Hidden costs, accounting treatments, and budgeting

Covering Assessment Criterion 1.3 of FREE03 – People Professionals and Finance, this video examines the full range of people costs that appear in financial reporting, with particular attention to those that are frequently underestimated or misclassified. It addresses training and development expenditure — including external courses, e-learning platforms, and conference attendance — alongside the Apprenticeship Levy, which applies to organisations with pay bills above £3 million. Recruitment costs form another focus area, spanning job advertising, agency fees, assessment centres, and onboarding, with the video noting how these elements can become dispersed across other budget lines and lose visibility as people costs.

The video moves on to contingent labour — temporary agency workers, contractors, consultants, and freelancers — and how these costs can appear as service costs in financial reports rather than as workforce expenditure, complicating any attempt to analyse total people spend. Absence costs receive detailed attention, distinguishing between direct costs such as sick pay and cover arrangements, and indirect costs including lost productivity and management time. The video then turns to two accounting treatments that directly affect how people costs are presented: provisions, illustrated through redundancy costs and potential employment tribunal settlements, and accruals, examined through holiday pay and bonus schemes that relate to one financial period but are paid in another.

Budgeting forms the final substantive area, with the video discussing how people budgets are constructed to cover headcount, full-time equivalent figures, payroll, National Insurance, pensions, overtime, and benefits, and how workforce planning intelligence and pay review cycles feed into that process. Monitoring actual spend against budget and accounting for variances are also covered, connecting the people professional's role to the financial reporting cycle. Taken together, the video maps the breadth of people cost categories — from permanent payroll through contingent labour, absence, provisions, and accruals — that AC 1.3 requires practitioners to understand and discuss.