With the state of the economy still uncertain, 2023 is expected to be approached with much anticipation. Human Resource leaders have many concerns, including how they will manage to accomplish their goals with budget belts already getting snug. Let’s look at some of the factors that the new year is projected to bring for HR and how to prioritize budgets to reach human capital objectives.
What’s important to your organization?
If you are in the middle of planning your HR budget for next year, then you may already have a long list of items that need consideration. Along with performance evaluations, compensation reviews, and new hire needs – this can be a good time to determine what human factors make the organization successful. You will want to look at factors such as:
- Talent acquisition
- Onboarding and training
- Compensation and benefits
- Diversity, equity, and inclusion
- Employee well-being
- HR Administration
By using one of the two budgeting methods typically used by HR, it’s easier to prioritize.
Two methods of creating an HR budget for 2023
The HR budget plan you may choose from depends on three factors: available funds, anticipated expenses, and profitability. While human resources cost a great deal, it also generates profits, and there are usually budget funds allocated to any up-front costs like recruitment and training. Profits come once employees become proficient and benefit the organization’s bottom line.
Method #1: Incremental
Incremental budgeting is using the previous year’s data to allocate HR budgets. All you need to do is make small adjustments for potential cost increases (or decreases). You may even be able to roll over any”leftover” money and allocate it to unexpected costs, such as higher benefits fees or unexpected program needs.
Method #2: Zero-based
This is a “starting from scratch” HR budget method, which is suitable for a startup or an organization that is overhauling its budgets. Recruitment, hiring, and retention will give the company the most return on investment. So, it’s smart to prioritize these costs first. Then allocate the rest based on the company’s goals for the year.
In conducting the above budgeting, you are likely to discover that certain hot budget items align with the company’s values and mission. These are to be treated as high priorities. Meanwhile, others need to find their place in the budget. Be clear on what needs to happen early in 2023. That way, the budget can support HR goals early and often.
What belongs in every HR budget in 2023
This coming year will be an exciting time for many in HR. First, there are more choices than ever before in human resource technology tools that help make our lives a little easier and a lot more productive. Everything from artificial intelligence-enabled recruitment tools to data management resources will help you evaluate where to start.
With technology streamlining so many HR functions, a healthy portion of the 2023 budget should be allocated to the right tech tools. According to Jason Averbook, CEO of Leapgen, an HR consultancy firm, “it’s important to look at all business goals (current and future), tying initiatives together, and finding support from leadership. You also need to show the value of the technology solution, including costs of the licensing and any change management associated with it.”
Next, talent acquisition and onboarding must take up another healthy portion of your organization’s HR budget. It’s still a candidate market and there is heavy competition to attract, hire, and retain the best. You need resources in the form of skilled recruiters who can get the job done. Plan to invest in the future of your company with a personalized recruitment system that wows talent and makes them never want to leave.
Compensation in the form of fair salaries and benefits will also be something to stay ahead of in 2023. A World at Work survey indicated salary increases are expected to grow at an average rate of 4.1% from 2022 to 2023, around half of the 8.5% U.S. inflation rate. This is a 20-year record high and more than originally predicted by salary experts. Benefits like variable pay bonuses are also in the plans of many companies.
Getting buy-in for your HR budget hot items
Any way you build your HR budget for 2023, an important element is getting executive buy-in to make it a reality. Sarah Sheehan, Co-Founder & President of Bravely, and Ben Serio, Co-Founder & Managing Partner at Serious Capital, presented a free webinar on this topic. Some points for gaining buy-in from decision-makers included:
Emphasize the positive outcome, not just the numbers.
Make sure this is measurable and aligns with the corporate goals. Include the opportunity that exists to save money and why it is a good investment in the success of the company.
Decide how the HR budget dollars can free up other initiatives.
Conduct research and host a pilot group that demonstrates the need. Hearing how much demand there is from different groups of employees and team leads can help convince leadership to extend the funds.
Connect the HR budget with the current landscape of your company and industry.
What are the challenges in your market and how can your budget items help overcome them? And always, always have a backup plan! If you don’t get, “yes,” the first time, you can try again in the future.
Before going into negotiations, know where things stand and how things performed during the last budget talks. Frame your discussion carefully and be sensitive to the ideas and concerns of the leadership team.