Annual HR budget – plan for CHEQ

Developing a budget to cover recruitment, hiring, training, pay, benefits, HR-supporting tools and software, and other expenses serves the company's interests and makes HR work more predictable. It prevents the kind of surprises that could hinder the strengthening of the workforce or HR efficiency. At the same time, no HR budget can be set in stone. It is important to preserve flexibility and to plan in such a way that the budget can be adjusted if needed.

What is an HR budget?

An HR budget is a financial plan that determines how HR allocates its resources and provides guidance on what it should request extra budget for from the finance department. The budget helps manage all HR-function-related expenses and ensures that financial resources are allocated appropriately to meet every business need, without overspending. 

The HR budget includes employees' salaries, recruitment costs, training and development programmes, benefits administration, HR technologies, and initiatives that improve the overall employee experience.

An effective HR budget is essential for aligning HR activities with the organisation's broader financial strategy. It helps create and advance effective workforce and performance management, as well as development.

You can choose between two types of HR budget

Companies can generally choose between using two types of HR budget. Which type they decide on depends on factors such as the available funds, planned expenditure and profit. 

Incremental HR budget

Using data on HR costs from previous years, it is possible to adjust the figures for the following year. If any funds remain, these too can be factored into the budget. Based on the HR objectives, the new budget includes the increases (or decreases) that have occurred compared with the previous year - for example, the increased cost of benefit fees, or the cost of tools that advance the digitalisation of HR.

Zero-based HR budget

This is the new HR budget, or one that needs a complete overhaul. Choosing this method, we start with a clean slate and keep only the new year in mind while preparing the plan. In this case it is worth starting by thinking through which area has the greatest need for budget support. For example, if you want to automate certain HR and other administrative tasks, if you want to put a self-service system in employees' hands, or make communication with colleagues and training more efficient, then it may be worth allocating a larger budget to a tool that supports this. 

CHEQ, for example, is such a tool.
Request a free demo so that
you can see what it will be worth setting aside a sum for while
shaping next year's HR budget.

In both cases, planning the HR budget is a systematic process that involves a close examination of previous years' expenditure, current-year costs, the planned headcount of employees, and other future forecasts, so that HR functions are not left short.

What does the HR budget include?

HR touches on and encompasses many areas, so it is very difficult to put together an all-encompassing budget. Companies often underestimate the costs associated with recruitment, hiring, training, or HR and administrative developments. However, a pre-planned HR budget template can help a lot. You may be able to update the budget and reallocate funds in a matter of moments if needed. But let's see what needs to be taken into account when preparing the plan.

1. Recruitment and talent retention

You need to know at least approximately how many new workers will have to be hired in the coming year. This can be determined based on turnover and the company's growth. If you know that 10 people need to be replaced and, due to growth, you need to hire another 10, then you must allocate enough budget for this task to recruit and hire at least 20 people. Here you need to take into account every cost such as:

• advertising cost
• the cost of interviewing
• background checks (if needed)
• onboarding
• agency/intermediary fee
• the relocation of employees (e.g. in the case of Mongolian or Filipino workers: visa, work permit, accommodation, etc.)
• efforts to reduce turnover
• recruitment marketing costs

2. Training and development

Money must be set aside both for training colleagues and for developing HR staff. A company can only increase its efficiency and preserve its competitiveness if its employees have up-to-date knowledge. What to take into account here:

• the training of new employees
• training aimed at reducing the differences between employees' skills
• employee and HR certifications
• creating and operating an employee training system
• introducing e-learning (e.g. with CHEQ you can also train your employees digitally, whether the subject is theoretical or practical. Within a single video you can show employees how to carry out given tasks professionally and in accordance with the company's regulations.)
• workshops
• licences supporting further-training opportunities

3. Wages and benefits

Ideally, this part of the HR budget grows by a few percent year on year. This makes it possible to adjust wages for inflation, possibly grant further raises, or keep net wages steady despite changed taxation. So, during the calculation it is worth taking into account:

• wages
• health insurance
• life insurance (if it is part of the benefits package)
• pension insurance/pension fund
• paid leave
• overtime pay
• bonuses
• the cafeteria benefit (if it is part of the benefits package)
• private hospital care (if it is part of the benefits package)
• travel or fuel allowance (if it is part of the benefits package)
• the fee for the company crèche or kindergarten (if it is part of the benefits package)

4. DEI costs

DEI programmes aim to actively involve members of the company in decision-making and to ensure equal opportunity and diversity for employees, thereby also supporting companies' innovation, productivity and competitiveness. - The abbreviation is made up of the first letters of the English words diversity, equity and inclusion. - But what needs to be built into the HR budget?

• the costs associated with employing a diverse workforce
• the cost of internal DEI training, so that employees with diverse backgrounds can work together in harmony and effectively despite cultural differences

5. The costs of employee experience and workforce retention

Of course, the pay and other financial benefits an employee can obtain are important, but beyond a certain point these will not be enough to retain good workers. Attention must also be paid to nurturing the relationship between employees and employer, such as:

• involving employees
• creating a positive working environment
• team building and training
• ensuring that every employee works in the position that suits them
• building relationships with management
• labour relations

6. Employee safety and wellbeing

Creating a safe and safety-oriented workplace is the legal responsibility of every employer. As part of preparing the HR budget, it is advisable to review your existing policies and systems so that you can determine the costs associated with improvements. It is worth involving your colleagues in this too; they can draw your attention to accident-prone situations and locations even through the use of the CHEQ app, with just a few button presses. This gives an immediate and better overview of which problems need to be solved as soon as possible, or where changes are needed to increase safety, which also means a reduction in the number of workplace accidents. 

What you need to build into the HR budget in this regard:

• meeting physical-safety compliance, which may possibly involve remodelling the plant or construction work, or renewing work equipment (note: there may be overlaps here with the budgets of individual departments, so it is worth coordinating with them too)
• creating tools and opportunities that support employees' mental wellbeing (e.g. a rest room, sports facilities, a mental-hygiene therapist, etc.)
• supporting employee health (e.g. free fruit, activities that encourage exercise - one of our clients, for example, gives a small reward to employees who walk X kilometres within a specified period, or come to work by bicycle)
• creating a secure workplace whereby unauthorised persons cannot enter the work area or changing room, so employees do not have to fear their belongings being stolen

7. HR technology and administration

This is the area for which there is often little or no money left when calculating the HR budget. Yet this area must not be forgotten either, as it can significantly improve HR efficiency and contribute to increasing employee satisfaction and the productivity of the entire company. What it is definitely worth allocating budget to: 

• tools supporting home office 
• payroll software
• HR information systems
• HR communication and general administration tools, ESS (employee self-service systems)

Why allocate budget to CHEQ?

CHEQ can be a solution to several HR challenges. 

On the one hand, it makes it possible to automate certain general HR administrative processes, which saves time and energy for everyone involved. Moreover, it also enables the digital signing of documents, declarations, attendance sheets, etc. - all extremely simply, and in accordance with legal requirements. 

On the other hand, it contains several features that enable employees to solve their problems without immediately involving HR. For example, they can get instant answers to their questions via the FAQ chatbot, or find the document, learning material, company map or the contact details of individual colleagues they are looking for in the knowledge base. But they can also indicate their sick-leave request here, of which both HR and the team leader receive an immediate notification, so they can plan their tasks accordingly.

Thirdly, it is an internal communication tool that enables one-to-many and many-to-one communication, thereby also reducing communication noise, the risk of cyberbullying developing, and increasing the chances of digitally aligning employees for the sake of productivity. The use of the communication tool is extremely intuitive; anyone can use it in moments, regardless of their position, level of education, or whether or not they have a company email address.   

If you would like to learn more about CHEQ,
so that you can tell whether it is worth considering the introduction of this great tool for you too, then
request a free, no-obligation demo.