How to Better Plan and Manage Your Workforce Budget

When we think of finances and employees, it’s likely that wages are the go-to when calculating workforce costs. However, the expense of hiring, training, and retaining employees are all key contributors to budgeting in business.

With wage inflation on the rise and the cost-of-living crisis affecting pay expectations, businesses must take a closer look at total employee costs. This is vital for making informed decisions that safeguard against financial shifts in the future.

Understanding base salary vs. total compensation

It is essential to understand that an employee’s base salary is just one part of the total compensation package. Total compensation includes benefits such as pension contributions and paid leave, all of which add to the overall cost of employing someone. For example, in the UK, employers are required to contribute to workplace pensions through auto-enrolment, typically at a minimum of 3% of an employee’s salary.

Other benefits, such as health insurance or company cars, further increase employee costs. In some sectors, bonuses or commissions can also play a significant role in the total compensation package. Ignoring these additional expenses when budgeting for your workforce can lead to underestimating the actual cost per employee, making it difficult to keep to a sustainable budget.

Factoring in recruitment and training costs

Recruitment expenses can include job advertising, recruiter fees, and the time spent reviewing applications and conducting interviews. In the UK, the average cost of hiring a new employee is estimated at around £3,000, although this varies by industry.

Once an employee is hired, onboarding and training require further investment. Whether this involves training courses, mentorship programmes, or time taken by senior staff to train new recruits, these hidden costs quickly add up. Plus, during this training period, employees may not yet be performing at full productivity, which can result in reduced output and revenue.

Hidden costs of employee turnover

High employee turnover is expensive for any business, particularly when factoring in the time and resources required to recruit, train, and onboard replacements. Plus, lost productivity, recruitment expenses, and the time it takes for new hires to reach optimal performance levels all play a role when things don’t work out.

Reducing turnover rates not only saves money but also helps maintain consistency. Some strategies for lowering turnover numbers include offering competitive salaries, providing opportunities for career development, and creating a positive workplace culture. Listening to employee feedback and addressing concerns can also lead to improved retention, reducing the need for costly replacements.

Using employee cost calculators

Employment cost calculators can accurately predict the total cost of hiring and retaining staff. These calculators allow employers to input data such as salary, benefits, and recruitment costs to estimate the total expense per employee.

Using tools like these help businesses make more strategic hiring decisions based on real financial data.

If you’re addressing the cost of new staff, it’s worth considering how to approach this holistically and set budgets that are both realistic and accounting for all eventualities.