Creating a Salary Budget for Workers

Written by Staff

January 5, 2017

Creating a Salary Budget for Workers Hero

Company operating expenses cover many areas. From technology to the workforce. For this reason, it is critical to plan everything out. Thus, firms conduct annual budget meetings to carry out this task.


A company’s workers’ salary covers a large chunk of its budget. Hence, every year, companies make the necessary planning for their workers. Part of this is the annual salary budget. This covers workers’ salaries, commissions, rewards, and taxes.

What is a Salary Budget?

A firm uses a salary budget plan to predict expenses such as its workers’ salaries. This also covers workers’ benefits and overtime pay. A firm must have a detailed and correct salary budget. This helps oversee outgoing transactions and make critical decisions for the company.

Is Creating a Salary Budget Vital?

A company’s payroll is 20 to 30% of its budget. Hence, creating a yearly salary budget is a critical step. Mishandling of the company’s budget can cause problems. If a firm is over its budget, it can cut through its profit margins. On the other hand, underspending might mean a firm is failing to foster growth for its workers. A firm’s salary budget should increase as its business grows.

In addition, a salary budget helps the company stay on track. It guides a firm to keep a healthy financial flow. This strategy allows a firm to see the breakdown of expenses. In this way, they can be within their limits.

This can guide a firm in deciding for hiring a new worker. At the same time, it can also give the firm an idea of how much raise it can give its workers. It serves as a guide to explore which areas can shoulder budget cuts in case of reducing expenses.

Having a salary budget also helps a firm follow legal requirements. Unable to do this may result in penalties. These legal needs include filing tax payroll. A salary budget makes it easy for firms to do this task.


How to Create a Salary Budget?

Creating a salary budget is a tedious task and can consume many hours. For this reason, firms invest in tools that can make the job easy. Firms use compensation software to complete this task. In addition, here are to guide in creating a salary budget.

Step 1: List Job Roles

The first step that a firm needs to make is a list of all the workers they are paying. The list includes all kinds of roles like permanent and temporary staff. In addition, it covers those working onsite and remotely. The same goes for full-time and part-time workers.

For large firms, the HR team can collate this data. On the other hand, start-up companies may need to create this list from scratch.

Step 2: Name the Expenses

After preparing the list of all the job roles, naming the expenses is next. The firm needs to list down all the expenses related to a certain role. The first is writing down the base salary for each post. Next, they need to name all bonuses, raises, and other compensation for each job post.

In addition, firms need to list any potential expenses. These include potential hires and terminations. This goes the same with retiring workers. The salary budget should also show changes in staff hours.

For this step, firms should also estimate their overtime expenses. Some job posts may require more overtime hours than others. Companies also need to consider seasonal peaks. This could be due to a new product or a holiday.

Listing expenses should also show predicted bonuses and commissions. Firms should be able to know the estimated budget for performance-based bonuses. The same goes for yearly and holiday bonuses.

The salary budget should also show the part for workers’ benefits. This covers insurance plans, 401k, retirement packages, and others. There are states that impose certain benefits that firms should follow.

Finally, the salary budget must show the expenses for payroll taxes. This applies to workers, as well as to the company.


Step 3: Review the Data

After listing all the expenses, the next best thing is to review the data. This ensures the company’s data is correct and reliable. Share the salary budget plan with department heads. This strategy will give them a chance to review the data. In addition, the firm can compare the new salary budget with last year's. This approach can help spot challenges they had in the past.

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