5 ways to reduce labour costs

By February 2, 2018
5 ways to reduce labour costs

Reduce labour costs without losing good staff

Thanks to the mining boom, labour costs have nearly driven Australian businesses who want to compete internationally out of the running, according to Business Insider Australia editor Chris Pash.

That trend is likely to continue, a rebound in the world economy makes the labour market more competitive, as 2017 statistics seem to indicate.  Managers need to toe a fine line and maintain a balancing act of keeping good employees without increasing labour costs.

US manufacturing advisor Steven Brand recommends that organisations optimise their workforce through balancing their resourcing and cost controls to grow their bottom line. Although Brand admits that layoffs may be an easier, faster way to lower labour costs, it is certainly not the best strategy. As Brand put it, “The cost of finding and training new employees is extremely high—so it makes more financial sense to hold on to your employees and keep them happy.”

Undertake a labour cost analysis

According to Brand, companies should conduct a rigorous analysis of all their staff costs, not only wages and benefits. Targeting key areas in the analysis can yield areas ripe for improvement.

These areas include:

  • Inefficient workflow design
  • Poor work quality that leads to rework
  • Overscheduling
  • Wasteful processes
  • Processes that can be automated

With more information at their fingertips, organisations can see at a glance where they need to make changes. As the article points out, even small changes in key areas of labour spending can make a large impact in the long run.

Maximise labour efficiency with real-time visibility

The ability to see at a glance which departments, projects, and jobs are over budget allows managers to look for ways to reduce wastage, as Brand suggested.

Thus they can tweak processes, workflows, and inefficiency to get each back on—or even under—budget.   But the devil is in detail, information to make decisions must be timely and relevant.

The most up to date information an organisation can rely on is actual data from staff timesheets, rosters and schedule. Overtime, allowances, flexible time, leave, time in lieu, higher duties etc. need to be effectively managed and reported on to provide details of trends and costs. Your business systems need to seamlessly integrate to make information visible.

Avoid High Labour Turnover Costs

When you reduce employee turnover, your company gets a huge boost in your bottom line.

Statistics show that to replace the average employee, it takes 150 percent of that employee’s annual salary. Recruiting, onboarding and training expenses can quickly add up. That’s especially true if the employee is involved in sales or management, where costs average 200 percent of the former employee’s salary.

New employees are less productive: Also, having a new employee on the job, said Baker Tilly, reduces productivity for nearly a half-year, on average. New employees usually achieve only 25 percent of the previous employee’s productivity during the first month, 50 percent during the next two months, and 75 percent during the fourth and fifth months.

Turnover reduction programs keep employees in the organisation: Even on a strict budget, a company’s HR department can create innovative low-cost, high-return programs that decrease turnover. Assigning a mentor to meet with entry-level and medium-level employees can do wonders for morale, not to mention productivity. A more flexible schedule, too, helps employees who care for loved ones to stay productive while meeting their needs outside of work.

Invest in your best performers

Since on-the-job inefficiency impacts labour costs, causing added hours—even overtime—to accomplish a task, find a way to send rosters to your best-performing staff first. Yet managers must tread carefully here. Without the proper payroll software or other technology in place, it’s all too easy to overstep Government regulations.

For example, if a careful analysis indicated that you could trim overtime by even five percent, just think what that could do for your organisation. Too, if you had the ability to adjust your staff during the middle of the week as opposed to waiting for a report at the end of the month, the savings could be tremendous. It’s those hidden costs that drain an organisation’s labour budget dry.

Boost efficiency throughout the organisation

Use time-tracking software: With an automated process to track each employee’s time on the job, a company can reduce the likelihood of cheating, as well as errors in clocking in and out. Time tracking software helps in limiting unproductive activities like checking social media, taking hour long breaks and the like. It should not be like spying software where the employees are not aware of the tracking. If the employees know that their activities are being tracked, they will less likely to waste their time. Time Doctor does a great job as a time tracking and productivity app.

Move your time and attendance record-keeping to the cloud: Enable HR personnel to manage scheduling securely from remote locations in real time through the power of cloud technology.

Use a human resource information system (HRIS) that integrates HR, labour cost management, workflow management, and payroll: With an integrated, cloud-based solution, your company can streamline routine tasks. Armed with the big-picture data you’ll get with such a solution, you’ll be able to better manage your labour costs, resulting in a leaner, more productive organisation.

Discover how Affinity’s fully integrated, cloud-based HRIS system can help your business reduce labour costs and increase efficiency. Read more about Affinity labour cost solutions.

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