Making the decision to offer training to your employees may have been easy. Trying to figure out how much to invest in that training, however, might be a bit trickier. Before jumping in to schedule off-site workshops or online courses, it's important to consider how much your business should invest in your team's professional development.
According to a 2018 joint survey from Morneau Shepell Ltd. and the Business Council of Canada1, slightly more than half of respondents (51 percent) said their companies spend over $1,000 per employee annually for training. Another 30 percent said they spend between $500 and $1,000.
Although calculating the "right" employee training budget for a business is not an exact science, it can help avoid overspending on training. It can also help attract and retain quality employees, not to mention save money in the long run. A recent study found 40 percent of employees who leave within the first year say it's due to inadequate training, and that staff turnover costs about $2500 per employee.2
Here's how to calculate how much to invest in your employee training program.
Method #1: Set a total budget based on total salary
Human resources experts suggest several different ways to calculate professional development and training costs for a business owner with a small team. One of the simplest methods involves basing your training budget on a percentage of your total staff salaries.
First, choose a percentage (industry experts suggest anywhere from 1 to 5 percent) and then apply that percentage to your total payroll. For an annual payroll of $500,000 and using 2 percent, $10,000 could be allocated toward training.
Using this method helps avoid overspending relative to your total payroll. It also lets businesses allocate more money toward training staff that require more professional development, such as junior employees or those interested in advancing to other roles within your business.
Method #2: Set individual training budgets based on individual salaries
To calculate an individual employee's annual training budget, allocate an amount equal to anywhere from 1 to 5 percent of the staff member's yearly salary towards training. For example, a business may choose to invest 5 percent of an individual's salary towards professional development training.
An assistant manager with an annual salary of $40,000 would then have $2,000 earmarked towards training or courses for the year. This could be a good option for very small businesses with just a few staff members.
Method #3: Use an industry standard training budget
For a more customized approach to setting a training budget for your small business, consider the average training expenses of same-sized businesses in your industry. Refer to your own industry trade publications or professional organization surveys for details on what your peers do. Alternatively, look for online reports for up-to-date training budget data by industry.
When calculating your training budget, keep an eye on what your competitors do. The fact is, the amount that Canadian businesses spend on training employees has risen. According to the Conference Board of Canada3, Canadian employers spent an average of $889 per employee on learning and development in 2016-2017—$89 more per employee than they did in 2014-2015.
If your employees feel your business doesn't offer an adequate professional development or training budget, they may look to an employer that does.
Method #4: Plan ahead to budget for aspirational certification and training
What do staff members need to learn to become better at their jobs? Who aspires to move up the ladder to the next position in the company, and what training does this require? Planning ahead based on aspirational certification and training can help businesses budget better for professional development.
First, investigate the cost of each course and/or certification. Second, determine how the training gets delivered. Third, look for cost-cutting options such as a group course onsite with an instructor coming to your business, individual e-courses delivered online to your staff members at work, group training via e-learning in a virtual classroom or leveraging corporate credit card rewards to cover travel costs for offsite training, Finally, decide whether the business pays for the course completion up front, or once the course/certificate is complete.
Savvy small business owners know it makes good business sense to offer professional development opportunities to current and potential staff. Developing a training budget before investing in professional development can help ensure your financial commitment aligns with your business and human resources goals.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.