Saving & Managing Money

8 Ways to Cut The Labor Costs Of Any Organization

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Reducing labour costs will make your company more streamlined and ensure that the budget has enough room for other things. The eight ideas below are a great step forward for any organization!

Consider Employee Compensation

Irrespective of inflation and market trends, wages and salaries tend to increase. For this reason, it’s crucial to ensure that there’s a correlation between the compensation offered to employees and the current market. If you deduce that the wages you provide are higher than what the market requires, reduce the wages by offering a symbolic raise to employees. If this is what you choose to do, make sure you openly discuss it with your employees and also let them know how long this symbolic raise will last.

Reduce Employee Turnover Rates

A high turnover rate of employees costs every company a great deal of capital. From the salaries of departing employees and the recruitment process to the job applications of new hires, these are all processes that require the allocation of funds. There are also indirect costs that impact an organization such as wasted materials and longer production cycles. In short, doing what you can to retain current employees can help positively impact funding.

Negotiate Work Hour Adjustments

Some companies find success by cutting the working hours of employees through direct negotiations. For example, consider asking employees to work four days per week at 10-hour shifts versus five days per week at 8-hour shifts. Talk about a small cut in salary but also explain the benefits for the employee such as more time with family.

Consider Implementing Fixed Variable Salaries

It’s crucial to talk to employees about implementing variable salary rates. This helps your organization by only providing an income increase as the company does better in their own business.

This is becoming a popular industry standard, but do bear in mind that employee wages still need to meet basic minimum wage requirements. For example, in Spain, employees aren’t allowed to have variable rates beyond 30% of their wages. Marketing specialists and other professional salespeople have a certain degree of variability in their incomes based on their performance. Their income is greatly dependent upon how well the organization performs.

Opt For Part-Time Workers

Part-time employees can significantly decrease labour costs as they require lower salaries. As such, they don’t qualify for additional compensation or benefits offered by the company for traditional full-time employees.

Many companies opt to have a shortlist of employees they can call when they need quick part-time workers. It’s a system that works because it’s transparent! Ensure that you always have a lone-worker solution in place should it be required. Bear in mind, the largest expenditure every company has is labour costs, which is why you need to do everything in your power to significantly reduce these overheads.

Outsource Work

Choosing freelancers for outsourced projects is a great way to further reduce overhead costs. Though their hourly wages demand higher costs than regular employees, you don’t have to pay for their training or any potential benefits. In short, it’s an economical alternative to full-time employees.

Automate Tasks

Adapt modern technology to suit your needs and automate repetitive tasks to reduce the workforce. It’s a great way to increase productivity without relying on additional staff. Of course, this does require an upfront investment in automated technology and does require existing staff to receive proper training.

Avoid Department Redundancies

The larger a company is, the more departments it has. That means many clusters of teams emerge with little to no communication existing between the different sectors. This can result in duplicate work and tasks being carried out.

It’s important to reduce the amount of redundancy between the existing departments in the building. This is possible to achieve by completing periodic reviews and analyzing processes as well as workflows. It’s also crucial to establish the workplace requirements of all employees and let them know what their job descriptions actually are. Lastly, ensure you make it clear that you require a clean line of communication between all departments working within the organization to eliminate redundancies.


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