There is no hard and fast rule when it comes to spending on the items that are part of an HR department budget. Companies spend on different items in accordance with their strategic aims and goals. However according to different researches companies spend $1,218 per employee, though it varies by company size. In this post I have attempted to develop a list of operational budgetary spending in terms of HR items. It may prove to be helpful for those who are going to develop an HR budget for the first time. These spending rates are taken from different surveys and researches.
Following items are part of an HR budget in general:
- Selection & Placement
- Compensation & Benefits
- Training and Development
- Health & Safety
- Employee & Labor Relations
Items in an HR budget can be divided into three areas: Talent management, Fundamental HR services and Strategic HR services. Talent management covers selection & placement, training and development, succession planning and performance management. Fundamentals consist of compensation & benefits, payroll administration and employee relations. Strategic HR services include employee engagement, workforce planning and measurement, and wellness programs.
Roughly 33.3 percent of an HR budget goes to the talent management services.
Selection & Placement:
In the present times cost of replacing an employee is 100 – 150 percent of his annual salary. The U.S. companies are spending an average of $3,500 for every new hire. According to Bersin & Associates’ research report companies spend the following percentages on different Recruitment & Selection processes:
- Agency fees (29 percent)
- Contractors (8 percent)
- Employee referral program (9 percent)
- Employment branding (2 percent)
- Recruitment-related travel (8 percent)
- College recruitment giveaways (5 percent)
- Printing costs (applications, recruiting brochures) / newspapers / billboards (4 percent)
- Job boards (14 percent)
- Professional networking sites (3 percent)
- Tools (1 percent)
- Applicant tracking system costs (5 percent)
- Others (12 percent)
Training and Development
After realizing the importance of training and development companies have starting spending more on training and development. In the last year companies have spent 12 percent more than the 2012. On average companies spent $706 – $867 per learner.
- External programs (16 percent)
External programs are those training and development programs that are conducted by third parties.
- Internal programs (84 percent)
Internal training programs are those programs that are organized in house either by hiring trainers or by the in house trainers.
Fundamental HR Services:
Compensation & Benefits and Employee Relations
Compensation & Benefits, pay roll administration along with employee relations make 60 percent of an HR budget. According to the Society for Human Resources Management (SHRM) employee salaries can make 18 – 52 percent of an organization’s operating budget, whereas benefits make 30 – 35 percent of an employee’s salary.
Strategic HR Services:
Strategic HR services that include employee engagement, workforce planning and measurement, and wellness programs account for remaining budgetary allocations.
As discussed in the beginning that there is no rule of thumb in this regard, organizations do spend in accordance with their needs, priorities and local laws. But the spending ratios discussed in this post are helpful in order to develop an HR budget in the light of those practices that many organizations are following around the world during the course of developing their HR budgets.