8 Ways to Reduce Labor Costs

If you’re looking to increase your bottom line, it’s important to reduce labor costs for your business. We’ve compiled eight strategies to do just that.

When you think of reducing labor costs, you probably picture hard layoffs, which can have an even bigger impact on your business. However, cutting labor costs requires a delicate balance between saving money and not making processes harder for you and your workforce. 

Luckily, there are many ways to address labor costs without the need to downsize. We’ve laid out eight of these key strategies you can use to reduce labor costs for your business. 


8 Ways to Reduce Labor Costs

1. Improve Staff Retention

It’s no secret that hiring new employees is a costly expenditure. In fact, studies estimate that the cost of replacing a worker can range anywhere from 30-150% of their salary – depending on skill level.  

To reduce turnover and increase employee longevity, work to enhance the wellbeing of your employees. A few easy ways to do this include:

  • For hourly shift work, ensure employees have adequate rest time between shifts.
  • For office work, be flexible with working arrangements where possible.
  • Ensure your business is a place people feel valued for their contributions.
  • Allow employees to give honest feedback and work to implement processes that enhance their working experience.  

2. Use Technology to Increase Productivity

There are many platforms and mobile apps for business owners that can help improve productivity. From streamlining and automating financial services to making project management a breeze, using technology can make your staff more efficient. 

You can use technology to automate repetitive tasks like logging issues, recording customer information, or calculating payroll – among many other things. These can free your employees up to focus on big picture success. In doing so, you’ll increase efficiency and improve productivity. 

3. Outsource Work

Sometimes you might need work that's not covered by your regular employees, such as social media management, video editing, or even office cleaning. Many of these may be one-off projects or only require a few hours of work a week. This is especially true for new start-ups or small businesses. 

In these cases, it usually doesn’t make sense to hire a full-time or even part-time employee for these roles. Instead, you can use a freelancer or contractor that works with you for the duration of the project or as an ongoing retainer. You won’t need to pay taxes or provide benefits for freelancers, which can save you labor costs in the long run. 

4. Cross-Train Staff

While having specialist staff is important for certain tasks within a company, it can also increase labor costs. This is especially true during slower periods where specialists may have less work to focus on. It’s therefore a good idea to train up staff in other areas, so they can hop around as business needs fluctuate over time. 

Most employees are happy to learn new skills on the job, as it helps them in their personal and professional development.It makes them more well-rounded employees and can increase job satisfaction by providing variety and interest to their roles. Ask your staff if they have specific areas within the business they’d be keen to learn more about – often they already have tasks in mind! 

5. Incentivize High Performance

Offering incentives is a great way to increase performance amongst your staff. This might include bonuses, commissions, or some other perk like an extra paid day off. Incentives work by rewarding high performers and motivating lower performers to pick up the slack. 

While these incentives do cost you money, they can be worth it by increasing overall productivity, which can help you increase profits overall. Plus, unlike salaries, these are only paid out to the staff that have brought in the most revenue. 

6. Streamline Processes

Any system that is clunky and overly complex can slow employees down which raises labor costs. Finding flaws in the processes and removing obstacles can help improve this. Don’t be afraid to try new methods or scrap old systems that no longer fit your business. 

The best way to do this is to periodically review all aspects of your business and ask yourself if there is any way to improve the process. This can be everything from production and effective stock management to retail or office management. 

Don’t forget to document the processes and get feedback from your staff that work in those roles daily – they may have great suggestions to fix bottlenecks or ongoing inefficiencies. 

7. Avoid Overtime

The exact laws and regulations surrounding overtime vary depending on the state or country you live in, but generally you’ll have to pay above and beyond for overtime. One easy way to cut labor costs is by ensuring your employees aren’t working overtime, whenever possible.

This might mean readjusting schedules, bringing in a freelancer or part-time staff to help manage workloads or working with individual employees that are using overtime the most. While there may be legitimate needs for overtime occasionally, try to introduce an overtime cap so employees won’t be tempted to take advantage of the increased pay. 

8. Use Non-Monetary Perks to Drive Recruitment 

Most employers believe that above-market salaries are the only way to draw in high-quality talent, but this is far from the truth. More and more prospective employees are looking at non-tangible benefits when job hunting. This might include businesses that offer:

  • Work that aligns with their values 
  • Flexible working arrangements
  • Good office perks
  • Room for upward mobility
  • Personal development
  • Challenging and varied work 

If you can find ways to showcase these aspects of your business, you may help draw in valuable employees without having to match the salaries of big corporations. 

The Benefits of Working with Pay.com as Your Payment Service Provider

Pay.com offers a reliable and user-friendly payment solution for your business – no matter what you sell. There are a variety of popular payment options available including credit cards, mobile wallets, PayPal, and more payment methods customers prefer. 

With a frictionless checkout, you’ll be able to reduce cart abandonment and increase revenue. So whether you need a checkout page integrated onto your website or a way to send payment requests directly to your clients, Pay.com has options to fit your needs. 

Once you’ve signed up, you’ll gain access to the Pay Dashboard where you’ll be able to track your sales, gain valuable customer insights, and pull reports to make better business decisions. Pay.com makes it easy to switch with fully transparent pricing, so you’ll never be surprised at the end of the month. 

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The Bottom Line

There are many ways to reduce labor costs without losing valuable staff members. Each workplace is different, so it’s important to look at the big picture and find areas that provide you the biggest savings, without having a negative impact. It’s always important to balance the costs of running a business with profitable growth, to stay competitive in the market.

Aside from addressing labor costs, switching to Pay.com can help you better estimate your monthly costs. With a transparent, flat-fee structure, you’ll never be caught off guard with hidden fees. Pay.com makes switching easy, with a simple setup process and a variety of pre-built or custom tools available. 

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What’s the best way for a business to accept online payments?

Pay.com is the best way for a business to accept a wide variety of payment methods online. With Pay.com, online payments are protected with 3D Secure 2.0 authentication to help prevent fraud, reduce chargebacks, and increase your revenue. Plus, with the highest level of PCI DSS compliance, you’ll add legitimacy and trust to your checkout system.

Why is it important to reduce labor costs?

Reducing labor costs improves profitability and cash flow, increases efficiency, and allows for better use of resources. In short, it helps you ensure the long-term success and stability of your business. Money saved on labor can be used for other aspects of the business like product development, which help you drive growth. 

What factors affect labor costs?

Employee compensation, including salaries and benefits, is often the biggest factor affecting labor costs, as it makes up a large expense. Other factors that contribute to labor costs include the cost of training, turnover, and employee performance.

How does labor cost affect price?

Labor cost has a direct impact on the price of a product or service. If labor costs increase, you may need to raise your prices to cover the additional expenses. Conversely, if labor costs decrease, you may be able to lower your prices and remain competitive in the market. 

What causes labor costs to increase?

Labor costs can increase due to market demands such as high competition for skilled workers, changes to labor laws, and inflation. However it can also increase due to internal factors such as collective bargaining agreements, pay raises, and unproductivity in the workplace. It’s crucial to understand and address these issues as they arise.

Meet the author
Ashley Hague
Ashley Hague is a B2B writer based in New Zealand. Specializing in fintech, SaaS, and sustainability in business, she helps businesses achieve their goals. When not working, she can be found rock climbing or delving into a historical biography.
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