8 Ways to Reduce Labour Costs in Your Small Business
Small business owners sometimes struggle to make ends meet. That’s not a surprising statement, but what might shock business owners is learning that they’re paying too much for labour. Instead of haggling with suppliers or downsizing in return for a lower rent payment, you should consider the benefits of evaluating your labour expenses. You might be surprised at how much you can save by doing so.
With that in mind, here are eight ways to cut your labour costs.
#1: Optimise Scheduling
Retail businesses and restaurants sometimes fail to do a good job of scheduling. As a result, they end up with too many workers on a shift. If you’re paying someone an hourly wage, they should have work to keep them busy.
To optimize your employee scheduling, follow these steps:
Track your busiest times and note when you can afford to have fewer employees on hand
Schedule a mix of experienced staff and new staff so they can balance one another out
Always be willing to send an hourly employee home if there’s not enough work
This simple change can make a significant difference in your profits.
#2: Train All Employees Thoroughly
A lack of employee training can increase your labour costs. An efficient, well-trained employee takes less time to do a job than someone who’s only been partially trained. Depending on what kind of work your employees are doing, you could save a significant amount simply by training them properly.
In addition to on-the-job training, you should have a written employee manual that clearly outlines job responsibilities and company policies. All training should be repeated regularly to update employees on changes and refresh their skills and knowledge.
#3: Cross-Train Your Employees
Any kind of business can benefit from cross-training its employees. Cross-training ensures that if one department or area is busy and another isn’t, you can reassign workers as needed to keep things flowing smoothly. Another benefit of cross-training is that you may not need to bring in a replacement worker if someone calls in sick. In the short-term, other employees can pick up the slack – and you’ll save the money you would have spent on a replacement worker’s wages.
#4: Reduce Employee Turnover
It costs far more to hire a new employee than it does to keep an existing one. In some industries, particularly retail and food services, high staff turnover is common. Creating a safe, happy, and rewarding work environment makes employees feel valued and appreciated. When your employees know that you respect them, they’re more likely to stay – and that can save you quite a bit of money over time.
#5: Use Technology to Manage Payroll and Staff Rosters
If you handle payroll and scheduling manually, you may wonder how to reduce labour costs in your small business.
First, a lack of technology means that managing payroll and employee scheduling will take longer than necessary, and that means they’ll be paying more in labour as a result.
Second, without technology, it’s more likely that errors will occur. You might overschedule a shift or make a mistake in payroll, but using new technology such as Business in Your Pocket eliminates many human errors and can save you money over time.
#6: Eliminate Redundancies between Departments
When was the last time you reviewed departmental responsibilities to look for redundancies? If it’s been a while, then you may want to consider conducting a review. It’s not uncommon for small to medium-sized business to pay too much in labour expenses because they don’t have a handle on what each employee and department is doing. Asking each department head to outline what they do can help you eliminate redundancies and save money on labour.
#7: Review Wages and Salaries
When employees stay with one company, their wages usually increase. Sometimes, that can mean that they’re earning more than they should based on the job market. Cutting employee wages might cause a mutiny, but you can and should review your payroll periodically and compare it to industry standards and averages. If your employees are earning too much, you can slow down wage increases to bring your payroll back in line. Make sure to communicate clearly with employees so they aren’t surprised by a change in the way you handle raises.
#8: Use Part-Time Employees and Outsourcing
It costs more to hire a full-time employee than a part-time one. In Australia full-time employees get higher wages and more benefits than part-timers. You may be able to save on labour expenses simply by maintaining fewer full-time employees. For example, if an employee leaves, consider whether their job might be covered by outsourcing or by sharing the work between two part-timers. This won’t work in every scenario, but in some cases, it may help you save a good amount of money.