Supply chain · 8 May 2019

Six steps to reducing labour costs

Housing crisis

It’s not easy being a small business owner. When times are tough and you’re up against it financially, difficult decisions need to be made. And with labour costs typically accounting for anything up to 35% of your total revenue, cutting staff can sometimes seem like the only way to make ends meet. Even if you do decide to let a member of your team go, you then have to deal with the potential fallout, here are the things you must consider.

  • A dip in staff morale – losing staff is always a blow to any team
  • Increased staff turnover if they fear they’re on a sinking ship
  • Loss of key skills if you are forced to reduce your headcount
  • The hassle of going through the training and onboarding process all over again when things pick up

But what if there were other ways to reduce your staffing bill?  Here are seven quick ideas for reducing labour costs — without having to say goodbye to employees.

1. Reduce overtime

Overtime costs can significantly increase your wage bill. Staff regularly clocking out even 10–15 minutes later than they should can quickly add up if you have a large number of employees, with research suggesting that payroll fraud is costing UK businesses a staggering £12 billion a year.

A few extra minutes on a paper-based timesheet may not seem like much, but these inaccuracies can add considerably to the overtime bill. Web-based time and attendance software can track employee working hours and automatically prepare said data for payroll.

You might also want to review your overtime policy. Offering staff time off in lieu of payment may help keep the wage bill down. Also consider how you plan your staff rotas; if you’re understaffed on certain shifts, this could be the reason staff are having to work late to get the job done.

2. Wage cuts

This option isn’t always going to be well-received by your staff, but pay cuts can be a viable alternative to redundancies, provided that: – your staff salaries are above the market average – your employees love working for the company – the team are reassured that it’s a short-term measure.

– If any or all of the above are true, then it’s OK to ask your staff to accept a 2–5% pay cut in order to help the business stay afloat.

3. New perks

When times are tough, pay rises are not an option. A good way to cushion the blow of any such pay freezes, is to offer your team new perks or benefits. From flexitime to free lunches on a Friday, speak to your staff to understand what they’d like.

4. Reduced hours

Some of your staff might be willing to take a small cut to their hours (and thus their pay). This approach is often more palatable to staff than simply cutting salaries, and might even be welcomed by those looking to improve their work/life balance.

This approach could be difficult to manage if the majority of your staff are on part-time hourly contracts, but if your employees work to standard office hours, it can be well received. Just be sure the business can handle fewer staff hours on the rota!

5. Unpaid leave

As a short-term measure, offering staff the opportunity to take extra time off, unpaid, could be mutually beneficial for both the business and employees. You may have staff members who’d jump at the chance to take a short career break to travel, renovate their home, or even help their child settle into school. Again, make sure that the business can handle the staff absence.

6. Improved rota planning

If your workforce is paid per hour they work, getting the right staff in the right place at the right time is key to managing labour costs. Speak to staff or analyse past sales data to help forecast your labour requirements for each day.

This will also help highlight busy and quiet periods so you can identify days you can cut back on labour, and those that require more staff in order to maximise profits.

You shouldn’t expect the above suggestions to go down too well with staff at first, but it’s crucial to be transparent about the reasons behind the changes you make. When employees realise why they’re necessary — and that they are being trialled in an attempt to prevent redundancies — hopefully they’ll be more willing to accept these workplace changes.

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ABOUT THE EXPERT

James Lintern is co-founder at RotaCloud, an online platform for planning rotas and communicating with staff.

Work and Wellbeing