HR Budgeting

Efficient organisation management and making informed financial administrative decisions in a timely manner is only possible when there is accurate and complete information regarding current state and forecast for organisation’s financial situation. The tool that makes it possible for an entity to present the series of planned and systematically organised financial events and transactions (revenues and expenditures) for the given time period is the budget.

HR budgeting is a special management tool, the nature of which can be defined as an integrated system, planning process, preparation and organisation of costs, current analysis and control of expenditures for company’s staff.

The objectives of HR budgeting are:

  • Efficient organisation of HR management process
  • Ensuring efficient ties between enterprise HR development strategy and its operations
  • Efficient utilisation of enterprise resources to a maximum extent possible

The process of HR budgeting must go through the following stages:

  • Preparation of the draft budget
  • Finalising and approval of the draft budget by authorised person(s) (manager)
  • Budget execution
  • Budget controls and variance analysis

Budget preparation by complex functions of HR management is done within the overall organisation’s budget in the light of its strategic development:

Budget

The process of costing in the context of the complex functions of HR management:

 

Complex Function of HR ManagementCosts by HR Management Functions
STAFFING OF AN ORGANISATION• Planning the needs in staff
• Staff recruitment
• Staff displacement
DEPLOYMENT OF AN ORGANISATION STAFF• Staff adaptation
• Staff performance:
- establishment of working conditions and safety rules;
- regulation of labour relations;
- establishment of payroll budget;
- organisation of sociocultural activities and employees welfare
ORGANISATION STAFF DEVELOPMENT• Staff assessment
• Staff training
• Establishment of the succession pool

The general definition of the manpower-related cost items and its standard classification are based on ILO’s Social Policy (Basic Aims and Standards) Convention No. 117. The list of manpower-related cost items was approved by ILO’s Resolution of the 11th International Conference of Labour Statisticians.

 

International standard classification of labour cost recommended by International Conference of Labour Statisticians:

Item Description
Direct Wages and Salaries:
  • straight-time pay of time-rated workers;
  • incentive pay of time-rated workers;
  • earnings of piece workers (excluding overtime premiums);
  • premium pay for overtime, late shift and holiday work;
  • responsibility premiums, dirt, danger and discomfort allowances, cash indemnities for meals, sandwiches, etc.;
  • payments under guaranteed wage systems, cost of living allowances and other regular allowances which are regarded as direct wages or salaries.
Remuneration for Time not Worked:
  • annual vacation, other paid leave, including long-service leave;
  • public holidays and other recognised holidays;
  • other time off granted with pay (e.g. birth or death of family members, marriage of employees, functions of titular office, union activities);
  • severance and termination pay where not regarded as social security expenditure.
Bonuses and Gratuities:
  • year-end and seasonal bonuses;
  • profit-sharing bonus;
  • additional payments in respect of vacation, supplementary to normal vacation pay and other bonuses and gratuities.
Payments in Kind:
  • food, drink, fuel and other payments in kind.
Cost of Workers’ Housing Borne by Employers:
  • cost for establishment-owned dwellings;
  • cost for dwellings not establishment-owned (allowances, grants, etc.);
  • other housing costs.
Employers’ Social Security Expenditure:
  • statutory social security contributions (for schemes covering: old-age, invalidity and survivors; sickness, maternity; employment injury; unemployment; and family allowances);
  • collectively agreed, contractual and non-obligatory contributions to private social security schemes and insurances (for schemes covering: old age, invalidity and survivors; sickness, maternity; employment injury; unemployment; and family allowances);
    • direct payments to employees in respect of absence from work due to sickness, maternity or employment injury, to compensate for loss of earnings;
    • other direct payments to employees regarded as social security benefits;
  • cost of medical care and health services;
  • severance and termination pay where regarded as social security expenditure.
Cost of Vocational Training Cost of vocational training, including also fees and other payments for services of outside instructors, training institutions, teaching material, reimbursements of school fees to workers, etc.
Cost of Welfare Services:
  • cost of canteens and other food services;
  • cost of education, cultural, recreational and related facilities and services less grants-in-aid, tax rebates, etc., received from public authorities and receipts from workers;
  • grants to credit unions and cost of related services for employees.
Labour Cost not Elsewhere Classified:
  • costs of transport of workers to and from work undertaken by employer (including also reimbursement of fares, etc.);
  • cost of work clothes;
  • cost of recruitment and other labour costs.
Taxes:
  • taxes regarded as labour cost.

 

 

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