Human resource budgeting can be challenging in part because employee initiatives are inextricably linked. HR teams must estimate budgets based on growth forecasts, employee headcount, compensation cost increases, wage cost increases, and turnover rates and must use these details to create a budget plan.There’s a lot to consider.
This is integral to pay and benefits, as headcount has a significant effect on nearly every aspect of the company, especially in a high-growth year when recruiting is on the rise, and the numbers are constantly changing. It can be challenging to look at the next 365 days and know what to concentrate on, whether you’ve just been assigned compensation as a new compensation manager or need to determine what to do with some leftover HR budget from the previous year.
Here are some best practices that can help streamline your HR budgeting process.
Plan accordingly and be specific about your business strategy
What you should spend your money on is determined by where you’ve come from and where you’re going. Begin with the company’s plan and start asking yourself the following questions.
- Do you find yourself in a state of retraction, renewal, or advancement?
- Where do the most substantial risks and opportunities exist?
- Is it necessary to hire more people to increase sales, serve more customer accounts, extend to new locations, or improve the product offering?
- In a dynamic talent market, are you having trouble attracting and retaining top talent?
- Do you need more or better-trained managers to energize and grow your current workforce?
It’s always good practice to review your HR programs from the previous year and check what worked and what can be improved.
Speak to corporate executives, line of business managers, agency heads, and talent recruiting teams to get these answers. Run a survey of the whole company. By now, you can get a better sense of significant pressure points in terms of operations (where the company is overburdened and understaffed, or where there is discord and disengagement), as well as acquisition and retention issues. You may also figure out the employee turnover rate and the cost of hiring new talent for critical positions in the company. Finally, whether your company performs employee engagement surveys or exit interviews, now is a great time to go over the results and search for patterns.
Ultimately, it’s crucial to stay abreast with changes to the labor market, especially sudden increases in unemployment, changes to living costs, or annual wages as a result of inflation. You should also look at what other businesses and competitors are paying for top talent and be proactive in making wage changes to prevent valuable skills from leaving. Giving pay adjustments at the start of a new year is a smart idea. Providing deserving employees with competitive pay goes a long way toward ensuring loyalty. After all, this is the primary reason why employees leave their jobs year after year.
Create Salary and Financial Forecasts Ahead of Time
Once you’ve measured the company’s past performance and understand what lies ahead, you’ll have the context you need to make a compelling argument to stand by changes to compensation forecasts or other new HR initiatives and investments.
Having reliable data is crucial to building a new and improved compensation strategy. Still, HR managers often make the mistake of diving right into new HR ventures without first securing leadership buy-in and budget approvals.
You can’t invest in compensation data if you don’t have any money. Of course, you must first obtain estimates from suppliers and providers to determine an adequate budget. Estimates on compensation-related expenditures should be made as soon as possible. Know whom you’ll need to get on board, and prepare the right people to be open to a strategic compensation package ahead of time. That way, you can prepare ahead of time as soon as you get the green light.
Breakdown all your HR expenditures
Determine how much you spend on recruiting monthly and break it down according to each type. As you complete these calculations, you can use the following headings as a guide.
- New hire costs
- Job advertisements and social network costs
- Recruitment software costs
- Recruitment events
- Company branding assets
- Recruitment agency fees
- Salaries and compensation
- Onboarding costs, including relocation expenses for candidates (again, if you offer them)
- Training costs
Be Transparent When Planning for Recovery
Everyone is aware of the current financial situation for most organizations and its potential effects on their jobs these days. Instead of keeping the business’s financial health a secret, opting to be as open and as transparent to your employees can work well to manage the expectations of your workforce.
Despite appearances, your employees are more likely to provide innovative ideas to help you deal with the crisis. If your employees feel they are included in the decision-making process, they will be more likely to adapt with you and support any HR initiatives that can help improve the current scenario.
While plans to scale down your operations can be daunting, it is crucial to get started on this as soon as possible so you can begin planning for recovery. After a business slowdown, your recovery period is still an opportunity to scale and reclaim territory that has been lost to competitors.
Essentially, it would be best if you remained agile and resilient to emerge any business slow down effectively. If finances allow, it could be worthwhile to hold on to vital resources during the recession, as they will be critical to the recovery process once it starts.
Improve your HR Budget Planning with PCF
While businesses are trying to recover from COVID-19, CFOs and FP&A teams play an essential role in human resource planning right now. Amidst financial losses and changes to company operations, the FP&A team needs to work closely with business leaders and HR professionals to set priorities and understand how the company envisions itself in the next couple of years.
Performance Canvas is a perfect example of how FP&A can simplify HR budget planning. PCF is an intelligent financial planning and analysis tool that streamlines financial budgeting, forecasting, and reporting, making it easy for HR teams to gather insights and build realistic forecasts and reports based on accurate data.
PCF also ensures HR execs get access to the latest and most valuable insights, making it easier for employees to grasp what’s important and apply what they’ve learned to put your company’s strategies and ideas into motion.
If you’re on the hunt for a complete FP&A software solution for your HR team that’s equipped with all the tools they need for better performance management, budgeting & forecasting and reporting, get in touch with our team today and schedule a free demo.
