April 25, 2019

How to Manage Labor Costs More Effectively


According to a recent study by Deloitte, the typical Fortune 500 company is overspending $30 million dollars each year on labor costs. The study also found that on average, companies spend between $1 billion and $2 billion on labor costs per year, which is nearly 60% of their overall operating expenses.

This staggering data only confirms what companies across industries such as retail, manufacturing, healthcare, education, and life sciences already know and experience—labor costs most often account for the greatest percentage of money that’s being spent to run a business. It’s critical that companies manage labor costs effectively to ensure long-term sustainability.

Here are five proven ways your organization can better control labor costs and increase employee productivity:

1. Keep schedules error-free

The biggest source of increased labor costs is inaccurate schedules: whether you are scheduling too many people to work a shift or too few, both can lead to losing money over an extended period of time.

With accurate scheduling, organizations are better able to forecast labor costs and plan budget more effectively. Antiquated systems and tools—such as Excel spreadsheets or pen-and-paper—don’t cut it in today’s business. With an intuitive cloud-based scheduling platform, you are able to adjust shifts on-the-go when needed and create precise and conflict-free schedules every time.

2. Forecast scheduling needs

Poor forecasting leads to inaccurate schedules which, in turn, cause missed shifts and schedule conflicts—resulting in unnecessary costs. To solve these issues companies need to create schedules well in advance—taking into account business demands, workload, and employee availability. With forecast-based schedules, managers can optimize workforce allocation—and schedule only the required number of employees with the right skill set, and thus avoid significant costs in the long run.

3. Start using a time clock

According to a Harris Interactive Inc. survey, 69% of hourly employees clock out before the end of the shift. A similar trend was identified by a recent Accelo report, which found that companies pay around $110,000 for the costs of imprecise attendance tracking.

Improving punctuality makes a huge difference to labor costs, and having a way to monitor employee attendance habits keeps your team honest.

With a time clock functionality, you will ensure that not only is staff paid accurately and the overtime transparent to managers in real-time, but you will also control one of the biggest sources of labor cost—employee absenteeism.

A time clock also provides a great way to perform employee reviews and audits. Having clear attendance data at your disposal allows you to plan upcoming labor allocation better as well.

4. Reduce employee turnover

Employee turnover makes a significant portion of labor costs. Turnover costs not only millions of dollars but also hundreds of hours that are spent on sourcing, hiring, and onboarding new employees.

The average enterprise spends $480,000 to replace a single senior executive whose annual salary was $120,000, and $110,000 to replace a mid-level employee with an annual salary of $80,000. These figures are even more concerning when considering the fact that nearly 30% of new employees quit within the first six months.

By reducing turnover and retaining talent, companies will cut a dramatic portion of their labor costs.

However, effective, repeatable talent retention efforts require a systemic approach, which means that companies need to nurture transparency, ensure scheduling flexibility, and promote real-time communication in the workplace. All this and more can all be achieved with the right workforce management platform.

5. Automate non-critical tasks

Automating part of employees’ workload can bring down labor costs while maintaining efficiency and quality. As computer software becomes more robust and less expensive, companies should empower employees by providing them with potent workplace tools.

While investing in software appears to be just an additional labor cost, in the medium- and long-run, this investment will pay off, as the tools will speed up and simplify the work. There will be less need for overtime and employees will appreciate being relieved of dull, manual tasks.

Start by automating your workforce management efforts first—invest in a solution that automatically creates employee shift schedules and assigns workers who have the right skills, or which allows employees to trade shifts without the need for your intervention. Both managers and scheduling professionals will maintain real-time insight into all key aspects of workforce management, but without having to engage in repetitive tasks that can be automated.

The solution for managing labor costs better can be boiled down to two key items—better management and an operationally and technically integrated scheduling solution. A smart employee scheduling platform can help you in just about every facet of this problem—it helps make better, more intuitive schedules, allows employee time and attendance tracking and reporting, and enables real-time analytics to forecast better budgets and schedules—ultimately driving savings on labor costs.