“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:
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.