4 unexpected culprits of high labor costs

As the owner, HR Manager or even CFO of a business dealing with hourly workers, there’s a high chance this crossed your mind recently: 

Why are our labor costs so high?
What can we do to bring it down? 

You’re not the only one 🙂

High labor costs is common issue in the blue-collared industry, with costs directly proportional to the worked hours of full time and part-time employees

In this article, we cover 4 unexpected culprits of high labor costs and how you can overcome them. By taking these steps early, you’d be surprised how much benefit your business reaps just by making simple tweaks today! 

1. OT Overspend

If you never batted your eyelids about OT overspend, pay attention to what we’re about to share. 

This is the BIGGEST secret to reducing high labor costs. Here’s why: 

Jim, an entrepreneurial young man, owns a single cafe outlet. Every day, 10 employees work overtime (OT) for 10 minutes. Based on a conservative OT pay of $15, this costs him: 

10 employees * (10/60) * $15 OT pay * 365 days = $9125
That’s $9125 down the drain every single year. 

To put it into context, that’s the revenue of 455 plates of $20 pastas
Or 202 pieces of merchandise at RTP $45 each… Ouch!

If you have 100 employees, OT spend costs you a mind blowing $91,250 per annum. ????

Don’t even get us started about the power of compounding… 

OT overspend is one sneaky fella! It keeps businesses like yours stuck at a labor cost when you could actually be saving so much more. 

Businesses absolutely need a smart time tracking system that tracks OT only when it was necessary. Check out what really makes a smart time tracking system here 2. Time Theft

Who is the latest villain in town? 

Oh, he’s time theft! 

It’s all rainbows and butterflies when business owners look their employees in the eyes and say, bursting with sincerity, “I trust you :)”

These teams have chosen Trust as their time tracking system. Owners feel especially good about it because of how they think they make their employees feel. 

But there’s a reason why “trust issues” exist.

Time theft is rampant in the hourly work industry, where employees write earlier clock-in timings or later clock-out timings. You may be thinking “What’s 10 minutes a day anyway?” 

‘Scuse me sir, it’s 60 hours a year.  

Yes, you want to be the good guy but… we implore you, be the good and wise guy!

Nobody likes to spend the day snooping around and suspecting their employees. However, during the month-ends when you are reviewing the timesheets and find yourself wondering:

• Did they really come in at this timing?
• I thought I arrived earlier than him. 
• Should I check the CCTV?

Take it from us – these are sure signs you need a time and attendance system that is Not trust. Eradicate the seeds of mistrust, and poor performance. Once and for all. 
3. Poorly Optimized Schedules

Schedules are the backbone of daily operations and yes you guessed it – a huge bulk of planned labor costs!

Get your schedules right, and you’re all set for success. Get them wrong and you’ll be looking at unplanned labor costs at the end of the month.

Do your work and ensure you allocate the right amount of manpower, so you can stay well under budget. Here are additional tips to keep your schedules in tip-top shape

Understand your business trends – Location, time of the day, major events or even spontaneous news could affect foot fall. Understand what affects your business, and you would be able to forecast your manpower needs better. 

Invest in a scheduling system – Schedule with the ability to see costs in real time as you schedule. This empowers your managers to create schedules that keep in line with manpower goals, as well as labor budget for the month. On top of that, cost and productivity reports help you to plan better in the future. P.S. Not sure if a scheduling system would benefit you? Check out the 6 signs you need a scheduling system. 4. High Turnover

It’s more expensive to hire and train up new employees than to keep existing ones. With the hard work required in the hourly work industry, a high turnover is no surprise. Here are some tips on how to keep it low: 

Compensate fair: Compensate slightly above the market rate. Controversial? We like controversy! Hourly employees work long hours for their keep and every dollar matters. By giving a more generous compensation, it’s a sure signal to your employees that you value them and their efforts. Money is the 6th love language!

Talk to your people: The hourly work job scope can be quite monotonous at times but human engagement makes it all the better. Simple conversations to get them involved in decision making can make them feel more heard, seen and valued in the workplace. 

Reducing Labor Costs:
a High Calling, a Tough Mission? 

It definitely is if you’re not equipped with the right tools! Make a switch and we promise you’ll be surprised at how much labor costs you can save 🙂 

Want to read more? 

Check out how Tea Tree Cafe saves 50% of a manager’s monthly salary with StaffAny. 

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Keen to bring down your labor costs?
Book a Demo with one of our specialists today!