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10 creative ways to reduce labor costs

Labor costs can account for 70% or more of operating costs. This includes everything from benefits to taxes and, of course, wages. With labor accounting for such a high percentage of operating costs, this leaves many companies looking for ways to reduce labor costs.

However, before you start cutting staff numbers, you may want to consider other options. Afterall, you want to save labor costs, not kill employee morale or productivity.

Here are a few methods that can help you reduce labor costs while increasing productivity.

1. Reduce Turnover

One of the most expensive categories of labor costs is high turnover.

Finding, hiring, and training new employees takes a large number of resources. As you hire more employees, these costs exponentially grow. If you can increase employee retention, you can reduce your turnover costs.

However, you don’t want to retain just any employee.

You need to retain great employees. Higher quality and more experienced candidates may cost you more up front – but this is more than okay since the long term savings can be significant.

Not only will you likely spend less on training, but you’ll experience great productivity and efficiency.

2. Offer Alternative Compensation

Invest in keeping your staff happy by offering them creative compensation packages. However, this doesn’t always boil down to raises.

Here are some creative work perks employees love:

  • More vacation time

  • Remote work opportunities (Learn how to better manage remote employees)

  • Gym reimbursement

  • Stock options

  • Flex hours

  • Performance-based bonuses.

Employees may be momentarily disappointed by a lack of bonus or hefty raise, but they will appreciate your effort to create a comprehensive benefits package that addresses their individual needs.

3. Cross Train Your Employees

The easiest way you can boost productivity is to cross train your employees.

Simple, mundane, and repetitive tasks that can be done by most anyone are perfect contenders for this. When everyone in the office is trained to easily and quickly perform certain tasks, you can increase productivity and reduce bottlenecks.

This also means that employees will experience reduced downtime. Instead of sitting around waiting for the one employee to perform a specific task, anyone with available free time can step in and finish the job.

4. Reduce Overtime Costs

Some experts suggest eliminating overtime costs, but this isn’t always practical for every business.

Instead, evaluate why you have overtime and whether or not it’s necessary. You may find that by optimizing workflows, hiring part time staff, and automating processes you can reduce the need for overtime.

5. Enforce Safety Protocols

One of the simplest ways to control labor costs is to prevent injuries.

To do this, consider providing ongoing training for safety procedures. This will reduce the chances of employee injury – thereby reducing the likelihood of employee replacement costs, workman’s comp costs, and lost opportunity costs.

6. Hire Temporary and Part Time Employees

Hiring only full time employees can get pretty expensive.

Instead, consider hiring an alternative workforce that includes a combination of part time, temporary, or outsourced employees.

  • Temporary workers are perfect for changing seasonal demands.

  • Part time workers can fill in the gaps that would require overtime payment to full time workers.

  • Outsourcing to independent contractors and freelancers can reduce labor costs for tasks that don’t require a full time employee.

7. Improve Workflow

If you want to improve productivity and reduce controllable costs, consider improving business workflows.

Business owners tend to skip over workflow consideration during formation and startup phases. However, once established, it’s time to reconsider original workflows. To do this, look for possible bottlenecks, disorganization, lack of structure, and inefficiencies. When you begin to correct these issues, you’ll see labor costs decrease and profit margins increase.

8. Incentivize Productivity

If you want people to work harder and be more productive, you need to incentivize them.

When your employees are more productive and efficient, your business profits more. Rewarding employees for their hard work encourages them to continue to put in the extra effort. This translates to higher profits in the long run, ultimately making the cost of the incentive well worth it.

9. Automation

Stop paying someone to spend hours doing a task that you could automate. Instead, look towards modern technology solutions.

Using a software that can handle the automation of tasks across multiple departments will typically give you the greatest benefit. Not only can integrated software ensure that all departments are working cohesively, but it will reduce human error and promote the use of real-time data.

10. Self Service

Evaluate how much time your HR department, managers, upper management, supervisors, and executives spend answering inquiries from employees.

Many of these questions can easily be answered with the implementation of an online portal or cloud-based employee portal. This would enable employees to do:

  • Look up past paychecks

  • Check on vacation day status

  • Get info on healthcare coverage

  • Follow up on 401(k) information from the intranet

Try These 10 Ways to Reduce Labor Costs

If you find that your labor costs are ballooning out of control, you have a lot of options – so don’t panic!

Before you start making cuts to your team, consider more creative solutions that can keep employees motivated, increase efficiency, and reduce turnover costs.


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