Reduce Your Labor Costs for Greater Profit

It’s no secret that wage and labor costs are the largest expense for businesses. Depending on the industry, labor costs can be as high as 50% of all a business’s expenses. You should know the average in your industry so that you can meet and beat the number. If you find yourself on the high end of the industry’s labor costs, you must find ways to reduce them.

1. Reduce overtime. Overtime hours will skyrocket your labor costs. Laws vary by region, but changes in wage and labor laws tend to favor the employee which means you might have to pay overtime when you didn’t before. So hire more, shorten shifts, and keep employee hours in regular time.
2. Staff appropriately. Accurately access your staffing needs for efficiency. It is impossible to predict staff needs unless you understand your company’s daily sales. This is particularly important now that fair workweek laws are becoming more common. It is getting tougher to shorten a shift on a slow day or change next week’s schedule without a penalty. Once you have good data, use a simple scheduler to streamline scheduling while meeting your known business staffing needs.
3. Hire more employees. Extra and part-time employees help fill in your staff without getting into overtime pay. A part-time employee can cover extra hours rather than having to use overtime hours to fulfill staffing needs. Overtime hours become less productive, too, so having the right balance of employees who can fill in will reduce wage expense without reducing productivity.
4. Impose strict clock-ins (and outs). Employees can only punch in or out for themselves, not for anyone else. And stop any late punchouts. An employee might only be adding a few minutes per day, but over a year, it adds up.
5. Cross-train. If more employees can do more varied tasks, you have greater flexibility. For example, a restaurant host can serve tables if needed or stock inventory if the kitchen staff is hitting their maximum hours. When an employee can fill in for another one, your business can reduce overtime hours due to singular skills. Fewer employees can do more.
6. Change your hours. Your data on sales will guide your decisions here. It may not make sense to be open on Saturday or earlier than 10 am. Review your traffic to determine if a shift in hours can add to profitability and reduce labor costs.
7. Investigate automation. An online scheduler for clients could replace an employee. Or inventory controls might be less costly with technology suited to your industry. Technology can’t do everything, but it can trim your labor costs significantly over time.
8. Review benefits. Labor costs are more than wages. They include medical benefit premiums, vacation, paid sick time, and mandated government programs costs. In many locations, you can reduce benefits and your related expenses. Or you can work with co-employment organizations to reduce costs and limit your liability.

Every industry has challenges with labor costs. As the largest expense on the P&L, it is critical to evaluate how your operation can reduce labor’s financial toll on business. With a bit of research and creative use of software and training, you will minimize labor costs. When your labor costs go down, your profit will go up. 

Author Profile Jon Forknell is the Vice President and General Manager of Atlas Business Solutions, Inc., a software marketing company specializing in employee scheduling software, including ScheduleBase employee scheduling software, and other business software solutions. In the past, Jon has been recognized by the U.S. Small Business Administration as a SBA Young Entrepreneur of the Year. For many years, Atlas Business Solutions has been named one of Software Magazine’s Top 500 Software Companies.