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How Can a Business Overcome Rising Labor Costs?

For most business owners, the cost of labor is one of the highest expenses that they face daily. These costs tend to soar when overall wage limits increase because of new mandates.

The problem is that when you begin to even consider controlling costs, many people panic and think that their jobs are at risk. This can result in lower productivity and even lower employee morale.

Want to know how to overcome the rising cost of labor without causing panic across your company? Read on to find out.

What Causes Labor Costs to Rise?

As the economy moves forward, so do the costs of labor for various businesses around the world. This is mostly because of the increase in the minimum wage limits which apply to hourly workers. 

With the minimum cause steadily increasing, and no sign of them slowing down, it means that businesses have to find ways to increase their bottom line. This is because if they are paying out more, they may lose control of their financial resources quickly.

Labor costs typically rise when other factors occur in society such as rising prices of gas and other necessities. People have to find ways to account for the increase in the cost of living which results in them needing to bring in more money per month.

How Do the Rising Labor Costs Affect the Bottom Line?

As it affects the bottom line, certain businesses begin to struggle with the rising costs since they are not often selling more products or services. If this remains the same, but labor costs increase, their bottom line can suffer.

When this occurs, business owners or managers begin to wonder how they can increase their revenue while maintaining the same amount of staff. Adding in additional staff can result in an even higher cost of labor.

This leaves them needing to come up with creative solutions to overcome these rising labor costs while at the same time retaining staff and keeping morale high. This can be a huge challenge since the traditional way of doing things no longer makes sense.

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There are several ways a company can keep morale high while battling high labor costs. 

Ways You Can Overcome Rising Labor Costs While Keeping Morale High

As managers and business owners begin to look at how they can overcome rising costs of labor while also keeping the morale of their employees high, it can be quite challenging. Although it can seem impossible, by considering a few things, they may be able to make a difference in their bottom line.

Check out these ways that businesses can overcome the rising costs of labor:

1. Plan the schedule of employees more efficiently

Creating a set schedule that employees can follow each week can not only increase morale, but it allows you to know how every minute of the business is running. This is because instead of focusing on a schedule that has always worked, you can begin to think outside the box.

If you take the time to take a look at the hours your business is open as a whole and then find the best staffing hours for it, you can save a lot of time and money. This is because you may be missing several factors that could be increasing your labor costs overall.

One way to do this is to reduce the number of days someone works per week. This does not necessarily mean that you are looking to reduce their overall income, it just means that you are saving costs by not having to spend it on an extra day at work.

2. Know and understand the cost of each employee

Known as the labor burden rate, the total amount that an employee is receiving other than their basic salary is important to understand. When managers or business owners understand the whole picture, they have a better idea of how much money they are paying.

What this means is that you have to take into account not only their salary but also any extras that they receive. This includes overtime fees and bonuses, and employer portions of any benefits they receive. 

Once you know this information, it helps you understand how much the business is truly paying for each employee. Knowing this gives you the bigger picture which, in turn, can be the starting point to saving labor costs.

3. Reduce or eliminate overtime for employees

While many people enjoy the benefits of extra overtime from time to time, it can wreak havoc on the bottom line of labor costs. This is typically because when employees work overtime, employers are required to pay time and a half.

Because of this, even though employees benefit from the extra pay, it increases the labor costs by a time and a half for each employee who works overtime. It is difficult to reduce labor costs if you are even occasionally or even regularly allowing employees to work longer hours.

Aside from the labor costs of allowing employees to work overtime, you also have to consider the toll it may be taking on the morale of those employees working extra hours. Even though they may enjoy the additional pay, working extra hours can cause them to be exhausted.

4. Change employee time off options

As you consider reducing the labor costs within your company, you should keep in mind that this means more than just the amount you are paying employees. While this is a big part of costs, it is not the only factor to consider.

Benefits such as employee time off can cost the company a certain amount of labor costs as well. When you consider vacation time, sick time, and anything else that you offer, this can add up over time.

Instead of offering different types of time off, many companies are now combining this into what they refer to as PTO or personal time off. Doing this allows companies to allow for the unlimited time that they can be off work as long as they are willing to do some work at the same time.

5. Find creative ways to retain employees

Research shows that it costs companies twice as much money to hire new employees as it does to retain existing employees. This is because while current employees may have more benefits and such, new employees have to be trained and may require new equipment.

While you are working to reduce your labor costs, you should consider finding creative ways to retain employees from the very beginning of their employment. Doing this can keep morale high and cause there to be fewer instances of turnover.

The first part of employee retention is to ensure that you have the right people in the right positions. While a lot of this has to do with their qualifications, you also should consider if they have other skills that could be used in different positions.

6. Offer pay bonuses for increased performance

Although this one does not sound much like it would reduce labor costs since it entails giving additional money to employees. However, when you set performance bonus options, productivity typically increases.

When productivity increases within a company, more products are created which can be sold to make up for costs. When this occurs, you will typically pay for the bonuses and most likely have additional profit left over.

In addition to the extra productivity, creating performance bonuses will also increase the morale of employees. They often will feel like they are working for something and being appreciated along the way.

The way this helps to reduce labor costs is that, while it does bring in some extra profit, it also helps to retain employees. When they stay at the company, you reduce costs by not having to fill new positions constantly.

7. Understand and outline various job descriptions to reduce overlap

As you are working to reduce overall labor costs, you must be defined what each position in the company entails. Doing this will help to ensure that there is no overlap between positions which means you are not paying more than one person to do the same job.

Combing through all of the positions may mean that you will need to let some people go, however, for the most part, everyone else will know exactly what they are expected to do each day.

8. Consider either automating or outsourcing tasks

Are there tasks that some of your employees do that are redundant? If so you may want to consider automating them to reduce time and money. This means that if there is software that can do the same job, this can result in lower labor costs.

In this day and time, there are many tasks that companies choose to not only automate but outsource. This means hiring a company or individual outside the business to do specific tasks.

The advantage of outsourcing is that while there are costs associated with it, they can be much better than having to pay for in-house labor costs for someone to do the same job. This will free up employees to take on other roles that can cause better productivity.

9. Cross-train employees

Many companies have chosen to cross-train employees to reduce the cost of labor of hiring additional staff. This means that you have more people trained to do the same job which can help in emergencies.

Additionally, cross-training employees can help to increase morale since it takes them out of their comfort zone and allows them to learn something new. Even if they do not get to use the skills often, it helps them and you to know that they can step in at a moment’s notice.

When an employee gets sick or leaves the company suddenly, it often wreaks havoc on production. Having other employees who can do the job means that the job does not have to come to a grinding halt.

10. Consult with your human resources department for other ideas

Tapping other resources can also be a great bonus when you are looking for ideas on cutting labor costs. Your human resources department is the experts in this field for a reason so it makes sense to call on them in this situation.

Setting up the time to meet with HR can give you some peace of mind since they are likely the ones to implement new processes anyway. They will likely enjoy being involved since they are the ones that have to work harder when there is turnover.

In addition to HR having expertise in the areas of labor costs, they can also walk you through the legal side of making any of these changes. The last thing you need when you are trying to reduce costs is to face a wrongful termination lawsuit. Human resources can help.

How Does Overcoming Rising Labor Costs Affect Your Customers?

Keep in mind that while the key to overcoming rising labor costs begins with the inside of your business, you also need to consider how it will affect your loyal customers. This is because if you have to reduce the number of employees you have, it may affect how your customers see you and the company.

Oftentimes, when you have to reduce staff to save on labor costs, the quality of service can be compromised. It is important to ensure that this does not happen within your business no matter how you have had to go about changing things.

Many studies have shown that the way to keep great customer service from decreasing is to ensure the continuity of staff you have on hand. When customers see that you are consistent they are more likely to keep returning.

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Consulting with HR can help you come up with ideas to lower labor costs. 

Are You Ready to Overcome Rising Labor Costs in Your Business?

The bottom line when it comes to overcoming the rising costs of labor is that there is hope for you and your company if this is affecting you. By taking some specific steps, you can help to keep labor costs at a minimum.

When considering reducing labor costs while retaining existing employees, it is important to ensure that you have a retention plan in place from the beginning. Learning more about the newest trends in hiring can help you not only hire the best but also retain your current employees.

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