is basic salaries. They account for the largest part of this budget. However, in addition to wages, it also includes expected bonuses and functional benefits. The basis for the development of this budget is the employment plans.

The second budget is recruiting.

When preparing this financial plan, you should carefully describe what the recruitment process in the company looks like. In this budget, the company will have to reserve funds for advertisements informing about recruitment, remuneration for an external company looking for employees, materials used during recruitment, participation in job fairs and student fairs, costs of purchasing tools supporting recruitment, such as competency tests or renting rooms, if recruitment takes place outside the company. The financial recruitment plan should also include the costs related to introducing new employees to work. If the implementation process is very complex, it can be treated as a separate budgeting stage.

Another budget is the training budget.

In this case, it is necessary to specify what part of the internal training is conducted by the company's employees and what part of the training is conducted by external companies. As part of internal movement costs, expenses for training materials, renting the room if the training will be outside the company, and possible training license costs are required. In the case of external activity, it is worth distinguishing separate budgets for training for different functions. In both cases, it is necessary to plan the costs of accommodation and travel for the trainees.

The incentive budget is a different financial plan.

No bonus costs are included in this budget. It provides incentive costs, in addition to cash benefits. The company should have a policy of motivating employees. The company assigns a specific budget value to each of the tools specified in this policy. A reasonable budget may consist of expenses for sports tickets, prizes, vouchers, company gadgets.

The last-mentioned is the health and safety budget.

It includes medical examinations, working clothes, hygiene products, health, and safety training. A separate element of each financial plan should also be depreciation if the company has fixed assets. Prepared budgets should be divided between individual cost centers (cost centers).

The above are examples of the most common budgets regarding the personnel policy. However, they do not exhaust the range of all possible funds. To properly prepare a financial plan, it is necessary to check what the department responsible for HR policy spends money on. It is essential to know the main processes, what tools are used to implement the personnel policy, and what funds have been allocated to these processes and tools. Having such knowledge, we can prepare the budget well for the coming period.

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author Posted on Feb 2, 2021 by Anna

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