How To Reduce Labor Costs

Tips to Reduce Labor Costs

Whether you run a manufacturing facility, a retail business, a restaurant, a call center, or countless other enterprises, labor costs are likely to make up a significant part of your budget. Creating jobs is one of the joys of owning a business, but that doesn't mean you should waste money. To safeguard your bottom line, you should actively look for ways to reduce your labor costs as much as possible.

To help you out, we've gathered seven tips on how to reduce labor costs. Check out these strategies.

1. Streamline processes

Wasted time is wasted money. Look at all of the tasks your employees do on a regular basis, and make sure there are repeatable processes in place. Take a step back and analyze your workflows to see if you can make them more efficient.

Look for redundancies and eliminate them. Automate manual processes whenever possible. This can require some creative thinking, and to get ideas, you should talk directly with your team. Find out what frustrates them. Ask them where they see bottlenecks in processes. Get their ideas for making processes more efficient. Then, implement, observe, and make changes as necessary.

2. Avoid overtime

Paying overtime rates is often an unnecessary waste that's easy to avoid with a little planning. Make sure you have ample employees so that you don't need to schedule overtime very often. Also, invest in tools that alert you if an employee is approaching overtime.

Strategically analyze your schedule to predict busy times and schedule accordingly. For instance, if you run a call center, you need to look at call volume at different times, but for a retail establishment or restaurant, you need to assess sales trends.

Planning ahead helps to ensure you're not tempted into letting employees rack up overtime when they're at the end of their shift but you need extra help.

3. Reduce employee downtime

When trying to figure out how to reduce labor costs, you also need to think about all of the times when you pay your employees to twiddle their thumbs. For customer-facing businesses, you will almost inevitably have ebbs and flows in your labor demand. Keep your workers busy during these times. Whenever possible, have them pick up extra tasks so that you can avoid paying someone else to do them.

If your kitchen crew, for example, preps vegetables during the slow parts of their shift, the morning team may be able to come in a little later. Or if your retail or office team cleans for a few minutes of every shift, you may be able to reduce cleaning costs.

4. Create predictable schedules

Reducing labor costs doesn't just mean cutting hours or streamlining processes. Although it may seem counterintuitive, you can also reduce labor costs by improving conditions for your employees.

Predictable schedules can help, and if you live in a place with Fair Workweek laws, you may be statutorily required to provide predictable schedules. If possible, provide your employees with set schedules, consult with them about the best schedules for their lives, and give them at least two weeks' notice before changing their schedules. This reduces employee stress, which in turn boosts focus and productivity.

5. Build loyalty

In that same vein, anything you do to build loyalty in your team will ultimately help to reduce labor costs. When people feel loyal to a company, they feel proud of their jobs, and they tend to work harder. They're also less likely to leave, and higher retention rates can save you a lot of money on recruitment, onboarding, and training costs.

To foster loyalty, incentivize your employees for good work. Keep in mind, however, that while everyone appreciates free lunch and casual days, you need to make sure that you also provide your employees with competitive pay, benefits that make sense for their lives, and meaningful work experiences.

6. Evaluate your benefits packages

Great benefits are important for driving engagement and retaining employees, but you need to ensure that you aren't wasting your money on benefits that your employees don't use. Track what you spend on benefits and look at their return on investment. In some cases, this can be hard to measure through numbers alone. Instead, you may need to use employee satisfaction surveys.

If you realize that you're spending money on benefits that aren't important to your employees, get rid of them. Then, replace them with benefits that are low cost to implement, with high returns. For instance, some companies are augmenting retirement accounts with emergency savings accounts. Also, make sure to shop around to ensure you're getting the best prices on the benefits you do offer.

7. Protect your time

Look at how you spend your time and make sure that you're optimizing your skill set. You don't want to get stuck working in your business when you should be working on your business. To give you a quick example, imagine that you're spending a lot of time on administrative or customer service tasks. Because you're so busy, you're ignoring your marketing, not planning ahead financially, and overlooking development opportunities for employees.

Outsourcing these tasks costs money — which may be hard to spend when you're looking for ways to reduce labor costs. But ultimately, it helps you improve your business. Rather than getting bogged down in the everyday, you're focused on the big picture. That's critical if you want to be successful.

Get More Tips to Reduce Labor Costs

At Flynn & Company, we are dedicated to helping our clients succeed. You understand your industry, but we understand the numbers. When you partner with us for CFO and accounting services, we help you understand the financial aspects of your business so that you can make the best decisions possible.

Whether you're looking for the best ways to reduce labor costs or other strategies to drive profits, we can help. To learn more about our services and how we can support the growth and development of your company, contact us today.