How Much Should Your Business Budget For Salary?

Budgeting Your Business For Employee Salary

There are dozens of effective ways to create a realistic business budget for employee salaries. For new companies and especially for very small entities, setting executive salaries can be the toughest job because there are few resources for finding exact comparisons.

Labor costs, which can account for as much as 70% of total business costs, include employee wages, benefits, payroll, or other related taxes. The smartest way to begin is to do employee planning. After that is done, it’s easier to set a salary structure and even get a bit creative if need be.

Employee Planning

Planning for salaries can be difficult. One of the first things to consider is how much should your business budget? It is often a good idea to prepare at least two budgets, one with an employee and another without them; this will help you understand what kind of effect they have on revenue.

You also need to figure out if there are any laws that govern salary in your state or country as well as overtime payment requirements, minimum wage regulations, etcetera. The next step of budgeting for salary is deciding on the number of employees you want to have.

That task entails knowing the total salary data for current workers, owners, and managers. Whatever is left in the budget can be devoted to new hires. It’s always a good idea to use comparable market figures to estimate the salary of new hires. When you have an overall plan, you can more precisely target salary decisions.

Salary Structure

Salary is an important part of a company budget. It’s not only the cost for providing your staff with their monthly paycheck but it could also be considered as the most flexible type of expenditure you have when planning out future budgets because salary changes are possible to accommodate and adjust depending on business needs in order to avoid layoffs or other drastic actions that may negatively impact morale among employees.

In general, salaries typically represent about 25% – 35% of total operating expenses (which includes all costs incurred by running a business). Insurance and other benefits can be an important part of overall compensation. Executives can have their income protected and that could help them through the ugly startup phase.

This kind of insurance is one of the types of benefits that need to be considered when planning salaries. After all, benefits can be expensive. It’s helpful to view the total package when making the budget, even if that money is not directly paid out in checks. For owners, one of the biggest challenges is deciding what to pay themselves.

There are numerous approaches to this dilemma. Some small business owners ask, “What would I pay someone else to come in here and do the job I’m doing?” That’s one way to begin thinking about how to set your own salary as an owner.

Getting Creative

Creativity can help business owners make decisions about salary. Ask a series of “what-if” questions to initiate a creative brainstorming session on salary budgets. For example, what if you simply set your own salary at a flat five percent of gross revenue for the first year?

And what if you paid all your top-line workers two-thirds of that amount? It’s a way to begin and has the advantage of putting a real number on the paper. Later on, you can make adjustments as needed.

Even if you miss out on making a good prediction and creating a solid budget for salaries, there’s always room for correction. Few companies hit just the right formula on their first try. There’s no need to be a perfectionist with salary figures, but it does help to go through a detailed process to find the most accurate figures possible.

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