How to reduce labor costs in your business

Salaries and rewards are one of the largest costs of every company, and are often the most difficult to control. But changing compensation is a sensitive topic for those who are affected, so it is important to handle the changes with compassion, truth, and firmness.

A way to do this is to identify your key employees and get their commitment to your plans before you implement them. Companies which take the decision of reducing the compensation or fire employees without considering other methods to increase productivity, or reduce costs suffer from poor morale, indifferent customer relations, and further declines in sales, potentially falling into a bad financial situation from which there is no recovery.

Tips to lower direct Labor Costs

We have a few tips to guide you through a difficult but necessary process to make sure your company is positioned to survive and flourish in any economic environment.

1. Review Levels of Compensation

Salaries and compensations tend to move one way: upward, even when markets and financial conditions change. Check your pay schedules to be sure they are in line with current trends, not the result of history. If current employees are earning more than what would be paid for their jobs today, delay or make only token raises until such time that your payroll comes in line with current trends.

Have a sincere talk with the employees affected so that they know what to expect and why their expected raises will not happen as in the past. You might also suggest ways they can become more valuable to the company by adding skills to earn future raises.

2. Reduce employee turnover

If you have significant turnover, you have excess costs in your operation due to the fees and salaries of those people engaged in the recruitment, selections, employment, and training of new employees. The indirect and invisibles costs are poor quality, longer production times, greater waste, greater oversight, and even fraud, since your employees view their time with you as temporary. Maintaining a stable employee core is the key to effective cost-cutting.

3. Cross-Train employees

Specialists- workers with a unique skill or license- generally demand a better payment in the marketplace. But they also inhibit your ability to make changes in your operation because you depend upon their skills. Any staff trained to perform a variety of tasks will enable you to make changes, including layoffs, without affecting your ability to deliver products or services to your customers.

4. Trade time off for payroll expense

Some companies have cut costs by changing their hours of operation, for example, going to a four-day, 10-hour per day work week from a standard five-day, eight-hour work day in return for a lower salary or wage may be welcomed by employees who seek more time with families or on personal projects.

5. Share jobs between employees.

Office jobs are best known for sharing responsibilities. Replacing full time employees with part-time workers can reduce your administrative costs without necessarily reducing the hours for which the full-time employee was available.

6. Convert fixed salaries and compensations into commissions or fees.

Rather than fire employees, try to convert their costs into an expense that is only paid when there is accompanying revenue. A salaried salesman may be willing to accept a higher commission rate and less guarantee, or an installer might accept work as a contract laborer when work is available.

7. Automate and Outsource Non-Critical Tasks

Technology, specifically computer software, has improved enormously in recent years; it can handle more tasks, it is user-friendly, and it’s inexpensive.

Take advantage of your existing employees by using the most up-to-date tools to simplify and speed up their work. Consider outsourcing your specialized needs to third parties, especially if your use of those services is occasional and noncritical.

8. Work overtime before hiring new employees

Before hiring new employees, consider if your current employees can do the work if they are available. If so, try to expand your delivery deadlines and/or add overtime. Most employees enjoy the extra pay. Compare the costs of overtime pay with the full costs of attracting, evaluating, hiring, and retaining new employees.

Via: Money Crashers