1. Create a list of all positions
2. List all the expenses for each position
3. Total the expenses
4. Review and analyse
Read on for more information.
In today’s tight labour market, finding and retaining high-quality talent is a battle.
With candidates in Australia having high expectations of employers, 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 wage budget for employees in your organisation, you’re likely somewhat familiar with the steps involved in determining an amount. But even so, crafting a well-structured wage budget is no small feat, yet it's a critical task that impacts every facet of a company.
HR professionals, ensuring your compensation packages are competitive and compliant is key to attracting and retaining top talent.
Business leaders, your ability to forecast labour costs and make informed hiring decisions hinges on accurate budgeting.
Finance teams, aligning payroll expenses with overall financial goals is crucial for the company's financial health.
And for department managers, understanding your team's wage budget empowers you to advocate for resources and plan for future growth.
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 focus on how attractive your salary is to both existing and future employees.
With this in mind, looking at budgeting for wages through a talent management lens is helpful.
So, to help you do so, we share our top tips on how to set a wage budget for employees to attract and retain quality people to your business.
Related: Should I put the salary offer in my job advert?
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.
The current high demand for skilled 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 wage budgeting is such an important task right now and is a key factor in the overall success of your business.
Related: The high cost of low salaries: why paying a competitive salary is important
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.
Salary benchmarking will assist you in nominating how much of your budget should go to remuneration. Salary benchmarking is a process of comparing the existing salaries you offer against the salaries offered in external jobs with a similar job description and responsibilities.
This involves gathering data on internal salaries, the current market rates and the pay and benefits employees are receiving elsewhere, to see whether you are in line with expectations.
"Businesses that are serious about retaining their staff should be regularly benchmarking salaries across the organisation and maintaining a clear and transparent dialogue with each of their employees about their salary and role expectations. Ensuring existing staff are rewarded at the same rate as new employees could significantly reduce the risk of losing crucial knowledge and experience to more competitive external offers," said David Jones, Senior Managing Director Robert Half Asia Pacific.
With David’s 25 years of experience in the recruitment world, he is well-versed in understanding the importance of keeping wages in line with market rates if companies are serious about holding on to their top performers.
To learn more about upcoming hiring and remuneration trends and salary benchmarks for this year, download the Robert Half Salary Guide now.
In addition to salary benchmarking, creating a wage budget isn't just about balancing your company's finances; it's also about adhering to legal requirements. The Fair Work Act 2009 is the cornerstone of Australian labour law, outlining several crucial aspects you need to consider.
The principle of equal pay for equal work is a fundamental requirement, ensuring that employees performing the same or similar roles receive equal remuneration, regardless of gender or other personal attributes. Additionally, adhering to the National Employment Standards (NES) is a must, which sets out minimum entitlements for employees, including minimum wage rates, leave entitlements, and termination notice periods. Your wage budget must account for these factors to avoid legal complications and ensure fair treatment of your workforce.
With the above in mind, how do you create a successful wage budget? 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. Robert Half research found 97% of Australian companies plan to give pay rises in 2024. 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.
During this process, leveraging technology to streamline wage budgeting is not just a luxury—it's a necessity. Powerful software solutions can automate many of the tedious and time-consuming tasks associated with creating and maintaining a wage budget. Platforms like Oracle Cloud HCM, Workday, and ADP offer comprehensive features for salary benchmarking, forecasting, and budgeting, ensuring your compensation packages remain competitive and compliant. These tools often include robust reporting capabilities, enabling you to track expenses, analyse trends, and make data-driven decisions to optimise your budget over time.
Investing in the right software for your business can free up valuable time and resources, allowing your team to focus on strategic initiatives and ensuring your employees are fairly compensated.
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 it can be given at times when profit levels are high, rather than paying an ongoing cost that must be paid regardless of current performance. The same Robert Half survey found 79% of Australian employers give agreed bonuses (annually, quarterly, monthly, ad-hoc) to staff.
On the other hand, a raise is more attractive to employees due to its ongoing nature, so if your wage budget allows, allocating funds for annual payroll reviews and potential increases can be a great way to retain your key staff.
Related: Does money talk over non-salary benefits?
With the market moving quickly, you need to review your wage 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.
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. Or if you prefer to chat about your needs, contact our team today.
What is the first thing I should do when creating a wage budget?
The first thing you should do is get an understanding of how many employees and positions you are working with. To do this, create a list of all positions and 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.
What are some hidden costs of employee wages that I need to be aware of?
Superannuation
Payroll tax
Workers' compensation insurance
Leave entitlements
Additional benefits like health insurance, travel allowances, gym memberships, professional development allowances, or company cars.
Recruitment and onboarding costs
Training and development
Overhead costs like office space, utilities and equipment.
Employee turnover costs
How much should I budget for employee salaries?
There is not a one-size-fits-all approach. It depends on:
The base salaries of the positions you have
The additional costs of superannuation, payroll tax etc
Other expenses like training and development and overheads
Read our blog to find out how to create a wage budget for employees.
How do I create a wage budget that factors new hires or future salary increases?
Project future staffing needs by analysing growth projections, identifying skill gaps and considering turnover.
Estimate the wages for new hires by conducting market research and identifying which positions and at what level you may bring on.
Factor in salary increases by reviewing your company’s historical data, inflation and market trends, performance reviews and promotions and career progression.
Utilise budget tools and software to help automate calculation and track expenses.
Review and adjust your wage budget regularly to reflect changes in your company's growth plans, market conditions, and employee performance.
