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Why Spiralling Labor Costs Is a Red Flag For Businesses

The wage bill each business has to pay sits alongside fixed overheads like rent as being one of the biggest cost every business has to bear. Payroll ..

The wage bill each business has to pay sits alongside fixed overheads like rent as being one of the biggest cost every business has to bear.

Payroll cost can be a significant burden for many business, particularly at a time of economic uncertainty and shifting factors in the marketplace. When employer contributions to things like healthcare, pensions and other benefits are taken into account, this can easily account for more than 50% of total costs.

Failure to control these costs effectively can quickly lead to business feeling the pinch and having to resort to drastic measure to combat them. Typically, this includes cutting staff, either by making them redundant or reducing their hours, or increasing the price of their products and passing this cost over to the consumer. It also makes the business more vulnerable to competitors and eats into the capital that may be set aside to help grow the business in the form of advertising, marketing and sales.

In fact, the introduction of the UK’s national living wage during 2016 saw a number of companies slash staff perks and benefits to counteract their rising costs. The result of this saw unhappy, disillusioned and demotivated staff, so much so that one manager even set up a petition which attracted nearly 150,000 signatures to combat the proposed cuts to staff benefits.

Firing staff, cutting perks, reducing hours or increasing prices may help protect the bottom line but they also create unhappy employees and unhappy customers. Luckily, there are ways to control labour costs while keeping everyone happy. They include:

Working smarter. There are many ways business can work smarter to control labour costs. Businesses who rely on scheduling can automate this process to make sure they always have the right people in the right place at the right time. Where a workforce management system is used, this can then also help generate more powerful forecasts which means there are never any ‘dead’ hours where time and money is wasted. Technology can also help make staff more productive by improving communication and reducing the time spent on labour intensive admin tasks. 

Make employee engagement a priority. It may seem counterintuitive to invest in employees in order to reduce costs yet engaged employees are more productivity and have a direct impact on profit. According to a study from Gallup, businesses with engaged employees see a 22% increase in profitability. What’s more, research from Watson Wyatt found companies with strong employee engagement deliver a return for their shareholders of 64% across a five year period compared to 21% for those with a low level of engagement. From focussing on ‘wellbeing in the workplace’ to creating a culture where your employees can thrive, by keeping them engaged they will stay with you for longer, make you more money and keep your customers happier. This also includes investing in your employees training and development.

Optimise your business. Whether it’s better task management, streamlined communication, more automation, using data to help make better decisions or simply making sure you hire the right staff to begin with, the more areas of your business you can optimise (and the more marginal gains you can find from all areas of the business) the lower costs will be thanks to your improved efficiency.

The most important thing to avoid is being in the position where you have to let staff go, cut their hours or hike up your prices to tackle rising labour costs. You want a smiling workforce and we want to help give you one.

If you’d like to find out more about how your approach, the use of a workforce management system and engaged employees can help you control your labour costs then we’d love for you to view our webinar where we’ll show you how. 

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