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How to Effectively Manage Labor Costs

Every year, companies are overspending on their labor costs. It has been found that, on average, companies spend approximately 60% of their overall operating expenses solely on labor costs.

These staggering numbers confirm what businesses across industries such as healthcare, education, manufacturing, and retail already know and experience – labor costs often account for the highest percentage of money being spent to run a business effectively. Companies must manage their labor costs efficiently to ensure long-term success and sustainability.


Here are five key ways that your business can better control its labor cost and also increase employee productivity.

1. Forecast Scheduling Needs

Poor forecasting can lead to inaccurate schedules, which in turn can cause missed shifts and scheduling conflicts – both of which result in unnecessary costs. To solve these issues, businesses need to create schedules well in advance while taking into account employee availability, business demands as well as workload.

With forecast based schedules, management can optimize workforce allocation and schedule only the necessary amount of employees with the right skill set. By doing so, you can avoid inflated labor costs in the long run.

2. Create Error-free Schedules

Perhaps the most significant source of inflated labor costs is due to inaccurate schedules. Whether you are scheduling too few or too many people to work a shift, both can lead to money loss over an extended period of time.

With accurate scheduling, businesses are better able to forecast their labor costs and plan budgets more effectively. Outdated systems, such as spreadsheets or pen and paper tracking, don’t cut it in today’s fast-paced business world. With intuitive cloud-based scheduling software, you can adjust shifts on the go when needed and create accurate, conflict-free schedules every week.

3. Invest in Time Clock Software

A lot of hourly employees punch out after the end of their shift. This can cost your business thousands due to imprecise time tracking.

With time clock software, you can ensure that staff is not only paid accurately and that overtime is monitored correctly, but you can also control one of the most significant sources of labor costs, which is employee absenteeism.

Time clock software also provides a great way to perform employee audits and reviews. Having a high-level view of attendance data at your disposal allows you to plan future labor allocation more accurately.

4. Reduce Employee Turnover

Employee turnover is another source that drains labor costs. Turnover costs millions of dollars but also hundreds of hours spent on finding, hiring, and onboarding new workers.

The average company spends nearly $500,000 to replace a single senior executive who has an annual salary of $120,000. It costs approximately $100,000 to replace a mid-level employee with a yearly salary of $80,000. These numbers are even more concerning when you take into consideration that nearly 30% of employees quit their job within the first six months of employment.

By reducing employee turnover and retaining top talent, businesses can cut a significant portion of their labor costs.

However, employee retention requires a systematic approach, which means that businesses need to encourage transparency, promote communication, and ensure scheduling flexibility in the workplace. All of this and more can be achieved with a proper workforce management solution.

5. Automate Tasks

Automating employee workloads can significantly bring down labor costs while still maintaining quality and efficiency. As software tools become more robust and less expensive, businesses should empower their employees by providing them with these powerful workplace tools.

While you may think investing in software would be an additional labor cost, in the long run, this investment will pay off as tools will speed up and simplify employee workflows. You will find that there will be less need for overtime, and employees will appreciate not having to do dull, mundane manual tasks.

It would help if you started by automating your workforce management efforts. You can invest in a solution that automatically creates employee schedules and assigns workers who have the proper skill set for the shift. Management will maintain real-time insight into all aspects of workforce management, but without needing to engage in repetitive tasks that can be easily automated.

The solution to reducing labor costs can be boiled down to two essential items, which are better management and an advanced scheduling solution. A smart employee scheduling tool can help you in just about every aspect of this problem. It can help make better, more intuitive schedules, allow employee time and attendance tracking, and enable real-time analytics to better forecast budgets and schedules – ultimately saving on labor costs.

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