How to Do Headcount Planning Step by Step

To plan headcount, follow these seven steps. Set a baseline of current and approved roles. Tie headcount to business goals and a budget. Forecast demand in FTE. Cost every role in full. Model scenarios. Get the plan approved. Then track it against actuals through the year. The output is a role-by-role plan with start dates, in-year cost and full-year cost that Finance, HR and line managers all accept.

This guide walks through each step with a worked example. It also covers UK costing, which most guides skip, and the approval and tracking rules that stop a plan going stale by March.

What headcount planning is (and what it isn't)

Headcount planning decides how many people a business needs, in which roles, where, when and at what cost and it is usually run quarterly to annually.

Headcount planning vs workforce planning

Headcount planning is a subset of workforce planning. Gusto describes headcount planning as the "how many", while workforce planning covers the "who" and "how". Orgvue separates them by horizon: headcount planning is usually quarterly to annual, workforce planning usually one to three years or more.

The risk is stopping at the number. A July 2024 survey found 66% of about 475 respondents said their workforce planning is limited to headcount planning. That survey is not UK-specific as CIPD and Omni RMS research find that 31% of UK organisations plan up to six months ahead and only 18% look more than two years out. For a fuller comparison, see workforce planning vs headcount planning.

A practical rule: plan the number first, then note the skills each role must bring. Even one extra column for "skill needed" stops the plan being a pure count.

Headcount vs FTE

Headcount is the number of people. FTE (full-time equivalent) is the amount of capacity. A 30-hour employee on a 40-hour contract is 0.75 FTE, not 1, as the FirstHR staffing template explains. The formula is total hours worked divided by the hours of one full-time employee in the same period, as Limelight describes.

Use headcount for approvals and position control. Use FTE for capacity and cost. Keep both in the plan.

Many US guides use the 2,080-hour full-time year. In the UK, use the contracted hours your organisation actually uses and state them as an assumption at the top of the plan.

Before you start: who needs to be involved and what you need

Roles for HR, finance and line managers

Responsibilities are usually split. HR provides workforce data, finance manages budgets and managers define hiring priorities, per Gusto. Name one owner for the plan and one approver for each stage before you collect any data.

Data checklist

List the minimum baseline: current headcount, open roles, reporting structure, role types, levels, locations, cost assumptions, hiring timelines and expected attrition. Add these before you begin:

• Contracted hours per role, so you can convert to FTE
• Approved but unfilled positions
• Contractors and temporary workers, labelled separately
• Legal entity and currency for each role
• The financial year start and end dates

Timing matters too. Sequoia suggests starting in Q3 of the prior fiscal year, with board approval in Q1 of the plan year. That is a US benchmark. Check it against your own year-end, such as April, and work backwards.

Step 1: Set the baseline

The baseline is who you have now and what is already approved. Pull it from your HRIS and split it by department, role, worker type, location and tenure, as Deel and AIHR recommend.

Include three groups: filled positions, open roles with approval, and approved roles that are on hold. Mixing them is the most common reason two teams quote different numbers.

Reconcile HR positions with finance cost centres

NetSuite notes that finance tracks by cost centre while HR tracks by position and hierarchy. If you do not reconcile the two, the plan will carry two truths.

A simple reconciliation:

1. Give every position a unique ID.
2. Map each position ID to one cost centre, entity and currency.
3. Compare HR headcount to payroll cost by cost centre each month.
4. Log every mismatch with an owner and a date to fix it.

This is where teams often outgrow spreadsheets. One example of how teams solve it is a shared plan in a platform such as Kivos, which puts Business, Finance and HR on one financially governed workforce plan. The same mapping works in a spreadsheet if one person owns it.

Step 2: Tie headcount to business goals and a financial envelope

Headcount is a means, not a goal. Ask each function what it must deliver next year, then ask what that needs in people. Deel and CHRMP both stress alignment with business goals and finance.

Finance then sets an envelope: the total people cost the business can fund. Agree it before managers submit requests, or requests will simply total whatever managers want.

Top-down, bottom-up or driver-based

IBM describes top-down, bottom-up, driver-based and scenario-based approaches.

A workable blend: Finance sets the envelope top-down, managers build requests bottom-up, and you use drivers where a clear ratio exists, such as support agents per thousand tickets.

Step 3: Forecast demand

Workforceplanninghelp gives a four-step forecast: baseline current headcount, apply attrition, add growth requirements, then calculate fully loaded cost. Steps 3 and 4 here follow that sequence.

Workload-to-FTE formula with a worked example

Cube gives one formula: (total work hours needed ÷ available hours per employee) + (expected attrition + growth factor). Cube also says there is no single formula, so treat it as a starting point.

Here is an illustrative example. The figures are assumptions for demonstration, not benchmarks.

• A support team must handle 12,000 hours of work next year.
• Each full-time employee has 1,500 available hours after holiday, sickness, training and meetings (an assumption you must set from your own data).
• 12,000 ÷ 1,500 = 8.0 FTE needed.
• The team has 6.5 FTE today.
• The gap is 1.5 FTE before attrition.

Work out available hours from contracted hours minus statutory and contractual leave, bank holidays and a realistic allowance for non-productive time. Write each deduction down so reviewers can challenge it.

Attrition and backfills

Apply expected attrition to the baseline. If you expect two leavers from a team of 6.5 FTE, you need to recruit for those roles as well as the growth gap. Use your own leaver history by team, not a company-wide average.

Treat backfills as roles that still need approval. Assuming every leaver is replaced at the same cost and on the same date hides both savings and delays. Add a vacancy gap, meaning the weeks between a leaver going and a replacement starting, as an explicit assumption.

Step 4: Cost every role the UK way

Most guides cost roles in dollars and miss UK on-costs. A fully loaded cost covers salary, benefits, taxes, equipment and overhead, as in the workforceplanninghelp method above.

Salary, employer NI, pension, benefits, recruitment and equipment

Cost these lines for every role:

• Base salary, at the agreed band midpoint or offer level.
• Employer National Insurance. For 2026/27, employer NI is 15% on earnings above a £5,000 annual secondary threshold (£417 a month), up from 13.8% above £9,100 before April 2025, according to Protax. A worked example from UW Accountancy: a £2,000 monthly wage leaves £1,583 above the threshold, so £237.45 NI. The Employment Allowance is £10,500, per Flux Payroll, but check eligibility for your organisation. Verify all rates against HMRC's "Rates and thresholds for employers 2026 to 2027" on GOV.UK before you finalise.
• Employer pension contribution, at your scheme rate.
• Benefits, such as health cover or allowances.
• Recruitment cost, whether agency fees or internal time.
• Equipment and software, a one-off plus any recurring licences.
• Other UK items to check: the Apprenticeship Levy if it applies to you, and notice periods for leavers.

Keep each rate in an assumptions tab, so a change in a threshold updates every role at once.

In-year cost vs full-year run rate

A role starting in October costs far less this year than next. Show both numbers.

Example, using assumed figures: a role with a fully loaded annual cost of £60,000 that starts on 1 October in an April to March year has six months in-year. The in-year cost is £30,000. The full-year run rate is £60,000. Budget the first, but carry the second into next year's plan, or you will under-fund the following year.

Separate one-off costs, such as recruitment and equipment, from recurring ones. One-offs fall in the start month and do not repeat.

If HR and Finance still work from different numbers, you can see how one governed plan keeps cost and approvals in step. See how Kivos handles approvals and position control with your own planning process in mind.

Step 5: Model scenarios and prioritise roles

Run at least three scenarios: base, constrained and growth.

For each scenario record total FTE, in-year cost, full-year run rate and the roles added or dropped. Then rank roles with a simple score:

1. Does the role protect revenue or meet a legal need?
2. Does it remove a clear bottleneck?
3. Can the work be covered another way, by process change, tooling or a contractor?
4. What is the cost of waiting a quarter?

Draw a funding line down the ranked list. Roles above it are in the plan. Roles below it are a named reserve list that you can release if conditions change.

Step 6: Get the plan approved

A plan that nobody signs is just a forecast. Agree who approves what, in what order, and what approval means.

Approval workflow and position control

Position control means a role cannot be hired against unless an approved position exists. A simple workflow:

1. Manager submits a role with business case, start date and cost.
2. HR checks grade, structure and duplicates.
3. Finance checks budget and cost centre.
4. Executive sponsor approves within the envelope.
5. Approved position is created and becomes the only basis for recruitment.

Record who approved each step and when, so you have an audit trail. For more on designing this, read how to design a position approval process Finance and HR trust, and for the wider idea see headcount governance.

Communicating the plan

Share the approved plan with managers in a short summary: approved roles, timing, what is on the reserve list and the rules for changes. Say clearly that approved headcount is not a promise to hire on a given day. Hiring still depends on the plan's timing and on any later change control.

Step 7: Track, reforecast and govern through the year

Pages often say "monitor and adjust" without saying how. Make the point that the plan should be living, not a once-a-year exercise. Set rules in advance.

Variance to plan, hiring freezes, and when to re-plan

Each month, compare actual headcount, FTE and cost against the plan by cost centre. Then apply thresholds that you agree up front. These are examples to adapt, not benchmarks:

• Variance trigger: any team more than a set percentage over its cost plan gets a review.
• Hiring freeze: if total forecast cost exceeds the envelope, new requisitions pause until Finance and the sponsor release them.
• Re-plan: a major change, such as a lost contract, an acquisition or a budget cut, triggers a fresh scenario run.
• Quarterly reforecast: update attrition, start dates and open roles with actuals.

Take care with mid-year changes. A new role approved in July should go through the same workflow as one in the annual round, and the plan should record who changed what. Teams that need this level of control often look at a governed tool. Kivos governance features are one example.

Common headcount planning mistakes

• Stopping at the number. Skills and capability get ignored.
• Using headcount where FTE is needed, which misstates capacity and cost.
• Costing salary only. Employer NI, pension and equipment are missed.
• Showing only the in-year cost, which hides next year's run rate.
• Keeping separate HR and Finance numbers with no reconciliation.
• Planning once a year. The plan is out of date by the second quarter.
• Skipping the assumptions. Reviewers cannot challenge what they cannot see.
• Copying US templates. Hours, taxes and leave rules differ in the UK.

Spreadsheet or software?

When a template is enough, and when it isn't

A spreadsheet works well for a single entity, a small number of approvers and a plan that changes only at set points. Free templates, such as the Vena workforce planning template and the Coefficient FTE calculator, are a sound place to start.

Consider moving to software when several of these are true:

• Several people must approve each role.
• You need position control, not just a budget line.
• The plan changes mid-year, and you must show what changed.
• HR and Finance figures keep disagreeing.
• You plan across entities and currencies.
• IT needs clear answers on access control and where data is held.

The last point matters. Before you buy any tool, ask where data is stored, who can see salary data and how access is controlled. Kivos is one option that covers these needs, and it publishes its approach in its Trust Center. Compare any vendor on the same questions.

Headcount planning template: what columns to include

A usable template needs one row per position. Include these columns:

Add an assumptions tab with contracted hours, NI rate and threshold, pension rate, attrition rate and vacancy gap. Link every calculation to it.

Frequently asked questions

What is the formula for headcount planning?

There is no single formula. A common one is total work hours needed divided by available hours per employee, adjusted for expected attrition and growth. Set available hours from your own contracted hours, minus leave and non-productive time, and state them as an assumption.

What is the difference between FTE and headcount?

Headcount is the number of people. FTE measures capacity, based on hours worked compared with a full-time contract. A person working 30 hours on a 40-hour contract is one head but 0.75 FTE.

Who is responsible for headcount planning?

It is shared. HR provides workforce data, Finance manages the budget and managers define hiring priorities. Name one plan owner and one approver per stage so decisions do not stall.

How often should you review a headcount plan?

Compare actuals with the plan monthly and reforecast at least quarterly. Re-plan sooner after a major change such as a lost contract, an acquisition or a budget cut.

What should a headcount planning template include?

One row per position with ID, role, cost centre, entity, status, FTE, dates, salary, UK on-costs, one-off costs, in-year and full-year cost, and approval details. Add an assumptions tab that every calculation links to.