Labour Management 101: Rising Above the Increasing Labour Costs

One of the highest costs in the world of business is labour; as a business owner, you're probably aware of it. It can account for as much as 70% of your overall business costs, including benefits, employee wages, payroll, and other taxes

According to a recent survey, HR management only spends 15% of their time dealing with labour costs due to other more urgent tasks getting in the way. 

However, a great opportunity lies for HR management to step out of their comfort zone and execute methods to stay afloat despite the rising labour costs

While not a single solution will solve it all, some of the tactics below are helping businesses stabilise these challenges. So, how will you rise above the increasing labour costs? Find out below. 

Offer Perks That Don't Hit Your Profit 

Today, the work-from-home option has transcended quickly from a benefit to an expectation to most employees. According to a survey, 43% of employees view the flexibility to work remotely as a necessity. Moreover, flexible work appeals to staff more than those big-ticket perks such as free gym memberships or tuition assistance. 

Expand Options for Employment Types 

Consider using more part-timers and freelancers instead of relying too much on your full-time employees. Doing so helps you manage staff costs through reduced benefits, taxes, and overstaffing. Although freelancers may cost more per hour than full-time employees, most company owners say it's way more cost-efficient as they tend to be more productive. 

Also, never underestimate part-timers as they can be your dependable and most productive workers. In addition, changes in priorities and demographics mean that more people prefer working as part-timers. For example, many parents in an online job survey reported a dramatic increase in wanting to work part-time. 

What makes this type of work appealing are these essential details: 

  • Focus on roles with specialised skills to utilise shifts effectively. 

  • Offer additional perks (e.g. free online counselling or gift vouchers)

Photo by: Rachel Claire | Pexels

Avoid Overtime 

Check your employee schedules and examine how overtime is transpiring. Doing so can curb the rising overtime costs that can eat away your company's income. First, review your current number of employees on a specific shift to compare different shift patterns. Then, look at which part you can improve to boost productivity and minimise the need for overtime. 

You can easily map out shifts needing filling if you have good workforce management software. Not just that, you can even track overtime and flag discrepancies effectively. We discovered that 30% of companies today are utilising time-tracking or time clock apps. 

Make sure to cross-train your employees whether you have a manual or cloud-based system solution. The more options you have for completing tasks and shifts, the higher the likelihood of reducing overtime. 


Consider a Performance-Based Scheme 

Linking pay to performance that favours your top-performing employees can provide you with long-term benefits, financial-wise. Top-performing companies are using a performance-based pay system. However, before you begin, it would be best if you evaluated what merits a bonus or salary increase.  

For instance, you could give bonuses after employees fulfil tasks or exceed annual sales goals. To achieve this, make sure these guidelines are transparent and clear, applying them evenhandedly to avoid any sense of prejudice. 

Evaluating how you pay off employees regularly and apportioning their time can help attract and keep top-performing workers. Keeping productivity at its peak and protecting your business's financial aspect. 

Labour Cost—What Is It? 

Generally, businesses divide labour cost expenses into indirect and direct costs. 

  • Direct labour costs - includes employee benefits, hourly wages, and payroll taxes paid by you for employees that are part of the production of goods and services. 

  • Indirect labour costs - refer to workers who are not actively part of producing goods and services (e.g. marketing, human resources, and accounting). 

Ways to Go Ahead the Rising Labour Costs 

To stay above the increasing labour costs, you must manage workplace efficiencies. By understanding your current trends and labour costs, you'll have ways to minimise costs. And to do that, here are some ways to help you out. 

  • Choose a streamlined HR, timekeeping, and payroll solution for efficient processes and accurate labour data for your shareholders. 

  • Implement a time and attendance software solution to ensure employees are correctly clocking in and out. 

  • Automate and centralise administration benefits to help your employees through a selection of benefits and determine plans and packages appealing to your workers. 

Across the world, regardless of industry, labour costs are rising. Hence, leaders and owners keenly assess areas that can effectively reduce spending. That said, having the right technology can give your HR management the awareness of essential labour parameters. 

More so, being responsible for managing and forecasting labour costs positions you as a strategic leader within your company.

Photo by: destiawan nur agustra | Pexels

Labour Cost Formula 

Calculating your labour cost is pretty straightforward. To get the labour cost in percentage, divide the labour cost by gross sales, then multiply by 100. Ensure you include all costs you're paying—bonuses, benefits, commissions, and all taxes. 

Labour Cost Percentage = (Total Labour Cost / Total Gross Sales) x 100 

The Driving Force of Labour Cost Increase 

Across all industries, labour costs seem to be dramatically increasing for many reasons. 

  • The minimum wage in various countries has increased

  • Hourly rate pay for employees has increased by roughly 5% over the past 12 months

  • Mass leaving of people in the workforce

Key Takeaway 

The increased labour costs without technological advancements that boost productivity can shrink employers' eagerness to hire employees. Thus, business owners must act fast and smartly to combat increasing labour costs. Adapt to the latest tools and software that can help you streamline and unify organisation processes, resulting in a robust and more productive workforce without compromising your customers, employees, and revenue. 

RosterElf: Rostering Made Easy 

RosterElf's cloud-based rostering software truly is a game-changer. Say goodbye to roster conflicts and chase employees for their availability to work. Instead, employees can easily update their availability to work and notify managers about it through a smartphone app. 

Staff set the times and days they can work, and RosterElf does the rest. Our software then automatically suggests available employees fill shifts. 

What are you waiting for? Time to take your rostering and payroll game to the next level and boost your business' performance. Call us now at 1300 353 000 and our team will be more than happy to assist you. 

To get a clearer view of how our app works, enjoy 30-day access to our tool for free!

Have Questions?

We Have The Answers

What strategies can businesses use to manage rising labour costs?

Businesses can manage rising labour costs by offering flexible work arrangements, using part-timers and freelancers, avoiding overtime, implementing performance-based pay, and investing in efficient HR and timekeeping solutions. These strategies help optimise workforce productivity and reduce unnecessary expenses.

How can flexible work arrangements help reduce labour costs?

Flexible work arrangements, such as remote work options, can reduce overhead costs and increase employee satisfaction. This approach often appeals more to employees than traditional perks, leading to higher retention rates and lower recruitment costs.

What are the benefits of using part-time and freelance workers?

Part-time and freelance workers offer flexibility and cost savings on benefits and taxes. Although they may have higher hourly rates, their increased productivity and specialised skills can be more cost-efficient for businesses, allowing for better budget management and adaptability.

How can businesses avoid overtime costs?

Businesses can avoid overtime costs by optimising employee schedules, implementing workforce management software, and cross-training employees. These measures ensure efficient shift coverage and task completion, reducing the need for overtime and controlling labour expenses.

Why is performance-based pay beneficial for managing labour costs?

Performance-based pay aligns employee compensation with productivity and achievements, motivating top performers and ensuring fair reward distribution. This system helps attract and retain high-performing employees while maintaining a sustainable payroll budget.

What are the direct and indirect labour costs?

Direct labour costs include wages, benefits, and payroll taxes for employees directly involved in production. Indirect labour costs cover expenses for employees not directly part of production, such as those in marketing, HR, and administration.

Important Notice

The information contained in this article is general in nature and you should consider whether the information is appropriate to your needs. Legal and other matters referred to in this article are of a general nature only and are based on RosterElf's interpretation of laws existing at the time and should not be relied on in place of professional advice.

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