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 simple 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.

  • Forecast the impact from all variable that will likely increase personnel costs.
  • Identify other events that may result in one-time payment of costs related to personnel. 
  • Forecast the impact from factors that have the ability to either increase or decrease personnel budget amounts during the fiscal year.

Below are considerations when working through to identify and determine a personnel budget.

Position Control

Salary and Wage Increases

Collective Bargaining Agreements

Overtime Pay

Special Pays/Premium Pay

Additional Temporary Positions

Leave Payouts

Vacancies

Change in Benefit Costs

Change in Taxes

Changes to Positions or FTEs.

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

Additional Resources