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US vs Australia
A question we often get from HR professionals is what percentage of payroll should be devoted to training and development?
While some HR advisors have argued for figures as high as 5–6%, the available statistics show a very different story. In the US, training has averaged between 2 and 2.5% of payroll for most of this decade, with leading companies spending as much as 3%. However, in Australia, our average spending on training is much lower. The ABS reports that we only spend roughly 1.5% of gross salaries on training.
Of course, these are average figures. In reality, the amount of money spent on training varies widely between industries. In Australia, the public service and defence sectors spend more per employee than anyone else does, followed closely by utility (electricity, gas, water, etc.) companies and the health, education and financial sectors. At the other end of the scale, the transport industry spends less than anyone else, followed by manufacturing, wholesale and retail industries.
Averages also vary between different occupations. Managers, professionals, office workers, salespeople and service staff all had higher proportions (1.7%) of their salaries spent on training than average. Tradespeople, production workers and transport workers had less (1.1–1.3%).
Finally, the quality of available data is far from ideal because many organisations do not keep accurate records of their training expenditures. Even when they do, researchers find it hard to bring such diverse data together in a statistically sound way.
All of that said, I hope the above data is of use to those HR professionals charged with the responsibility for training and development in their organisations.
{ 6 comments… read them below or add one }
In my consulting practice, I’ve been asked this question as well. I address it in my book “A Practical Guide to Training and Development – Assess, Design, Deliver, and Evaluate” (published by John Wiley and Sons, 2008). Here’s the excerpt from pg. 99:
Organizations must decide how much money they can afford to spend on training. There are several ways to calculate the appropriate budget allocation for training. A popular method is to target training expenditures as a percentage of annual payroll (without benefits and taxes).
ASTD’s 2007 State of the Industry Report found that 2.33% of total annual payroll dollars were spent on training, a flat number since 2003. The March 2007 issue of Training reported its list of 125 companies with the top- ranked employee-sponsored workforce training and development programs. Training budgets as a percentage of annual payroll ranged were reported by 69 of the 125 companies. On average, 4.8% of annual payroll was the spent on training.
Please let me know if you have any questions or need any additional information.
Thank you for your article Shaun.
The information is timely, as I’m just developing the first comprehensive, site-wide Training Plan for my organisation and I’ve been looking for some formula to establish a reasonable Training Budget.
I’d like to read the report(s) you’ve alluded to from the ABS, but my search of their website has been unsuccessful. Any help in identifying were I can access this data would be much appreciated.
Thank you
Ernest Jilg
Hopefully in the future better record keeping will enable these numbers to become more accurate.
I enjoyed reading this and how relevant those numbers are. Most companies spend the bare minimum on training, so 1.5-2% sounds pretty accurate. And with the coming months as everyone continues cutting costs, you can bet those numbers will drop further. It really is a shame, as most training is critical and relevant to the job. Personally, I work in Technical Support for an electronics adhesives manufacturer. It is surprising to see that new employees are expected to give assist customers with products, when they themselves have had minimal product training (due to cost containment). On the other hand, someone employed at the same time with a fair amount of product training is vastly more effective at technical support. It would be a dream to see the day when we spend 5-6% of payroll on training!
Great information, Shaun. Thanks for sharing.
So, with the downfall of the world markets, are you noticing any downward trends in the last six months?
Here in the US, several companies and municipalities have been electing to freeze worker salaries (when they would normally give annual cost of living increases) as a more pallatable alternative to layoffs.
I imagine that for those entities, training budgets have already been reduced to near zero.
Tom Roux
Editor-at-Large
The Business Insider Blog (www.timrosablog.com)
Thanks Tim
It is very easy and tempting to target training as a soft option when slashing budgets. However, when it comes to leadership development we are seeing greater not less demand.
I put this down to 2 reasons:’
1. Leadership accounts for between 20-45% of differences in bottom line company results, and there is research showing that organisations who invest in leadership development fair better. Essential in troubling times.
2. We have less competition this year due to a drastic cut in the number of consultants around.
Cheers
Shaun