How to create a budget for employee salaries

In today’s tight labour market, finding and retaining high-quality talent is a battle.

With candidates in Australia now sitting firmly in the box seat, offering a competitive and attractive salary alongside flexible working conditions is crucial to your ability to attract and maintain the best people.

If you’re tasked with setting the wages budget for employees in your organisation, you’re likely somewhat familiar with the steps involved in determining an amount.

However, while most employers complete their due diligence well when it comes to crunching the numbers, now more than ever, it’s important to also put a focus on how attractive your salary is to both existing and future employees.

With this in mind, it’s helpful to look at budgeting for wages through a talent management lens.

So, to help you do so, in this article we share our top tips on how to budget for employee salaries to attract and retain quality people.

What is a wages budget?

An employee salary budget is the total amount your organisation will allocate to paying the company wages over a specified period of time.

The figure must include both regular salary payments to current employees, while also allowing for bonus payments and salary adjustments, such as a raise. You should also factor in the future wages of any new roles that may be created during the specified period of time.

The current high demand for employees, combined with the rising cost of living, means that salary expectations are growing.

Offering a fair and attractive salary could be the difference between securing the services of your first choice candidate or retaining your best performing manager, or losing them to a competitor who has offered something that delivers a better financial outcome.

This is one of the big reasons that budgeting for salaries is such an important task right now and is a key factor in the overall success of your business.

How much of your budget should go to remuneration?

As paying wages makes up such a large part of your expenditure, deciding how much of your budget should be allocated to remuneration involves some careful planning.

You will need to review internal data such as the wages being paid to your current employees and the related expenses, plus your company revenue and projected future returns. You’ll also need to look closely at what your competitors are offering, so that your salaries remain competitive and put you in the frame to attract and retain quality people.

The percentage of your gross revenue that you should allocate to wages varies greatly from business to business. Factors to consider include your industry, company size and the amount of revenue, so be sure you carefully analyse the data so that you come to a figure that is right for you.

Check out our Australian Salary Guide to learn how much you should pay employees.

How to budget for employee salaries

With the above in mind, how do you create a successful budget for payroll? As a guide, follow the below steps:

Create a list of all positions: categorise them by department and in terms of importance. Include any new positions that you are aware of plus any contract, temp or freelance workers.
List all the expenses for each position: include regular salary, plus overtime, bonuses and pay rises. Also include additional expenses such as payroll tax.
Total the expenses: use software that allows you to see totals by position and category, as well as by month and year, so you can get a complete overview.
Review and analyse: check the figures against the wages from the previous year, past business performance, future projections and industry salary guides to see where the amount sits. Finding the right balance between profitability and attracting and retaining talent is the secret to success.

Forms of compensation to factor into your employee salary budget

When considering how to budget for employee salaries, be sure to include all forms of compensation into your budget. This includes the possibility of raising the wages of existing employees as well as paying any employees a bonus.

Wondering what’s the difference between a raise and a bonus? While a raise is a permanent and ongoing increase in salary, a bonus is a one-off payment that can be tied to reaching a specified goal or performance level.

In terms of your employee salary budget, a bonus can offer more flexibility to employers as they can be given at times where profit levels are high, rather than paying an ongoing cost that must be paid regardless of current performance.

On the other hand, a raise is more attractive to employees due to its ongoing nature, so if your budget allows, allocating funds for annual payroll reviews and potential increases can be a great way to retain your key staff.

How often should you review your salary budget?

With the market moving quickly, you need to review your salary budget more frequently to be sure that what you are allocating is in line with the salaries on offer from competitors and the wider industry market.

While you may set the budget annually, setting a task to review it quarterly, or even monthly, will ensure you are always informed of the market conditions, your company performance and where your salary budget sits in comparison to your competitors.

Get the help you need to budget your employee salaries effectively

With so many factors to consider, setting your budget for wages can be challenging. Our team have the industry insight and expertise to provide up to the minute advice on how to budget for employee salaries effectively.

Access our Salary Guide to find out all the numbers you need to know to project starting salary ranges, benefits and hiring trends for 200 plus positions across the finance, business, HR, marketing and technology sectors. Our if you prefer to chat about your needs, contact our team today.

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