What expense category is human resources?

As you manage your business finances, you might wonder how to categorize human resources (HR) expenses. Knowing how to classify HR costs can streamline your budgeting and offer clearer financial insights.

Classifying human resources expenses

Human resources expenses typically fall under overhead costs because they're essential for your business operations but aren't directly tied to producing goods or services. Key subcategories of HR expenses include:

• Wages and salaries: Payments to your HR team members.
• Recruitment costs: Expenses for hiring and onboarding new employees.
• Training and development: Investments in employee education and skill enhancement.
• Benefits administration: Costs associated with managing employee benefits like health insurance and retirement plans.

Examples of human resources expenses

By understanding some common HR expense categories, you can allocate resources effectively and keep accurate financial records.

• Job advertising fees: Paying for listings on job boards or social media to attract candidates.
• Background checks: Costs for verifying the qualifications and history of potential employees.
• Employee wellness programs: Funding initiatives that support your team's health and well-being.
• HR software subscriptions: Investing in tools for managing payroll, benefits, or performance reviews.

For instance, if you spend $500 per month on an HR software platform, this expense would fall under HR overhead costs.

Tax implications of human resources expenses

Properly categorizing HR expenses can offer tax advantages. Many HR costs are considered deductible business expenses, which can lower your taxable income.

• Deductible expenses: Salaries, benefits, recruitment fees, and training costs are generally tax-deductible. Maintain detailed records of all such HR-related expenses to support your deductions.

Ensure your expense classifications align with IRS guidelines to avoid potential issues. It's wise to consult with a tax professional to navigate these deductions and make the most of potential tax benefits.

Let Ramp automate your expense process

Handling HR expenses doesn't have to be a headache. Ramp automates the categorization and tracking of your HR costs, giving you real-time insights and simplifying your financial management. With Ramp, you can focus on growing your business instead of wrestling with expense reports.