How To Reduce Labor Cost

Every business starts small. But administrative overhead often grows as organizations scale up.

And if you’re constantly on the defensive trying to solve different issues, how are you supposed to reach the next level?

Read on for five tips to gain control over your profit margins and reduce your labor costs.

1. Provide employees with predictable work schedules

Employers in Fair Workweek jurisdictions have already discovered the cost-savings and other benefits associated with providing shift workers fair and predictable schedules. Fair Workweek laws have cropped up all around the United States that require two weeks of advance notice for work schedules, no clopening shifts, and premium pay if an employee’s schedule is changed after being posted. Although compliance with Fair Workweek can be complicated, tools can help automate much of the work.

Even if you’re not located in a Fair Workweek jurisdiction, implementing similar practices in your workplace will likely decrease employee stress, increase employee morale, and result in significant labor cost savings. Employees have time to plan for transportation, arrange for childcare, reduce no-show shifts. Here are three tips to implement Fair Workweek principles into your scheduling practices.

• Give advance notice. Post employee schedules at least two weeks in advance and publish to each employee electronically.
• Provide ample rest time. Don’t schedule employees back to back closing and opening shifts without at least 10 hours off between shifts.
• Reduce schedule changes. Limit schedule changes after the schedule is posted to emergency situations only. Employees should be able to rely on their posted schedule.

2. Reduce pay overages

It’s 11:00 am and your retail store is bustling. You thought you had enough staff to cover the registers, but now you’re seeing that customers on the floor need extra assistance. It’s almost time for a shift change and one employee asks if you need extra help. You say yes without thinking.

But hindsight is 2020. Later, you’ll look over the numbers and realize that you have to pay a high overtime fee for the weekend. And, on top of that, the employee doesn’t have enough time to rest between shifts so you also have to pay an additional penalty in certain jurisdictions.

The easiest way to reduce labor costs is to cut some of these avoidable pay overages. Here are three tips to make it easier.

• Use stress profiles to alert overtime. While stress profiles might make you think of someone’s emotional state, in this case stress profiles refer to an employee’s schedule. Use automated tools that trigger a warning if an employee is nearing the max number of hours in a week so you don’t accidentally assign overtime hours.
• Ensure appropriate rest time between shifts. Some regulations, like Fair Workweek, require employers to provide an appropriate amount of time between shifts. Get it wrong, and you might have to pay a fine. Make compliance easier with a workforce management system that recognizes the requirement for rest between shifts and avoids scheduling anyone in a way that will trigger a penalty.
• Confidently record accurate timesheets. When you use manual timesheets, it’s easy to add — or leave off — hours worked. Time tracking tools with built-in geo location, timestamp, and record keeping can help make sure you always have the right hours tracked at all times.

3. Reduce labor costs by optimizing schedules

The restaurant and retail industries know this challenge all too well. Either your business schedules too many employees during hours that don’t generate enough sales, or you don’t schedule enough staff to support spikes in customer traffic. Both situations can hurt your business. You either kill your profit margins or you hurt the customer experience (i.e. future sales).

• Gain a better understanding of your business trends. Being able to improve and optimize your schedule relies on having a clear performance baseline. It’s difficult to make informed changes if you don’t know where you’re starting from. Your workforce management solution should have a dashboard that pulls together the most important heartbeat metrics for your business, such as sales, wage costs, and labor percentage. Those insights give you a clear, central report card that surfaces trends across your business on a daily basis, and overtime.
• Control costs using budgets and scheduling guardrails. Once you know where your staffing levels should be for optimal business performance, you need to enforce it. With weekly hour or wage budget targets set, managers have a visual guide of where their schedule is at compared to goal, allowing them to make adjustments as they schedule.
• Make decisions on the go. As they say, time is money. You can’t spend hours glued to your computer to make some staffing decisions. Instead, use a mobile app so you can schedule — and make changes — from anywhere.

4. Reduce employee turnover and increase productivity

It costs far more to replace an employee than to retain great employees. So take the time to invest in keeping your staff happy. Whether you manage a craft brewery or a large franchise, you’re focused on making a quality product or providing top-notch service. But to do that, you need to attract quality talent, retain those workers, and use emerging technology to empower a smarter workforce.

According to a survey of more than 1,400 shift workers, 69% of workers are worried about job security. Here are three tips to help your staff feel more secure in their jobs — and to reduce the chances of unwanted employee turnover.

• Empower your team. Enable your team to swap shifts with other employees in their squad to avoid last-minute no-shows.
• Give your staff a seat at the table. According to a recent survey, 90% of shift workers feel like they contribute to their organization’s success. But employees can quickly disengage when they don’t feel as though they have transparency into decision making. Use your communication app — and turn on read receipts — so you have a clear record of communication.
• Make wellness a priority. From mental health to physical health, it’s your job to keep employee wellness in check. Happy employees lead to happy customers — and lower employee turnover.

5. Incentivize performance

Bonuses and commission payments are a great way to incentivize employees to do their best work all the time. Bonus plans should be based on measurable performance metrics. Likewise, commission plans should be based on meeting key sales metrics. When your employees are at their most productive, sales will likely be increased, leading to greater profit margins and greater employee morale — who doesn’t love the opportunity to earn more money in the form of a bonus or commission payment!

• Align bonuses with clear outcomes. Review bonus plans and make sure they incentive performance in a measurable way.
• Make goals a priority. Review commission plans to ensure that sales metrics and commission payouts are up to date and aligned with your sales goals.
• Communicate often. Communicate performance goals to managers and staff to make sure everyone is on the same page about what is required and what the incentives are.

Reduce turnover — and increase productivity

Whether you manage a craft brewery or a large franchise, you’re focused on making a quality product. And making sales. But to do that, you need to attract quality talent, retain those workers, and use emerging technology to empower a smarter workforce.

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