Labor Cost Cutting Strategy
In a sluggish economy, it is more important than ever for businesses to cut costs. Knowing how to reduce the cost of paying employees without reducing product quality, dropping employee morale or otherwise sacrificing the way you do business can be the difference between being in the red or the black at the end of the year. Stop the Overtime
* Don't pay overtime unless it is absolutely necessary. Remember that you must pay non-exempt employees 1 1/2 times their normal rate for any hours worked over 40 in a week, so the idea is to cut out the extra hours, not just the pay. Spend some time going over the essential labor needs and figure out how to more efficiently get the work done without pushing your staff over 40 hours. Make a plan that you can put into action and you will see an immediate considerable deflation in your labor cost.Do not violate any provisions of the Fair Labor Standards Act by asking people to work overtime without overtime pay. This can result in serious problems for your business. Voluntary Schedule Cuts
* Sometimes all you need to do to improve your labor cost is to ask for volunteers. Do not ask your employees to work for free, but ask them if they would be interested in working a shorter week, according to Womans-Work.com.Before cutting overtime for essential employees and resorting to any other methods that may not be favorable to your staff, choose some employees you feel may like cutting their work week down by a day or two each week. You may be surprised to find that several people would love a three- or four-day work week.If enough employees are willing (and possibly excited) about shorter workweeks, the significant savings may prevent further action. Use Temporary Services
* Use a staffing agency to fill necessary positions without the cost of hiring new fulltime employees, according to Womans-Work.com.Temporary workers, or "temps," may be on a different line in the budget than your regular labor cost, but you will still be spending considerable money on the hours you work these employees. Use this method as a starting point to stop the bleeding of cash by avoiding the payment of unemployment benefits to these employees as well as other benefits-related costs associated with a regular fulltime employee at your company.This option also gives you lots of flexibility to use the employees when you need them and let them go when you do not. Incentives
* It is a challenge to cut labor costs without affecting the amount of work that gets done. Assume a small business makes and sells 1,000 T-shirts per week. After cutting labor, you find you are only making and producing 800 per week. Your labor cost is down, but your sales are also down 20 percent. The labor cost adjustment has failed. Offer your employees incentives to pick up the pace and get more work done in their allotted hours. If they work a little harder and accomplish obtainable goals in exchange for incentives such as bonuses (which are likely on a different budget line) or prizes that cost the company far less than the profit the extra work generated, morale will be up and the increased productivity will eventually become habit. A Recurrent Need It used to be that reducing labor costs was something that organizations only needed to do during tough times, but these days it’s a process that might need to be done on a regular basis. As the need becomes more recurrent, the demand for more options will surface. Like all things in life, cost-containment options have positive and negative impacts. The key for organizations battling volatility in the market is to use the right approach at the right time and to avoid options that present more negatives than other choices.Before you begin determining what makes sense for your organization, note that in today’s business world, labor costs involve a lot more than the salaries and benefits that your organization provides “employees.” In recent...
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