HR Budget Trends for 2022

Quick Look: The world of work has changed. In turn, HR leaders have felt pressure to rethink their strategies and dollars to cope with pandemic-related fallouts. Studies from several market-leading research firms evaluated HR spending in 2021 and predicted where budgets will be allocated for 2022. Higher wages and salaries and an increased focus on recruiting tops the list, but HR leaders will also prioritize spending on diversity, equity, and inclusion, technology, learning and development, and health insurance premiums.

Changing employee demands and ways of working have prompted a heap of new HR trends this year. Turnover and compensation are up, distributed and hybrid workforces require updated technologies and training, and labor shortages have shifted budget priorities for 2022. As a result, HR leaders, in collaboration with their executive teams, must respond to these HR trends and cost-effectively reshape their workplace strategies.

Whether you’re planning your budget based on last year’s expenses, or creating every line item from scratch, it’s important to evaluate your organization’s specific HR needs and distribute spending accordingly.

We looked at studies from Gartner, Willis Towers Watson, PwC, Kaiser, and more to see where HR budgets are expected to be allocated in 2022. Here’s a deeper look into where these experts predict HR leaders will be spending their money next year.

Higher wages and salaries

Compensation and salaries rose at a healthy pace in 2021 as employers competed to find workers to fill millions of open positions. According to a new survey by Willis Towers Watson, U.S. companies plan to give employees larger raises next year – a projected average increase of 3% for executives, management, and staff – as they look to bounce back from the pandemic and face growing challenges attracting and retaining workers. Raises are also expected to return to pre-pandemic levels, with only 3% of companies surveyed NOT planning to boost salaries next year. WorldatWork’s 2021-2022 Salary Budget Survey also reinforced this trend, and results say that salary increase budgets are projected to grow to 3.3% on average in 2022, up from 3% this year.

Recruiting

The pandemic disrupted many aspects of work for employees and organizations of all sizes. However, small- and medium-sized businesses (SMBs) are feeling the pressure of this change more intensely. In this candidate-driven market, falling behind on recruiting or failing to retain quality employees simply isn’t an option for an SMB. As a result, HR leaders are expected to double down on their talent acquisition and recruiting efforts in 2022.

Expect many HR teams to increase their recruitment advertising budgets, such as posting more paid job ads on Google, social media, job boards, or career websites, and spending more dollars at tradeshows and job fairs.

Diversity, equity, and inclusion (DEI)

Prioritizing DEI in the workplace has changed from the exception to the rule for many companies. It involves everything from recruiting to training to developing career paths to reshape and modernize a company’s culture. The movement toward greater DEI is projected to continue, with HR budgets allocated toward increasing diversity of hiring, DEI training and culture building, creating DEI leadership programs, implementing inclusive hiring practices, and more.

Companies on average spend $8 billion a year on diversity training and initiatives, according to McKinsey & Co. Looking ahead, many organizations will increase this number to further increase DEI in all areas of the business. In fact, Gartner states that 45% of HR leaders plan to spend more on DEI in 2022, while 46% will maintain their previous budgets.

Learning and development

Learning and development (L&D) is critical for business growth, and regular training is a must to remain current with industry trends and technologies. Research from the Willis Towers Watson 2021 Talent Attraction and Retention Survey states employers are planning to increase and create more targeted opportunities for employee training. 65% of employers that have acted, or plan to, are making this a permanent strategy for attraction. And for good reason – L&D programs have been proven to increase employee retention and upskilling an employee is more cost-effective than replacing with a new hire.

While spending on in-person training will likely go down, spending on L&D as a whole is expected to increase. This could include anything from internal programs focused on skill enhancement and career planning, to mentoring programs, or external partnerships focused on reskilling and upskilling.

HR technology

Companies with a distributed workforce increased to 48% post-pandemic, a trend that is forecasted to grow in 2022. With the rapid shift to remote work, many employers invested in new technologies to ensure employee productivity and collaboration. In fact, HR tech spending was up 57% in 2021, with a focus on learning, recruiting, analytics, benefits, and skills management. Hoping to tap into these benefits, organizations are planning to increase their investments in HR tech through 2022, according to a PwC global survey of 600 HR and HR information technology leaders. Gartner reinforces these findings, and projects that even though one-third of HR leaders plan for budget cuts next year, 90% still plan to either maintain or increase their investment in technology.

Health plan premiums

Rising costs and increased healthcare utilization fueled by deferred care in 2020 drove employers to find new ways to control costs this year. Despite the effort, annual family premiums for employer-sponsored health insurance in the U.S. rose 4% in 2021. Recent employer surveys by several HR consultancies also revealed that U.S. employers are expecting their group health plan premiums to increase, on average, around 5% in 2022.

The rise in prices can be attributed to many reasons… labor shortages, wage inflation, supply chain issues, and the new broker disclosure agreements. It’s not surprising that employers will look to lower costs, while still offering high quality care. A Willis Towers Watson survey asked employers how they expect to address rising costs, and what they anticipate offering in their 2022 employee benefit plans. Respondents listed telehealth options, mental well-being programs, pay- and grade-based contributions, centers of excellence, concierge services, onsite health promotions, specialty drugs, and more.

Those Fortune 500-level benefit offerings can be costly for many SMBs. Fortunately, working with a professional employer organization (PEO) like ExtensisHR can be the answer. PEOs leverage their large group bargaining power—giving SMBs access to world-class employee benefits at a fraction of the cost.

Making data-driven decisions

There’s no doubt HR leaders will have to navigate rising costs across the board in 2022, but outsourcing these functions, including assistance with budget planning, to a PEO partner can help SMBs manage HR administrative needs.

PEOs have access to market intelligence, benchmarking, and statistical data that can help employers forecast and plan their budget strategies accordingly. The better you can understand your HR costs, the better you can plan for what your company really needs. Whether it’s full-service recruiting, offering perks such as 401(k)s, voluntary benefits, complimentary benefits, access to HR and compliance experts, or industry-leading HRIS platforms, a PEO company can ensure you have the resources to keep your business growing.

Need guidance on how to allocate your HR budget for 2022? Our experts are here to help.