Just about every company is struggling with the Great Resignation. In 2021 alone, over 47 million people quit their jobs. It’s a trend that doesn’t appear to be slowing down anytime soon.
Now more than ever companies need to accurately forecast their workforce to ensure they can deliver on the promises they make to their customers and the marketplace. Labour shortages are forcing companies of all sizes to cut back their services and turn down business, which can be devastating to operations if orders for source materials have already been placed, or inventory is piling up in warehouses.
Even before the pandemic, people represented the largest portion of most companies’ expenses. Those costs have risen due to the need to recruit more frequently, offer higher salaries as well as signing bonuses (a $5000 signing bonus to warehouse workers is common these days).
Invest in Your People
But investing in people is well worth the time, effort and expense. After all, people are what differentiate one business from another. The customer care reps who work hard to resolve a problem for their customer do more than rescue sales, they turn one-time shoppers into loyal customers.
What’s more, you can’t grow your business without a predictable workforce who understands your customers’ needs and your internal operations. Failure to retain your employees can have a detrimental impact on overall operations and your bottom line.
Tighten Relationships Between HR and Finance
With over 10.9 million open positions in the U.S. as of February 2022, recruiters need to step up their game. How do you offer attractive options to both fill your open headcounts and fill them with the best possible talent?
There are myriad factors that go into people expenses: salaries, hourly, overtime, taxes (employee and employer), 401(k) contributions, insurance, employee stock purchases, garnishments, pre-tax items, post-tax items, holiday pay, sick day pay and vacation pay, are just a few of the items that make it complex.
Planning for your workforce requirements will require you to work with your finance team to ensure you have the resources you need to recruit the talent you want.
5 Factors of Successful Workforce Planning
The more detail you put into your workforce expense forecast, the more accurate it will be. Here are five factors to consider to sharpen your planning process:
- Seasonal Employees – When your business is highly seasonal, such as needing to hire additional staff during the holiday season, you’ll want to go beyond the Divide-by-12 method. Reflecting the highs and lows of the season helps you whether you book on a cash or accrual basis so you can see that the revenues are also heightened when your payroll expenses are up. Accounting for seasonality is also very important for your cash flow. You’ve got to make sure your inventories support the anticipated sales and that the payroll is tracking with both of them. Being short on cash without a plan isn’t good for any business.
- By Department – Regardless of your payroll levels, when you’ve got different operating lines, shifts and different products, you’ll likely want to spread your expenses by department so that you can see your controllable expenses. If you’re a one product or one service organization, you’d probably want to keep things simpler by expensing all the payroll and related expenses to Admin, then allocating it with your overhead.
- Outsourcing Payroll – When you outsource your payroll to a third party you may feel limited in how you can book the expenses and budget for them. Tracking the expenses can vary a bit as you may want to record your labour expenses at the department level, and the lump-sum employee matches numbers and tax withholdings as Admin expenses.
- High Turnover Rates – If you’ve got some departments such as a call centre that have a high turnover rate as compared to your Sales team, you can dig deeper into the numbers within the department level payroll and adjust them within that department at the monthly level.
- Individually – This may seem impossible for finance professionals who are working with a budget spreadsheet. Even at a level of 50 employees, budgeting for their deductions and the employee matches (and caps) could seem daunting. You’ll want to see the cash flow implications of each individual employee’s taxes and benefits throughout the year as they can be different depending on employee type, position, etc.
Budgeting at the individual employee level offers significant benefits to your organization, as we shall see in the third section. The more detailed the workforce budget, the better your ability to track performance to plan accurately, and identify instances when changes are necessary to meet your business goals.
Best Practices for Workforce Expense Forecasting
| Integrate data from HR and payroll systems | HR systems generate robust datasets which increase the accuracy of your forecasts. For instance, PEO providers maintain detailed records on every type of employee or contractor who works with the company, as well as their benefit requirements. |
| Avoid Excel | Accurately calculating total expenses is too complex for spreadsheets. Spreadsheets do not provide enough security. Excel spreadsheets require manual data input from multiple HR and payroll systems. You need a system like Planning Maestro. |
By John Murdock, CEO, Centage Corporation
