When you employ staff there’s a balancing act involved. You need them to work, and while you’re happy to pay them, you also need to manage business costs to remain profitable.
So how do you strike the right balance?
Wages are typically among the largest operating expenses of any business. This is especially the case when the business is growing - if sales are increasing, wages are necessary to keep up with demand.
However, as things start to plateau, you need to keep wages in check so the business continues to make a profit.
The trick is keeping your people efficient and productive without sacrificing your capacity or ability to make money.
Like any outgoing expense, the importance of labour cost control is significant. Expenses are necessary to run a business and make money, but they need to be kept in check.
It gets slightly tricky with labour when it comes in a few different forms:
Direct labour is money spent on people involved in the supply chain. These people contribute to the operational side of the business, enabling you to deliver your core service or produce goods.
Indirect labour is spent on people who support the running of the business, but are not essential to the operation. For example, marketing or finance staff that help to grow and administer a business, but aren’t critical to the core business.
Fixed labour costs, as the name suggests, are expenses that are unlikely to change. The clearest example is salaried staff who are paid a set rate regardless of how productive they are or what activities they’re doing.
Variable labour costs go up and down with production. It can include people on hourly contracts, temporary staff that work when they’re needed, or maintenance contractors.
Variable labour cost control can be difficult, as these expenses can be hard to predict, and they’re often necessary to temporarily increase the capacity of the business.
So what can you actually do to take control of labour costs without impacting your capacity or earning potential? Labour cost management is about finding efficiencies and enabling your people to be more productive so you can generate more revenue.
Labour costs often get out of control when people are working on old priorities, or non-essential parts of the business. Building your labour force from the ground-up with a focus on strategic goals helps to focus on growth areas while also minimising labour spend in other areas.
This alignment may involve a business restructure, or at least a reprioritisation of tasks or roles.
Unpredictable work schedules create inefficiencies and the likelihood that people don’t turn up to work on time or ready to work.
Variable shifts are easy to forget, but regular hours make it much easier to plan for their commute, childcare and other aspects of their lives outside the workplace. Even if your people can arrange all these things, the stress of having to make last-minute arrangements can mean they’re not as productive at work.
Look to implement regular hours wherever possible, and give advance notice of rostered work so your people can make arrangements if needed.
Employers need to have an intimate understanding of what roles people are working in, on any given day. If you don’t, it creates the possibility that people are working in areas that don’t align with business strategies.
This is where it pays to have accurate scheduling and rostering so your workforce is properly allocated to priority tasks.
Pay overages are about labour costs that are above usual rates. Overtime is a common example.
Overtime can be necessary to keep the business running, but if you’re paying a lot of overtime then it’s probably time to schedule your labour better.
Having too many people rostered on at one time is a common labour overspend in sectors such as retail or hospitality.
It’s important to understand labour requirements at any point in time to make sure you always have enough staff, but never too many.
Untrained staff are inefficient. If they don’t know how to perform a certain task, or they do tasks in a way that makes them take longer, it’s not their fault - it’s yours.
Read more: The employee onboarding checklist
Have a standardised training process that means you don’t miss anything and your people understand how to perform everything they’re expected to do.
Managing payroll and rostering manually is itself costing you more in labour. It takes longer to do and is prone to errors.
However, using small business management software not only speeds up the process but it brings to life insights that you may not know. For example, the previous points around knowing when work is busy and being able to reduce overtime hours your people are working.
The idea of redundancies might sound unpleasant, but they’re often necessary to better align the business towards new or existing priorities.
One common feature in all of these labour cost control measures is transparency. As a business owner or manager, the more visibility you have over what your labour requirements are and what staffing resources you have, the more you’ll be able to align the two.
This is where using payroll and labour scheduling software like Smartly sets businesses apart.
Smartly makes it easy to set up your labour costs across a range of different departments, keep track of labour costs in real time and get insightful reports that help you to make informed staffing decisions.
Find out more about Smartly’s advanced features that make it fast and easy to streamline your labour costs, enabling your business to grow efficiently and effectively.
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If you want to learn more about how your day-to-day tasks can be made simpler, you can chat to us to get some insight on how payroll software could benefit your business. Smartly can make the complex tasks seem simple including payroll, timesheets, leave and more! Smartly takes care of most of the faffing, so you can focus on the important stuff.
