You’re Cutting Labor Costs All Wrong – 3 Right Ways to Do It

Small Business Growth

As much as you hate to do it, there may come a time when you must cut costs, starting with what is considered the biggest business expense, namely labor costs. You can go about cutting labor costs in a number of ways. Those ways may cause a great deal of pain if they involve laying off staff members, cutting employees’ work hours or reducing payroll expenses by reducing how much you pay your employees. Well, then, what are the alternatives? How can you cut labor costs the right way so that there is as little collateral damage as possible to your business?

1. Is Overtime Really Necessary, or Is It Overrated?

Do employees really need to work those extra hours that you have authorized? That additional time can add up and do serious damage to your bottom line. If you run a restaurant, for example, then you already know the huge amount you are paying for labor alone. Better scheduling and planning could avoid this unnecessary expense. Moreover, when workers are better trained so that they can become more skilled at what they do and they can subsequently do their jobs faster, then the need for overtime should dwindle. While overtime might still be needed from time to time, at least by applying the aforementioned suggestions, fewer hours would be needed. In the grand scheme of things, you will not have to lay off anyone—just keep hours in check.

2. Are You Positive Some Employees Might Not Want to Work Fewer Hours?

It is a given that an employee will work a certain number of agreed-upon hours at your business. After all, that is what they signed up for when they were hired. However, the question must be asked: How certain are you that every employee wants to work the full number of hours they have been assigned? Ask them in order to find out. Perhaps some would love the opportunity to actually work less due to other responsibilities, such as a change in family obligations or they would love to have the time to go back to school or participate in other personal development activities. If employees voluntarily agree to fewer hours, that would potentially represent a huge savings to you, without the guilt of having to enforce a reduction in hours on anyone.

Along the same lines, job sharing or work sharing might be really attractive to some employees as well. This type of work arrangement enables, for example, two full-time employees to divide up their 40-hour workweeks so that instead of each one doing the 40 hours individually, they accomplish it through a combined effort. You can work with them to decide on how many hours each one would like to handle. By agreeing to split up the work in this way, you have the benefit of having employees voluntarily cut back on their hours to fulfill other endeavors of theirs that they would like to pursue.

3. Is All That Software You Have Really Necessary, or Can You Consolidate?

Many companies keep various software packages for each and every division. That can add up. The problem lies in the risk of a great number of redundancies creeping up. In addition, data integrity is compromised exponentially. There is software designed to avoid this risk by pulling everything together and putting it all under one roof: enterprise resource planning (ERP) software. Regardless of the word “enterprise” in its name, ERP software is for businesses of all sizes.

You can find a suitable ERP solution that will enable you to consolidate all of your existing systems, give you greater visibility into companywide operations; and, thereby, save considerable costs both near term and long term. Charles Phillips, who helms Infor, a leading business software company that has ERP offerings for small businesses, believes it is important for small- to medium-sized businesses (SMBs) to have these products and services especially since so few companies have provided them with these choices, opting to focus on larger organizations instead.

The Long and Short of It

As shown, when you have to cut labor costs right now, you can do so in more meaningful ways than needlessly putting heads on the chopping block. You can improve your profit-and-loss statement by cutting labor costs in more constructive ways—cutting overtime, seeing if employees want to voluntarily reduce their hours and implementing ERP software—and that will have less of an impact on your valuable workers and, by extension, morale.