Strategies for Small Businesses to Improve Labor Costs Management

Labor costs are undeniably the biggest expense that businesses have to deal with. On average, this accounts for up to 70% of the total company expenses. The growing labor costs are affecting both small and big businesses, particularly in the industries of finance, healthcare, and retail. Such costs include wages and salaries, employee benefits, workforce-related insurance, and other business taxes.

For businesses with smaller budgets and limited resources, it’s understandable that reducing labor costs is a priority. Some organizations are forced to provide high-deductive or low-cost medical plans, while other companies are even pressured to reduce the number of employees.

However, in the face of rising labor costs, these common strategies are not always the best solutions. To help you better manage your small business’ labor costs, here are some techniques you can consider.

1. Set up predictable work schedules

Predictable schedules are a standard offer for many organizations looking to save on labor costs. The increase in employee morale and decrease in work stress associated with such perk can help your business cut on expenses.

At the same time, you can minimize no-show shifts by providing your employees with a more manageable schedule. They can plan for childcare and transportation. Employees who have time for their health and well-being are more likely to be present and productive at work—no wasted money.

In implementing fair work schedules, inform your employees in advance. Make sure your shift workers also have enough rest time. Ideally, there should be at least eight to ten hours off between the closing and opening shifts. Once posted, schedule changes should be limited to emergencies only.

2. Boost employee retention rates

Staff turnover can cause significant cost disruptions in any business. Cycling through employees is expensive. On average, a company will need to spend at least $6,000 hiring for a single position. You could have spent that money on systems or stock to boost your business revenue. Take note that hiring, interviewing, training, and working on retention involves time and money.

If your company faces staff turnover every three months, you’ll have to reassess your current workforce, culture, and conditions. Employees leave their jobs for various reasons, including unhappiness with management, lack of recognition, limited career opportunities, inadequate salary, and benefits, etc.


To improve employee retention, ensure you have a smooth onboarding process and professional training programs for your new hires and existing staff. Other strategies you can perform are promoting a healthy work environment, performing company climate surveys, offering flexibility and staff recognition, and providing a competitive salary.

3. Improve team productivity

Workflow is a critical element in your team’s productivity. Disorganization and bottlenecks can result in inefficiency, which, in turn, also costs you a significant amount of money.

To help your team become more effective and productive, review your existing workflows and processes. Improve everything that shows a lack of structure or is already outdated. This way, you can identify the time-wasters and bottlenecks preventing your team from getting the job done efficiently. Besides workflows, many organizations also choose to invest in technology to boost their employees’ performance.

For example, upgrading to more powerful mini-computers is an excellent help in reducing hiccups when performing multiple tasks at the same time. Mini PCs are also inexpensive and use less power compared to their traditional counterparts. So, you’re not just boosting your staff’s productivity, but you also get to enjoy significant cost savings.

4. Cross-train your staff

Another smart move to better control your company’s labor costs is to cross-train your employees. This is ideal if you have a significant number of tasks that can be performed by different employees. Cross-training enables you to prevent costly oversights and delays in your operations in case a staff calls in sick or wants to take a vacation.

That means your other employees won’t have to wait for the absent key individual to process the orders or answer a general client inquiry. However, bear in mind that cross-training won’t work with specialized tasks. This approach is ideal for day-to-day or basic duties. Apart from reducing costly delays, your employees also get to learn new professional skills as you cross-train them.

Labor costs are no question rising, which is why looking for appropriate ways to reduce your business spending is imperative. Take note of the business and financial suggestions in this article before you decide to cut the number of your employees. After all, you don’t want to reduce your business’ productivity and efficiency because you have to lay off some of your staff. Nonetheless, you can always collaborate with financial experts to help you control and forecast labor costs.

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