If you have a look at the balance sheet of any company, you will notice that labor costs are the largest line item there. Many people want to learn how to reduce labor costs, but the key here is to maintain your employees happy at the same time. Today we are going to learn more about this tactic and see what ways to control labor costs are there.
How to Reduce Labor Costs 101
1. Check the Levels of Compensation
Despite the current markets and financial conditions, the salaries and wages only tend to go up. For this reason, it’s important to review the pay schedules you have and make sure they align with the current trends. Sometimes, you may notice that they are only the result of history. If you see that your employees receive more than what the job is paid today, delay them or just make token raises until you align with the current prices. Make sure you explain to your employees what the problem is.
2. Reduce the Employee Turnover
If you notice you have a big employee turnover, it would be better to do something about it. A high turnover rate will bring excess costs to your business because you will need to pay more on the fees and salaries of the people who recruit, select, employ, as well as train new employees. There are also some other indirect and even invisible costs: longer production times, fraud, poor quality, greater waste and oversight, etc.
3. Offer Cross-Training
Usually, the specialists in one field require a premium pay from their employer. However, the problem with them is that you are kind of limited if you need to make some changes in your operation. As such, providing cross-training for your employees can be a great solution if you want to know how to reduce labor costs without affecting your staff.
4. Reduce Design Costs
Most of the time, the product design and development require around 80% of the production cost. The concept and the program architecture also account for 60% of the cost of labor. As such, if you work in the manufacturing industry, for example, you can save a lot of money simply on the parts, materials, quality and the labor by reducing the costs for the product design or the operating costs.
5. Stay Away from Overtime
Often, overtime represents a heavy labor burden. One advice on how to reduce labor costs is to avoid it as much as you can. If you pay 1 – ½ to 2 times the normal hourly rate, the extra costs will add up quickly, especially if you have a lot of work to do. It’s a good idea to reduce overtime for the employees who are non-exempt. There are various solutions to this, from making your employees be more efficient to hiring other people on full-time positions.
6. Optimize Your Schedules
The work schedule can be important for a restaurant or a business in the retail industry. It can happen that you schedule your employees during times when you don’t need all of them or the other way around. Both situations can damage your income. The first one affects your profit margins, while the latter influences the customer experience and thus, your sales. Luckily, there are plenty of options when it comes to employee scheduling software.
7. Upgrade Where You Can
It may not be the first solution you think of when you learn how to reduce labor costs, but it can be effective. Look for smart changes and see where they’re needed. By reducing task times and increasing people’s productivity, you can deliver big ROI. One such example is implementing an online time clock that boosts your employee productivity. You can also set some new standards for behavior inside the company.
8. Offer the Right Training
By offering a complete training right from the start, you can prevent any mistakes your employees make. When you get new employees on board, try to make sure they understand as much as possible the first time. The same goes for when you want to implement some new technologies. In this way, you will avoid any possible misunderstandings and make the workforce more efficient.
9. Take Care of Your Management
A chaotic or irregular management can sometimes be responsible for delays in production and delivery. That’s why it is important to have a cohesive management that is on point. Even if you’re the only manager or you have several people who take care of this. Ensure good communication both between the managers and between them and the workers.
10. Outsource Tasks
If you’re wondering how to reduce labor costs with outside help, there is one great solution: outsourcing. A part-time freelancer is a quick and inexpensive option for when you need a hand with an extra project, for instance. This can also be a good way of avoiding overtime and over-burdening your full-time employees.
11. Choose a 4-day Workweek
It may sound like crazy, but this is a modern idea that catches on more and more with businesses. If you don’t believe us, try asking your employees if they’d be willing to quit part of their pay just to have more free time. The 4 days, 10 hours schedule can be more suitable for some businesses than others, but it’s still worth considering.
12. Cut Off ‘Buddy Punching’
Another strategy that helps you cut down on labor costs is to eliminate the practice called ‘buddy punching’. This refers to the practice where employees punch the clock for another, to hide the fact that the latter was absent or late. Studies have shown that this inflates the payroll by 2.2% on average. Multiply it by 1,000 employees that get a $40,000 average pay, and you have a loss of $880,000. One solution to this issue is to institute a biometric verification. The system may cost a lot, but it will pay for itself in just a year.
Here you can see other suggestions on how to reduce labor costs:
To conclude, there are plenty of ways to learn how to reduce labor costs. From controlling your management better to implementing modern, smart ways of making labor more efficient, you can save a lot of money in a short time.
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