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The Best Ways To Cut Small Business Labour Costs

On a company’s balance sheet, the employee costs in terms of salaries, and perks account for the lion’s share in total expenditure. These costs continue to increase every year and are challenging to cut. Managing human resource costs is a sensitive subject and needs firm handling with empathy and honesty.

Any plans to change the compensation that employees receive can face a bumpy road without the cooperation of and commitment from the key players. It is necessary to put in place measures to increase productivity and reduce other costs before cutting the workforce or reducing their compensation.

These steps can motivate employees to work harder to improve productivity and maintain customer relations. It saves the company from a downturn in sales, revenues, etc. Credible companies always try to keep the morale of their employees high.

Some Useful Tips to Reduce Labour Costs

Every business passes through business cycles, meaning good and bad times. Here are some handy tips for surviving difficult phases in business, preparing you to face the ups and downs in the business environment and be successful.

1. Review the Current Salary Structure

Employee salaries and wages tend to move only upwards irrespective of business conditions. As a company owner, you need to keep track of market trends in compensation and ensure that what your employee get broadly matches these trends. If your employee salaries are higher than a similar job elsewhere, try and control it to fall in line with the market trend. You can either delay a raise or give a token increase.

Keep the communication lines with employees open. Apprise them of the conditions the business is going through and the need to increase their productivity and skills to continue receiving the current compensation and future raises.

2. Sharing Jobs and Use of Part-timers

Most office roles require general skills, which means employees can share duties. You can replace a full-time employee with a part-timer without affecting output and reduce costs. There is always a floating work pool in search of part-time jobs; it is a valuable resource to dip into. This solution is an excellent way to reduce the overhead costs of full–time employees as you pay only for the hours they have worked.

3. Stabilise the Employee Pool

Higher the employee turnover or attrition, higher is the operating cost of recruiting and training personnel. It also results in lack of motivation to improve performance and lower production in a given time. Also, it causes higher waste and negligence in duty, because the employees look at their jobs as temporary. It is essential to stabilise the employee pool to improve efficiency and cut costs.

4. Cross-Training

Every business needs specialists, but they can also become roadblocks when it comes to transferring them to perform other functions. Employees that are trained to handle multiple tasks can perform a variety of operations and replace other employees effortlessly. This step intrinsically improves the ability of a manager to handle layoffs without a negative impact on the production of goods and services.

5. Cut Payroll Costs with Time Trade-Off

A change in operating hours is a method to cut costs. For example, some companies have reduced payroll expenses by reducing the number of days worked from five to four with a 10-hour workday. Some workers are also willing to accept a lower salary for fewer hours of work per day.

6. Pare Additional Benefits

Employers provide additional benefits like pension plans, health insurance with higher deductibles, etc. These benefits are reducible without hurting basic earnings. Take stock of all such perks that continued to rise when business did well. Reducing some of them or asking employees to share the payments also alerts them to the difficult times the business is experiencing. Ensure that you and your top executives pioneer these perk cuts for yourself, or else you risk alienating your employees.

7. Commissions and Fees

Replace the cost-based model wherever possible with a revenue-based one, doing away the need to remove an employee from your payroll. A salesperson may prefer a commission and fewer guarantees to fixed pay. A software employee may prefer fees for an assigned job using the rest of their time for other work. Identify all such jobs to convert them to a revenue model.

You should also focus on eliminating redundancy between various departments. Make sure you outsource and automate non-critical tasks. You need to plan these steps in such a way that they do not affect the morale of your workforce.

For effective and cost reduction strategies & efficiencies that will increase your bottom line, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.

Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777