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How to Manage Employee Costs for a More Profitable Small Business

“What I do when my employee costs are
threatening my profit margins?”

It’s a question many—if not most—small
business leaders must ask themselves. With labor costs taking a big bite out of
the budget, it’s tempting to only think in terms of salary cuts or even
lay-offs. As tempting as it may be, these types of extreme cost-reduction
tactics may not be the most feasible, or even the wisest, course of action to
take.

Recognize
the value

Even though wages and employee expenses
are one of the most considerable costs for business owners, your workforce is
your greatest asset. Trimming employee-associated expense is a delicate and
highly personal endeavor, on both sides of the desk.

Communicate with employees before
beginning any cost-maintenance, restructuring, or reduction campaign and
provide frequent updates along the way. This is critical to avoid speculations
and rumors among your staff. Smart leaders identify who their key employees are
and bring them into the process.

Take
a strategic view of compensations

Rarely, except in times of severe market
downturns or recessions, do salaries decrease. Typically, wages go up over time
to account for inflation and increasing company performance as well as to
reward employee accomplishments. A review of compensations may reveal increases
have surpassed the market performance and revenue growth.

Another factor in evaluating compensation
is unevenness in pay levels. This happens when some employees are paid
significantly more than others for similar contributions. It’s a good idea to
check salary averages in your industry, geography, and job type to make sure
the salaries you’re offering are in line.

Speak frankly to employees about smaller
pay raises or delays in hikes. Some staff members may be willing to take slight
pay cuts in return for fewer hours, especially if a work-life balance is
something they value.

Hang
on tight to good employees

The greater your employee attrition rate,
the higher your costs associated with hiring new employees. Are you considering
all the costs of a new hire?

Business leaders are aware that benefits
and taxes will tack on another 25 to 40% to base pay. But that doesn’t account
for nearly all the costs associated with bringing on someone new to replace the
one you’ve lost.

On top of wages, you will tap into
profits for recruitment,
training, and loss of productivity while new employees get up to speed. When
everything is added up, your company could stand to spend between 1 and 2.5% of your total revenue
per hire!

The moral of the story is to find out
what’s essential to your best employees and strive to retain them.

Get
more from the talent you have now

No company can afford to lose a key
employee at a pivotal point when that member’s expertise and knowledge are
critical to success. Companies can avoid this potentially catastrophic event by
cross-training their employees.

Cross-training gives your business more
resiliency in the event of a sudden vacancy. You will gain more flexibility to
withstand disruptions without missing a beat and be able to move forward
seamlessly. Another significant advantage to cross-training is developing
up-and-coming employees to take on new challenges.

Open
your doors to telecommuting

If your company policy requires all
employees to work on-site, you may wish to reconsider. Given the many benefits
of telecommuting to both you and your employees, you might be missing a
compelling advantage to your balance sheet.

Working from home can make your
employees’ lives easier, cutting down on travel time and paying at the pump,
and giving them more opportunities for a balanced life. A Stanford
University
study of work-from-home
workers found:

  • Performance increased by 13% in nine months attributed to increased
    efficiency.
  • Retention increased by 50% due to improved worker satisfaction.
  • Productivity increases saved companies about $2,000 a year per employee.

The study also found that workers took
fewer breaks, days off, and sick days.

Considering all these statistics, it makes sense for
companies to think about offering telecommuting to better manage employee
costs.

Outsource
with Goodwill for your non-critical or repetitive tasks

In many instances, it makes more sense for small businesses
to outsource non-critical and repetitive tasks to an outsourcing provider
instead of hiring a handful of new employees. With outsourcing, business owners
gain access to an entire pool of dedicated workers without the overhead costs
of recruiting, hiring, training, and retaining multiple new staff members.

At Ohio Valley Goodwill, our Industrial Services Division
provides cost-effective, high-quality outsourcing solutions to firms in
Cincinnati, Northern Kentucky, and Southeast Indiana. When you choose Ohio
Valley Goodwill for your outsourcing needs, you also support our non-profit
mission to provide meaningful employment to individuals with disabilities.
Partnering with Ohio Valley Goodwill for outsourcing services is a win-win for
your business and your community. You can feel great knowing that you’re not
only improving your business, but you’re also improving the lives of others.

Let us help you and your team manage overhead costs, improve
efficiency, and reach your business goals. Contact us today to learn more and receive a free
tour of our facilities.

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