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6 Ways to Reduce Labor Costs and Keep Your Business’s Payroll Down

Looking for tips on how to control labor costs without letting go of employees? Here are 6 ways to reduce labor costs and keep your payroll manageable.

Creative Ways to Cut Labor Costs

When you run a small business, you have to watch every penny you spend. Profit margins can be slim, especially when business expenses and employee salaries take a big bite out of your budget. So how can employers control labor costs without laying people off?

Be creative! Businesses across the country are keeping their work forces intact by cross-training employees, eliminating contingent work, avoiding overtime, using technology and allowing telecommuting.

Hang on to your labor force and keep payroll costs down with these 6 simple labor cost saving tips:

1. Streamline Operations with Training and Education

Employee flexibility is important because versatile workers can pick up the slack when a co-worker is sick or out of town. Cross-trained employees also enhance productivity and reduce the cost of labor through:

• Increased Efficiency: Processes improve because workers have to analyze their performance so they can train others.
• Professional Development: Employees who are trained to do other jobs expand their skills and become more valuable.
• Smoother Operations: Companies with cross-trained employees can recover from disruptions and handle transitions more easily.

Cutting labor costs

2. Say “Goodbye” to Contractors

These days, many businesses use freelancers and on-demand workers to save the cost of hiring someone full-time. It’s a great way to get work done for less money. But when budgets are tight, eliminating these contract positions helps cut costs quickly with little trouble.

Freelance workers know up front their jobs are temporary so management shouldn’t be reluctant to let them go. They’ll realize an immediate cost-saving benefit when those jobs are cut.

3. Eliminate Overtime Hours

Employees love overtime because it’s a great way to boost their paychecks. But paying 1½ times the hourly rate can get pricey for a small business owner. Eliminating overtime for non-exempt employees is a good strategy to quickly reduce labor costs without laying anyone off.

Try re-organizing work rosters and job routines to prevent the need for overtime. Another possible solution might be to have some employees start earlier in the day and others later, so coverage is provided during all business hours.

Labor Cost Management

4. Work Smarter with Technology

Why not get rid of those paper time sheets you’ve been using? They’re old-fashioned and probably inaccurate. That mechanical time clock that always breaks down is a drain, too. Plus, paper time cards have to be tallied and restocked, a weekly task that can take hours and add costs.

According to the American Payroll Association, an automated time and attendance system can reduce annual payroll expenses by up to four percent. Employees can submit timesheets online, swap shifts and request time off anywhere, anytime from a web-connected computer.

Online systems streamline payroll, improve accuracy and allow businesses to focus on more pressing matters.

Labor Cost Reduction

5. Slash Overhead with Telecommuting

Allowing employees to work from home can reduce one of the biggest costs a business owner has – overhead. When employees work from home, their employers need less of everything, from office supplies to space for work stations.

Studies show telecommuting not only saves labor costs, but also contributes to happier employees. The end result is economical on many levels: employees who work from home take fewer sick days, stay with the company longer, have fewer unscheduled absences and increased productivity.

According to, unscheduled absences cost employers an estimated $1,800 per employee a year. Telecommuting also reduces attrition, which is invaluable because losing an employee can cost anywhere from $10,000 to $30,000 a year in recruiting and training.

6. Make Automation the Norm

When you run a small business, you have to work smart or you’ll lose time and money. Calculating labor costs and employee wages with an automated system makes sense.

Add your employees’ hourly wages in Tracksmart get an accurate forecast of labor costs for any future time frame. You can also download reports to help you view and manage labor cost details that impact your business.

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