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Reduce Labor Costs in 5 Simple Steps

Controlling the rising costs of thin-edged hourly workers is essential for restaurants.

Labour costs continue to rise as businesses try to increase revenues in a competitive market. In a recent survey of US businesses on hourly workload, increasing profits was a major concern, but nearly half of respondents said they had no control over profits. When asked “What is the best strategy for controlling profits?” most gave the same answer: controlling labor costs.


So what can companies do to control the bottom line by reducing labor costs?

1. Review and adjustment of the current remuneration package

Regularly evaluating a company’s wages, salaries and benefits can help reduce costs in many ways. First, use tools like Glassdoor or PayScale to examine each role to see if you’re paying employees more than their average market value. Then narrow down future employees to better match the current market and recruitment, and create a new plan to replace automatic growth and performance-based growth with revenue-generating reports.

Consider converting your sales role to a commission-based pay structure, as many employees love the flexibility and earning potential it offers. In addition, changing several roles from full-time to contract or part-time (outside of 30 hours per week) could allow employees to expand their experience with other companies while saving full-time employees money on mandatory medical costs. But the advice in these guidelines is this: Take care to make sure you classify your employees correctly to prevent disputes. You can also go to a health insurance broker to get cheaper coverage or reduce the cost of your health insurance by choosing a high deductible.

2. Reducing overtime and other excess payments

Every company knows that overtime (more than 40 hours per week) can add up quickly, as it is one and a half times an employee’s typical hourly wage. In addition, wages in the United States are expected to grow by an average of 3.2% per year. This means that if your hourly employee earns $10 today, you’ll have to pay them $11.71 over 5 years, or 17% more. For a worker working 30 hours a week, that’s an increase of $2,600 over last year, just to maintain a competitive wage.

To reduce wage and overtime costs, we recommend using more part-time employees or hiring temporary workers. There are also stress analysis tools that notify managers when employees reach the benchmark of 40 hours of overtime, allowing managers to set schedules without overtime. Finally, please note that you cannot trade for paid overtime leave (unless the invoice is accepted).

Time theft is a hidden cost of labour in which employees charge their employer for hours not actually worked. This does not necessarily mean that employees are stealing from the company, as this can be unintentional, such as fatigue, early termination, long breaks, rounding time, and eliminating friends (24/7 for employees who are in and out). that are not here). A study by the American Employers Association estimates that for every dollar earned by American companies, 20% is lost to employee time theft. With a simple time and attendance app, you can accurately track when employees are in and out (including breaks) and includes geo-fencing and face recognition settings to eliminate early changes and hasty friendships. These timesheets are then immediately synchronized with your payroll provider to save time and administrative costs.


3. Reduce labor costs by optimizing schedules

The restaurant and retail industry is all too familiar with this problem. Your company schedules too many employees at a time when it is not generating enough sales or not scheduling enough employees to support an increase in customer traffic. Both situations can hurt your business, as the former kills your bottom line, while the latter affects the customer experience (i.e. future sales).

Employee scheduling software that provides workforce forecasting, where you can integrate previous POS sales data or specify your own parameters (such as employee availability, PTO, overtime request profiles, training and shift costs) to predict the appropriate amount of labor needed (and by function) per minute. These tools create optimized charts that best meet your profit goals.

4. Reduce employee turnover

The cost of losing an employee is far greater than the cost of hiring and retaining great employees, so take the time to invest in keeping employees happy. If you need some tips to get started, check out our latest article on Improving Employee Engagement for Great Business Results.

As Millennials and Generation Z become the largest segment of hourly workers, and this group lists “learning and development” as their main reason for continuing to work, make sure you provide adequate opportunities for inclusion, continuous learning and development. Translate your business and role views into a career, not a short stay. Restaurants, for example, offer career opportunities such as culinary training and sommelier certification.

Cross-training employees is another best practice for developing employee skills while doing more with fewer people per shift (i.e., saving labor costs). It also has the added benefit of allowing employees to train other employees’ skills instead of paying an outside trainer. And if an employee leaves unexpectedly, many of their employees get repetitive training, so they don’t have to spend recruiting dollars to change roles.

5. You get a tax credit when you hire new employees

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses that hire employees from eligible groups with certain barriers to employment and does not limit the number of employees represented. This tax credit allows individuals to move from economic dependence to self-sufficiency as a taxpayer. The maximum tax credit for participating businesses ranges from $1,200 to $9,600, depending on employees hired, hours worked, and compensation. Eligible workers include unemployed veterans, Temporary Assistance for Needy Families recipients, food stamp holders, community-designated residents, vocational rehabilitation applicants, ex-offenders, security income recipients, summer youth workers living in empowerment areas and opportunities, and long-term technical assistance recipients.

Note that employee benefit plans, such as dependent care and education benefits, and contributions to qualified employee retirement plans are tax deductible.

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