Top 3 Labor Costs & How To Avoid Them

stressed out payroll and hr manager who needs to reduce labor costs

Running a business is expensive. Specifically, having employees is expensive. Typically, labor costs average 20 to 35 percent of a business’s gross sales. And while this percentage varies by industry, it doesn’t change the fact that for most organizations, labor will be your greatest expense. So why do most businesses glue themselves to practices that exacerbate rather than minimize these costs?

With limited budgets and finite resources that could make much more of an impact elsewhere, it’s time to lean out your labor budget by understanding these top 3 expense sources and how to avoid them.

1. Employee Time Theft

If you haven’t caught any of your staff members fudging on their time cards—it’s only a matter of time (pun definitely intended). In a survey of over 500 retail and service industry personnel, over 30 percent admitted to blatant time theft. The two types they referred to specifically are buddy punching and recording incorrect start and end times.

Buddy punching, entering incorrect start times, and early punch-ins and late punch-outs result in an average of 4.5 fraudulent hours per week, per staff member. For one worker earning a wage of $10 per hour, that can be a loss of $45 per week.

2. Administrative Costs

Next are easy-to-overlook administrative costs. With paper timesheets, your managers spend a substantial chunk of their workweek troubleshooting timesheet inaccuracies and painstakingly transcribing employee hours into payroll.

On the other hand, think of everything your staff could accomplish if they were free to work on company initiatives that have a bigger payoff. For example:

  • Finding and hiring new employees so your business can grow.
  • Creating policies and procedures to keep employees safe.
  • Reducing compliance risk in your organization.

3. Expensive Overtime

Finally–and probably most expensive–is overtime. Companies that mismanage overtime for hourly staff members will have bloated labor costs that are easily avoidable!

Traditional timekeeping methods don’t provide visibility over scheduled hours vs. unauthorized overtime until it’s too late and your Payroll Manager is processing payroll. There are no warnings to alert managers when associates are approaching or have exceeded their authorized hours. And the larger your business, the greater your expense from unexpected overtime.

How To Reduce Your Labor Costs

Now that you have a good understanding of some of the main labor cost “sinks”, it’s time to make some operational tweaks to slim down your labor budget.

1. Put down the pen and paper

First, if you’re still tracking employee hours with paper time cards, it’s time to make a change! Adding an automated timekeeping system is one of the fastest and easiest ways to eliminate employee time theft and administrative costs from payroll. And these systems usually pay for themselves immediately!

Do some research to find the best system to fit your needs and budget. If you’re an SDP client, you can also reach out to us to learn more about our system, SDP Time. It’s completely integrated with SDP Connect so processing payroll is simplified to just a few clicks! Learn more

2. Schedule hourly workers

If you have many hourly workers and a variety of shifts, take a look at your scheduling practices. It may seem obvious, but always double-check to make sure you’re not scheduling overtime. (Are any employees working more than 8 hours in a day? Or more than 40 hours per week?)

Microsoft Office has some great free shift scheduling templates. (Check out the ones here and here!) However, if you want something a bit more automated, SDP also has a scheduling software that enables you to build schedules in minutes with our drag-and-drop editor. It even comes with a Shift Swapping board so employees can coordinate their own coverage (per your criteria, of course!) if they need to reschedule one of their shifts. Learn more

3. Craft a comprehensive overtime defense strategy

Overtime is complicated. It can come from a wide range of sources, be intentional or unplanned, and has the potential to eat up hours of your managers’ time. If overtime is a big problem in your organization, then you’ll need to take a comprehensive approach to it.

In this article, we’ve outlined four strategies to decrease your overtime costs. Check it out to learn how to assess your current situation, tips to set up your entire team for success, and helpful resources for ongoing monitoring.

What do you think?

Is your business a victim of inflated labor costs? What are you doing to lean our your own labor budget? Let us know your tips for keeping costs low in the comments below.

If you’d like some help implementing the cost-reducing strategies above, then let’s talk! Finally, don’t forget to follow us on FacebookTwitter, and LinkedIn for even more business tips and news.

Photo by Tima Miroshnichenko from Pexels Partner Content by SwipeClock

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