Operating Budget

• The operating budget forms the basis for the company's future financial planning. The operating budget consists of several components, including salaries, repairs or supplies. During the budget creation process, each manager pays particular attention to the salaries paid to employees and the number of employees in the department. After considering the business needs for the following year, the manager identifies any necessary changes to employee headcounts and salaries.
  
  

Salary Percentage

• The company prepares the operating budget in total dollars and by percentage. Businesses calculate the salaries as a percent of operating expense by dividing the total salary dollars by the total operating expense dollars. The percentage of the operating budget comprised of the salaries varies by company and industry. Level of automation and type of company impact the percentage of salaries included in operating budgets.
  
  

By Industry

• Service industries incur the highest salary percentage since their business relies on employee performance rather than inventory sales. According to the Society of Human Resource Management, the three industries with the highest salaries percentage include health care, for-profit services and educational services. These industries incur 50 percent or more of salaries expense as a percent of total operating expenses. Each of these industries relies on employees to meet customer needs rather than using inventory or incurring other operating expenses. Industries with a high level of automation or capital equipment incur lower salaries as a percent of operating expenses. The three industries with the lowest salary expense as a percent of operating expenses include manufacturing, construction or mining. These industries experienced less than 25 percent salary expense as part of total operating expenses.
  
  

Benchmarking

• Companies benchmark to evaluate their own salary percentages with similar companies in their industry. Trade associations, professional organizations and salary surveys provide average percentages for these companies to compare. Companies with percentages above the average may be overpaying their employees. Companies with percentages below the average may be paying too little and attracting poor talent.