Best Practice: Personnel Budgeting

One of the best ways to make sure departments aren’t overspending on personnel costs is to implement position control, which is a series of linked processes ensuring that the characteristics of the positions being filled (such as title, salary or wage, grade and step, and so on) match what is authorized in the budget and that the number of authorized positions isn’t exceeded.

During the fiscal year, employees may have their compensation increased due to cost of living increases, step/longevity increases, or merit. Governments should work to identify the expected impact from likely increases and adjust the baseline personnel budget.  To do this, governments should identify:

• What is the expected increase for each employee or employee group?
• When are increases likely to occur?

For governments with employees working under collective bargaining agreements (CBA), expiring contracts during the fiscal year creates uncertainty. Governments should increase the baseline personnel budget to include costs associated with new CBAs. To do this, governments should identify:

• What is currently in the CBA that is likely to change?
• When does the CBA expire?
• Will the CBA agreements require retro-active adjustments?

Applicable laws or government policies may require that the organization provide overtime pay for employees. Overtime pay may be necessary to provide essential services during periods of high demand. Alternatively, overtime time pay may also result from poor workforce management. To forecast overtime pay, governments should identify:

• What have been historical costs for overtime?
• What are current policies related to overtime?
• Do any departments or programs have minimum staffing requirements that may require use of overtime time pay to remain in compliance?
• Does the government have a strategy to use overtime differently than in the past?

Governments can provide additional compensation for many different reasons including when employees acquire certain skills, work undesirable shifts, or meet criteria defined in a governments human resource policies. Each premium pay will provide additional compensation for the employee that will need to be budgeted. To forecast premium pay, governments should identify:

Which premium pays are offered?

• Shift differential
• Acting up pay (additional compensation for filling in for supervisor on a shift)
• Holiday premiums (for employees required to work on holiday)
• Education premiums
• Certification / license premiums
• Seniority premiums
• Skill premiums (example: bilingual)

Which employees are likely to receive premium pay?

Which premium pays are eligible for retirement plan matching?

During the year, the government may need to increase staffing levels temporarily and where there may not be a current budgeted position to calculate in the baseline. The personnel budget should include costs for these temporary positions. To estimate costs for temporary positions, governments should:

• Identify need for temporary positions?
• Will any positions require overlap (where two individuals temporarily fill the same position)
• Identify how temporary positions will be funded? (grants, projects?)
• Identify duration of temporary positions?

Leave payouts can be significant depending on the policies of the organization and can have budgetary impact wither annually or in lump sum when employees terminate with the organization. Governments should look to identify:

• What are policies on leave payout?
• What are historical trends for leave payout?
• Are there any events coming up that would increase leave payout costs?
• Where are leave payouts paid from?
• Do leave payouts create additional costs (taxes or retirement plan contributions)

It is likely that employees will leave the organization at some point during the fiscal year and replacement employees will not be immediately hired to replace departing staff. These vacancy savings can be estimated for the organization to create a more accurate personnel budget.  To estimate impact from vacancies, governments should determine:

• What is the strategy for budgeting for vacant positions?
• What has been the historical vacancy rate for positions?
• Do certain positions have higher/lower vacancy rates?

For organizations with a benefit plan year that differs from its fiscal year or budget period, the government will need to forecast likely changes to benefit costs.  To do this, governments should identify:

• What is the likely change in rate for benefit costs?
• What  is the strategy for making benefit changes? (is the government implementing new strategies to reduce costs)
• Are offered benefits changing?

New tax laws may go into effect mid-year requiring changes to cost for taxes. Governments should identify:

• Are any employer-paid tax rates increasing?

If the number of budgeted positions is likely to change during the fiscal year, governments should estimate the impact of increasing or reducing positions and adjust the baseline budget for these partial year impacts. Governments should identify:

• Are there any new programs, services, initiatives launching in the upcoming budget period that will require hiring additional staff?
• Do you have any new facilities opening in the upcoming budget period that will require staff?
• When do you anticipate filling these new positions?
• Are there any planned retirements or other attrition that will result in staff not being replaced?