Labor costs a lot of money. The single best thing you can do for your startup’s bottom line in 2021 is to reduce your labor expenses.
Experts say the total cost employing someone is 1.25-1.4 times the employee’s base salary. Due to the economic hit caused COVID-19 pandemic, many companies can no longer afford those costs.
The good news is, cutting labor costs doesn’t necessarily mean you need to get rid of employees. In fact, doing so now could jeopardize your company’s place in the economic recovery.
How can you spend less on labor without shooting your operations in the foot? Here’s how:
1. Avoid Employee Turnover
A great deal of resources are required to hire and train a new employee. Every time a business replaces an employee, it costs the company roughly nine months’ of that employee’s salary.
The higher on the organizational ladder turnover occurs, the more expensive it is. Finding a new CFO may take a year or more. Between those search costs and the challenges of onboarding a new executive, it isn’t uncommon for top-tier roles to cost twice their salary to replace.
Reducing turnover is about making sure your company culture is as strong as it can be. Check in with your team: Is flexibility what they want most? Growth opportunities? More robust health or vacation benefits? Whatever it is, it’s almost certainly cheaper than backfilling even one or two roles on the team.
2. Consider Contractors
Not every job needs to be done by a full-time employee, especially if you’re trying to save on labor costs. Consider using freelance workers to handle easily outsourced tasks, such as content development, graphic design, and accounting.
If you’re struggling to find a specialized contractor, expand your search area. Global payroll services can help you work with talent abroad that you may struggle to source domestically.
You might also consider converting full-time roles to part-time or seasonal ones. Depending on your economic situation, doing so may be your only option for keeping your employees without losing your business. And the truth is, most employees would rather their hours be reduced than lose their jobs altogether.
3. Automate All That You Can
Automation technology has advanced significantly in recent years. Although some tools come with steep upfront and implementation costs, all but boutique solutions will be cheaper than someone’s salary.
Automation tools reduce how much time team members need to spend on mundane tasks. For example, grammatical checkers like Grammarly can do minor editing work for your content development team.
What if you can’t find a pre-built automation for a certain task? Conditional systems like If This Then That can string together actions. When a new client signs, for example, IFTT can hook your document storage and communication tools so that the account team receives a Slack as soon as their contract is uploaded.
You don’t have to break the bank to automate most office tasks. You just have to find affordable tools that free up your team for human-required work.
4. Cross-Train Employees
At too many companies, employees are pigeonholed into their role and their role only. Ensuring everyone understands how the roles around them operate increases both efficiency and organizational resiliency.
Look to external-facing functions first. Every member of the team should be able to provide customer service, for example. Make sure you have your bases covered with clients and partners before you worry about whether everyone can write a blog post.
As you cross-train employees, remember that the point isn’t to make everyone an expert on everything. Your goal should be to fill gaps and to ensure you don’t have to pay a staffing firm when something unexpected happens.
5. Consider Approving Overtime
It’s true: Overtime work costs 150% as much as normal labor. But letting your existing team members work a few extra hours each week is likely to be cheaper than hiring a whole new employee.
Compare not just those costs, but the potential culture implications of overtime. Some team members might be glad to sign up for extra hours. Others, however, may see the expectation that they work more than a full-time amount of hours as unfair.
When in doubt, ask your team. The best solution might be a mixed one, with some team members working overtime and others receiving extra support from interns or part-timers.
6. Review Benefits Options
At least once a year, you should evaluate your company’s benefits. Not only do you need to stay competitive with employers in your area, but you might be able to find better deals.
Health insurance is a key one. The average annual family health insurance premium is more than $20,000. If you have 10 employees and can shave even 5% from that amount, you may save your company five figures per year.
Another important one is PTO. To stretch your labor budget, consider taking one or two paid holidays off the calendar. Most employees would prefer to spend an extra day at the office than to make less money.
7. Offer Voluntary Layoffs
Has your company reached a point where cutting down your workforce is the only answer? Instead of letting employees go willy nilly, ask which ones might be interested in an incentive to end their employment.
Say you have multiple workers in their 60s. One or more of them might be interested in early retirement if you’re willing to pad their 401(k) account. Parents might be willing to stay at home with young kids instead of paying for childcare.
Again, ask your team. Don’t force people out if you can avoid it, but do have a judgment-free conversation about who might be willing to duck out early.
Sure, employees are expensive, but they’re also vital to a company’s success. Find ways to save on labor costs that don’t stress out the wider team. You don’t want to create a culture in which people don’t feel secure. Nothing keeps your labor costs low like retaining your best employees.