Developing & Maintaining an HR Budget

Instructor: A. Casey Carr-Jones

Casey Carr-Jones holds a Bachelor's degree in English & Psychology. She is currently a PHR-certified Human Resources Consultant.

The budgeting process for human resources is key to the strategy of the department. Identifying expenses and possible risk scenarios and economic conditions helps the HR department fit into the overall company's budget success.

Budget Process

John and Kate, HR managers, sit down to review the next year's budget for their human resources department. This is John's first time setting a budget, and after sitting down he asks, 'Where do we start?' Kate, smiling, opens up last year's budget and points to the Recruiting section. 'We'll start here.'

Developing and maintaining an HR budget contributes to a company's overall bottom line. Properly defining expenses and staying within budgeted numbers are the goals to a realistic and successful budget.

Developing an HR Budget

A human resources department is not a revenue generator, meaning the department's focus is not on earning money. Therefore, the budget for HR is based on expenses, or the money spent on something. Common categories for budget expenses in HR are the following:

  • Recruitment: job posting and other advertising fees, third party staffing agency fees, referral fees, career fair costs, andtravel reimbursements for candidates

  • Onboarding: background checks and/or drug screens

  • Compensation packages

  • Benefits: medical, dental, vision, 401k, life insurance, etc.

  • Training and professional development: webinars, seminars, conferences, and professional memberships

It may be helpful to use the previous year's budget and actual year-to-date (YTD) expenses as a starting point. From there, you should be able to research any additional costs you anticipate. For example, if the company has a big training initiative, you can do some searching to estimate anticipated costs per person.

Some companies budget with an annual total of expenses for each category, but many break it down into monthly or quarterly expenses and revenue. A fiscal quarter is three months of a year, often abbreviated as Q. January, February, and March are Q1, April, May, and June are Q2, etc. For HR, that means you should estimate your needs throughout the year, identifying if some months or quarters will have larger expenses than others. For example, your company has a training initiative but it won't start until Quarter 2, so your budgeted costs for training and professional development in Quarter 1 should be lower.

It is important to identify the priorities not just for the HR department, but for the entire company. Determine how HR's goals fit in with the goals of the organization, and you can prioritize your budget appropriately. The HR budget is typically reviewed by senior members of the organization and may be sent back with revisions based on organizational goals and availability of funds. Remember, this is not meant to be a criticism but an ongoing conversation about the department's anticipated spending priorities.

Maintaining an HR Budget - Adjusting Spending

Throughout the year, it is helpful to look back at the budget, compare the YTD costs, and evaluate if you are on track. You may be able to calculate the costs yourself, or you can ask your finance department for assistance. One you have your spending totals, compare those to the budget you set. The difference between the budget numbers and the actual expenses is known as the variance.

Some questions to ask yourself:

  • Are you overspending?
  • Are you not spending as much as you anticipated?
  • How have your needs and goals changed so far?

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