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Your HR budget: 6 line items to prioritize right now


Your human resources (HR) budget encompasses a wide variety of initiatives directly impacting your people and, therefore, your business success. These include:

  • Recruiting
  • Hiring
  • Onboarding
  • Compensation
  • Benefits
  • Training
  • Software and other technology
  • Administrative costs

It’s always good practice to re-evaluate your budget allocation and all line items routinely. As priorities shift or internal and external conditions change, companies want to ensure that they are:

  • Spending money in the right places
  • Protecting the financial health of the business
  • Making informed business decisions

Right now – a unique time of record-high inflation combined with a highly competitive job market and employee retention challenges – is one of those times that all but demands a budget review.

In this complex landscape, which HR trends do you need to be aware of?

Most importantly, which HR budget line items are absolutely crucial for businesses to prioritize if they want to succeed and avoid falling behind?

6 HR budget items to prioritize

1. Higher salaries for existing employees

According to a Willis Towers Watson (WTW) survey that garnered approximately 28,000 responses from companies in 135 countries, including 1,550 U.S. organizations:

  • 68% of companies plan to increase salary budgets
  • 76% of companies have adjusted, or are considering adjusting, salary ranges more aggressively by increasing ranges from 2%-5%
  • 90% of companies increasing salaries are making two adjustments per year

At any time, but especially during economic uncertainty, it is smart for organizations to reward their existing team members who have already demonstrated their value with a salary increase. It’s vital to show that leadership wants to invest in their people and recognize their strong performance. In turn, among employees this raises morale, enhances their discretionary effort and prolongs retention, all of which positively impact business success.

Additionally, salary increases made directly in response to inflationary pressures demonstrate empathy and support for employees, which can strengthen their loyalty to their employer.

In a tight labor market, salary increases are simply a savvy move to remain competitive and combat turnover.

2. Training and development

A 2022 Society of Human Resource Management (SHRM) survey shows 76% of employees say they’re more likely to stay at a company that offers continuous training. It’s undeniable – there is definitely a shift underway in favor of growing people from within organizations.

A huge component of employee engagement is having access to plenty of opportunities for growth and development, in conjunction with a career plan and concrete goals to work toward. Employees continually polish their skills and acquire new knowledge for their own professional gain, and companies benefit from a highly trained, future-ready workforce. Employees feel appreciated and invested in, while companies enjoy higher engagement and less turnover.

Beyond these reasons, investment in training and development makes practical sense in our complex environment.

The workplace is never static. Conditions evolve, and your people must adapt and be resilient. For example, the adoption of new technologies, including automation and the use of artificial intelligence tools, has given employees new opportunities to upskill and expand their career possibilities.

Companies that have paused new hires may require current employees to assume additional responsibilities or even change positions to avoid worker shortages and help to carry the organization into the future. This involves reskilling employees.

Or, companies struggling with retention may need to close skills gaps, which may necessitate cross-training staff.

3. HR technology

According to SHRM, an Enterprise Strategy Group (ESG) study found that two-thirds of organizations intend to increase their information technology (IT) spend this year.

More businesses are investing in HR technology for two primary reasons:

  • For the HR function to operate more efficiently
  • To make employees’ lives and work easier, therefore creating a more productive workforce

Certainly, the rise in remote work and hybrid work has played a role in the importance of HR technology. Companies need the infrastructure in place to enable work from multiple sites while maintaining cybersecurity and protecting sensitive company information. As workplace flexibility increases, companies also need a fair and equitable means of tracking time and attendance and measuring productivity.

Some companies may need help from technology to alleviate talent shortages.

But, by far, one of the biggest areas of technology investment right now is talent acquisition – how to streamline it and make it easier and less time consuming.

At any time, recruitment, hiring and onboarding often are unwieldy processes with many moving parts. But it’s getting harder to find strong talent and bring them onboard. Heightened churn in the job market is keeping companies continually locked in a recruitment cycle, it seems.

And when widespread layoffs occur, the general volume of job applications increases as these employees look for other jobs. How do companies manage a sudden sharp influx in applications? Even if your company is not hiring, how can you nurture relationships with future prospects and build a talent pipeline? For example, an applicant tracking system can:

  • Help manage – and automate much of – the recruitment and hiring workflow
  • Create a smoother process for all parties
  • Give you a means of communicating with interested parties without committing to hiring

4. Talent acquisition

Building on the discussion of HR technology and talent acquisition, companies are examining other ways to invest in the recruitment process as well to:

  • Seek efficiencies
  • Improve outcomes
  • Avoid losing candidates along the way

If your company needs to hire more people, this approach definitely makes sense.

But even if your company has paused hiring, it is still important to assess your spending toward this activity. Why? The worst time to think about recruiting is when you’re in the throes of hiring.

This is actually a good time to review processes, strategies, resources and priorities to determine whether that spend makes sense in today’s economy and for the future. When hiring picks up again, companies that engaged in this exercise will be well positioned.

5. Employee experience

What is “employee experience?” This is what it’s like for people to work at your company on a daily basis. This covers aspects of your workplace such as:

  • Culture
  • Leadership style
  • Approach to flexibility
  • The processes by which employees work
  • Amount of connection between peers
  • How much employees feel valued and invested in
  • Whether employees feel that they have a path forward in the organization and room to grow
  • Whether employees feel taken care of and supported
  • Whether employees feel empowered and given a voice

When the employee experience is poor, employees leave and it costs companies significantly to replace them.

As discussed, investments in training and development as well as technology can positively impact some of these aspects of the employee experience.

Other HR investments can also impact the employee experience, such as:

  • Leadership training
  • Internal job fairs
  • Mentor or job-shadowing programs
  • Opportunities for collaboration and team building

Additionally, many companies are focusing on “total rewards,” or those forms of payment beyond salary that help employees feel valued and improve their working conditions. Some examples:

Consider the things that might enhance your employees’ everyday lives and make them better employees who are more appreciative of you, their employer.

Also ask your employees what they prioritize.

6. Professional employer organization (PEO)

Especially in complex or uncertain times, most employers just want to focus on growing their business, expanding market share and serving customers – the core reasons why they went into business in the first place.

We’ve explained all the ways in which HR investments can directly or indirectly impact these goals, but many business owners and leaders don’t have the time to fully research and implement these HR solutions. Often, business leaders also lack HR expertise to understand which solutions align best with organizational needs and current conditions.

For many small and midsize companies in particular, investing in a PEO relationship can improve the bottom line in these ways:

  • Obtain a go-to HR resource on standby to prevent costly risks and missteps
  • Allocate your HR budget effectively
  • Lower administrative costs, such as payroll processing
  • Reduce costs of low engagement, high turnover and constant recruitment
  • Implement day-to-day best practices that save time and money
  • Avoid spending money on initiatives that won’t serve the business well
  • Negotiate more comprehensive benefits at the most attractive pricing
  • Get an accurate picture of salary ranges and appropriate salary structure for your organization
  • Maintain compliance and avoid legal issues

In other words, a PEO can help your company with the most critical aspects of HR so you can focus primarily on your core business responsibilities – yet reap all the benefits.

Summing it all up

The job market and general workplace are extremely complex, and many businesses are not having the same experience in terms of recruitment, retention, cash flow or budget size. Whether your business is booming or grappling with challenges, there are critical items in the HR budget that all companies should embrace to maintain competitiveness and success. To make sure you’re focusing on the right things, implementing solutions in line with organizational needs and reducing costs as much as possible, consider working with a PEO.

Want to learn more about how to set an HR budget that will set your business up for success? Download A step-by-step guide to HR outsourcing to learn more about how a PEO can partner with you to reach your goals.