7 Rules for Managing Labor Costs

By Vladik Rikhter

Labor costs can be, well, surprising for a first-time entrepreneur, even the most prepared one. Depending on your business, as much as 30% and up of your dollars can get funneled into payroll alone. Based on our own learning period in managing sometimes unwieldy labor costs, we decided to put together a mini-primer with some of the ideas that were the most effective for us.

1. Be vocal and open.

Your staff may be experiencing pain points in their work that are causing them to log longer and longer hours. Foster an open environment in which people feel comfortable bringing up difficulties. Your staff isn’t necessarily going to stand up and declare their pain points. Use this dialogue to seek out the strugglers and help them find new, proactive ways to approach their workload.

2. Set up guidelines.

There’s a happy flip-side to maintaining an open environment… you end up being clearer about the expectations on your end. Instead of always worrying about the end of the productivity chain (i.e. the employee) you should quality check the task initiation on your end. Are you being clear about what you want done and how quickly you want it accomplished? Have you set up parameters that staff can follow if their duties in a given pay period take them into overtime?

3. Eliminate incremental overtime.

Incremental overtime is a killer. Bit by bit, early check-ins and late clock-outs create huge overages. It can be difficult to stay on top of it; after all, you have so much else to stay on top of as it is, don’t you? Using time and attendance software to trim the ends and closely monitor what’s going on makes a big difference. Attendance software can also help your employees be more aware and exact when clocking in. Eliminating these small amounts of time can result in as much as a 2% reduction in payroll.

4. Don’t assume.

Smaller shops and businesses don’t necessarily have the advantage of following a top-down hierarchy— pushing low value activities down and out isn’t going to happen. A lot of you might hesitate to delegate laterally. Don’t assume anyone will be offended– they know you’re in a growth stage, and they should not hesitate to help even out the workload. Don’t assume you know all the assets they bring to the table. One of your employees could have graphics skills you’re not aware of, for example.

5. Shift to an incentive-based model for bonuses.

There’s nothing wrong with limiting bonuses to performance, whether individual or company-wide. It’s becoming the norm, really. As long as you’re open and honest about it and don’t use it to instigate unhealthy competition, it can be an excellent driver of productivity. Plus, it can get all your employees on the same page, and focused on achieving a big goal together as a team.

6. Get rid of the stress.

You’ve heard it before, but a lot of companies still aren’t getting the picture— stress is a big problem. One study found that 52 percent of employees miss 1 to 2 days each year due to stress, while 30% miss 3 to 6 days. Moreover, the majority of employees say that a stressful work environment work reduces productivity by one hour each day. An hour a day lost from each employee? Harsh— one hour a day is 12.5% of an employee’s salary. If any employee is making $32,000 a year that translates into $4,000 a year in lost productivity. Stay on top of stress in your office.

7. Outsource already.

There are a lot of seasoned freelancers out there, and they’re within easy reach. They’re cost-effective for short-term or low-priority projects, and they of course don’t expect benefits. If you and your team are overloaded and looking at expensive OT to wrap up a project, source some outside professionals to get you through the crunch.

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