How to Build Your HR Budget for 2018

November 17, 2017

Can you demonstrate a return on HR programs?

It’s the last quarter of the calendar year—a busy time for most HR departments. The odds are good that you are in the middle of open enrollment and trying to complete an HR departmental budget for 2018.

In this digital age, organizations are paying more attention than ever to the competitiveness in attracting and maintaining talent. Executives have learned that human capital is not just an expensive cost center—it is the area of the organization with the potential to offer huge returns of productivity, innovation, and customer engagement.

How should you begin your HR budgeting exercise?

Incremental budget or zero-based budget?

First, it’s important to determine your organization’s best practice for building a budget. In many organizations, budget creation is nearly always performed by taking last year’s budget and adjusting it up or down based on reasonable expectations. This is known as incremental budgeting.

There’s another approach you can take to budgeting. It’s known as the zero-based budgeting (ZBB), and it begins with a clean slate. Past budgets are not considered, though you will still need to know your actual costs for each category in the present year. Each item added to a ZBB is considered as if it were a brand new expense, and it will need to be justified considering the organization’s current strategic objectives. ZBB can help organizations target lower costs by reviewing each projected expense with a rigorous perspective.

ZBB probably sounds like a lot more work than incremental budgeting. But according to Deloitte, since 2008, more and more organizations are turning to ZBB for a fresh approach to budgeting and new thinking about expenses.

Categories of human capital expenses to include

It’s a good idea to have a comprehensive overview of the categories of expenses you need to include in your budget before you get started—especially if you are building your budget from scratch with a zero-based approach. These are the broad categories you should account for in your HR budget:

  1. Recruiting and Hiring: Make sure you have the funds required to keep a talented workforce in place. This category should include job board advertising, talent agency fees, and the cost of maintaining your company’s career website and applicant tracking system. Special recruitment programs, such as employee referral bonuses and college recruiting, should also be accounted for here. Calculate your costs in interviewing, testing for skills, background checks and drug testing. Finally, include the costs associated with your onboarding program as it is the last step in the hiring process.
  2. Compensation and Benefits: This category touches everything that is included in your employees’ total compensation plans. On the compensation side, you should include employee salaries, overtime pay, incentive pay, and payroll costs. You should also include the cost of keeping your competitive compensation research fresh through consultants and surveys. On the benefits side, remember to include health, dental, vision insurance, as well as life insurance and both short-term and long-term disability funding. If you operate a cafeteria plan, include the costs of administering that, as well as any voluntary benefits offered. Add in the cost of administering your open enrollment. Finally, don’t forget to include the costs of your pensions, profit sharing, and employer contributions to 401(k) plans, as well as any costs you incur in administering retirement plans.
  3. Training and Development: Training and development is a key area of human capital—especially important to younger generations of workers. In this category, you will want to include your anticipated expenses for sending employees out for training (including tuition, travel and per diem expenses), conducting in-house training (including trainers’ salaries or consultants’ fees), and computer-based training. You’ll also want to include any learning management software you use in HR. Finally, remember to include the cost of maintaining employee certifications and credentials, if applicable.
  4. Talent Management and Employee Relations: Expenses in this category include the talent management and performance appraisal system, employee recognition and reward programs, succession planning, diversity programs, engagement surveys, attendance management, outplacement services, labor relations consultants and attorneys, and internal communications strategy.
  5. Employee Safety and Wellness: This category should include the cost of things required to comply with OSHA safety regulations, as well as safety training and workplace violence prevention. Wellness programs such as smoking cessation, employee assistance, or weight loss should be accounted for here. You should also include the cost of maintaining and equipping any onsite fitness facilities.
  6. Technology: The HR budget is often responsible for administering and maintaining the Human Capital Management (HCM) system and the company’s HR/benefits intranet. This would also be a good category for any telecommuting support costs that HR is expected to cover.

Start your budget with plenty of data

Your new budget must allow HR to accomplish its strategic objectives. Creating the budget is easier if you are armed with accurate information about historical costs. Asure’s Human Capital Management solutions provide a centralized location for workforce and HR data, including payroll and benefits costs.