Generally speaking, companies need to pay more to keep good candidates right now. After the COVID-19 pandemic, employees are looking for higher wages, better benefits, and flexibility in the workplace. Here is how you can assess your budget to make room to increase wages.
How to Determine Your Business Budget
When you set about to determine your business’s budget, you need to consider multiple parts of your operation. You will need to determine if your need for new employees is immediate or not.
Additionally, you will need to account for all of your employee wages and benefits and how they will impact your overall budget. Being realistic with these costs and goals will help you establish a more accurate budget for your company. Then, you will be able to move forward with calculating percentages for your business budget. Here are the four areas to consider when creating percentages.
There are two budget categories when it comes to running an organization: a capital budget and an operating budget. A capital budget typically looks at your necessities for running the business. For example, it will include expenses like new equipment and the cost of office space. Capital budgets also generally take a look at a few years at a time.
Your operating budget covers a variety of aspects of a business. It will give you information on how much it will cost to run your business over the next 12 months. The operating budget includes employee salaries, sales, production, and materials. So, this is the area of the budget you will examine more closely to see where you can make room for increasing wages.
What Sector is Your Business In?
Now that you know what expenses you should be looking at more closely to determine wage increases, you should consider what sector your business is in. Depending on where your organization falls, you will have different requirements to meet for employee salaries and other business-related costs. A retail business won’t have the same expenses as a healthcare organization.
The amount of money you pay in salary and benefits will differ depending on your sector. For instance, nonprofit organizations will pay their employee’s different rates than construction companies, meaning the budget percentages for employee salaries will look different.
All that being said, when it comes to allocating a percentage of your revenue to employee salaries, there are several things you need to take into consideration. Not only will each employee’s salary be included in this figure, but you will also need to account for payroll costs, benefits, unemployment insurance taxes, workers comp, overtime, reimbursements, and paid leave.
Depending on your business sector, employee salaries and benefits may account for 40% to 80% of your gross revenue. Salaries can account for up to 52% of your entire operating budget. However, it doesn’t stop there.
You also need to take into consideration how much you, as an owner, will be taking home for salary and include that as well. While increasing everyone’s wages would be great, you still need to take home a paycheck at the end of the day too. Typically, a good range for owner salary is 5% to 15% of the gross revenue. If you can fit in pay increases with this, you’ll be in good shape.
You can save time and money by outsourcing your payroll and benefits when you partner with a staffing agency like GoSource. Contact us to see how we can help your organization.