Best Practice: Personnel Budgeting
GFOA recommends that governments should determine a baseline budget that calculates the full salary and benefit cost of all approved and budgeted positions and then adjust the baseline for all factors that may impact personnel budget costs.
Challenge / Problem
Governments need to budget sufficient funds to cover costs for compensating employees while also recognizing the opportunity costs of overestimating the personnel budget.
Importance to Governments
The personnel budget typically makes up a significant portion of the operating budget and for many governments can be its largest expenditure. Personnel budgeting, which includes budgeting for salaries, wages, overtime pay, benefits, and other premium pay amounts that employees may receive is complex. In addition, when developing the budget, not all variables may be known requiring finance and budget professionals to forecast different scenarios. Finance and budget professionals often also don’t have total control over personnel spending. The variables that drive personnel spending may not be easily controlled and may depend on future decisions or events such as:
- Future salary or wage increases
- Results from collective bargaining agreements
- Increase in demand for services requiring more overtime expense
- Increase in cost of employee benefits
When developing a personnel budget, governments will want to ensure that the government has allocated sufficient funding to compensate employees. However, overestimating the budget has a cost as there are then less resources to fund other priorities. Budgeting too little or too much can erode trust in the government’s finance/budget function, both internally and externally.
GFOA Recommendation
To develop the personnel budget, governments should determine a baseline budget that calculates the full salary and benefit cost of all approved and budgeted positions and then adjust the baseline for all factors that may impact personnel budget costs.
Implementation Guide
The following guide provides a process for preparing a personnel budget:
Step 1) Identify all current budgeted positions and the salary/wages and benefits to fund all positions for the fiscal year. This amount will be the baseline personnel budget.
Step 2) Identify the variables that will affect spending in the upcoming budget period and either increase or decrease the baseline personnel budget. Some of these variables may increase spending, while others may decrease spending. Governments need to determine how the following variables will affect their baseline personnel budget:
Step 3) Forecast the impact from all variable that will likely increase personnel costs. This should include:
Step 4) Identify other events that may result in one-time payment of costs related to personnel. Events could include:
Step 4) Forecast the impact from all variable that will likely provides savings to personnel costs. This should include:
Step 5) Forecast the impact from factors that have the ability to either increase or decrease personnel budget amounts during the fiscal year.
Best Practice Assessment
Assessment | Criteria |
|---|---|
Calculated current baseline personnel budget that includes salary/wage forecast and benefit costs for all current positions | |
Calculated estimate for overtime usage by all departments | |
Calculated other factors that could increase personnel costs including premium pays, mid-year adjustments to salary, changes in collective bargaining agreements, or leave payouts? | |
Calculated if vacancy savings are expected to be significant | |
Identified the accuracy of past personnel budgets to identify any overall trends where the organization may have under or over budgeted personnel |