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7 Ways to Reduce Labor Costs in Your Business

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The proposed $15 minimum wage in the United States continues to be a heated debate. The immediate reaction of most people to such a measure is usually positive. There aren’t many against a just wage for the workers who help companies thrive.

There is, however, another side that many often overlook. Although $15 per hour sounds great, the reality is that such a wage can drive up an employer’s labor costs and eat into a business’ net income. Inevitable cost-cutting measures typically follow, such as job cuts and closures.

Business owners want the same thing: solutions that enhance productivity and increase revenues. Payroll that’s too high makes this less likely. With that said, how do you reduce labor costs without compromising your operations and hurting staff morale? This guide lists seven creative solutions to manage payroll costs.

7 Ways to Cut Labor Costs

Here are some tips to reduce labor cost without affecting production and employee performance.

1. Cross-Train Employees

Smart hiring decisions are at the foundation of efficiently managed labor costs. Employees with multiple skills can cross over to other departments and render some of their work hours to accomplish other tasks. You can cross-train new hires who have shown potential during the interview process or offer additional training to current staff who might be interested in stepping up their game. The goal of cross-training is to reduce labor costs by optimizing employee skills instead of hiring new people.

2. Hire an Independent Contractor

Another way to manage labor costs is to hire an independent contractor instead of a full-time employee. The contractor’s output will be on an as-needed basis, so there’s no need for this person to come to work or log full hours. In addition, payment for an independent contractor will depend on what’s stated in your agreement, whereas an employee must receive at least the minimum wage, whether or not they were busy. Working with an independent contractor eliminates the following:

  • Compliance with federal minimum wage regulations
  • Payroll taxes
  • Unemployment insurance
  • Workers’ compensation and disability
  • Benefits, such as pensions, sick days, health insurance, and vacation time

3. Eliminate Redundancy

Redundancy in the workplace refers to a job that has become obsolete. If you want to efficiently reduce labor cost, identify and eliminate positions that duplicate employee production is a good start.

A position may become redundant for any of the following reasons:

  • Reduced need for the tasks associated with the role
  • Automation in the workplace
  • Cross-trained employees

Employers can eliminate redundancy by:

  • Freezing hiring
  • Eliminating overtime
  • Updating employee benefits
  • Considering layoffs
  • Hiring part-time employees and/or independent contractors

4. Outsource Tasks or Teams

More companies worldwide are moving toward a business model that includes outsourcing as part of their employment strategy. Contracting with an outside party to perform specific tasks has many advantages, including the reduction of total payroll. Those advantages include the following:

  • Full-time employees can focus on core tasks
  • Reduced payroll costs and benefits
  • Flexible workforce
  • More time to develop full-time staff

5. Invest in Technology and Automation

The technological revolution has had a significant impact on the demand for labor. Machines can now do certain tasks with more than twice the speed and accuracy of a human.

Introducing automation to your processes is another way to reduce payroll costs. The initial investment in the technology might be high, but the long-term savings more than make up for it. The benefits of automation include:

  • Low-cost, high-volume production
  • Improved safety records (reduced chances for human error)
  • Limited union presence

6. Invest in Professional Development

Not all methods of cost reduction require elimination. You can also make an investment that pays dividends down the road.

Investing in professional development benefits both the employer and the employee. It allows a company to align the development of its workers with its needs and strategic goals. On the other hand, employees who broaden their skills make them more valuable to the company, which can translate to higher wages. A company with a multi-skilled workforce can optimize its labor dollars by either consolidating roles or placing cross-trained employees at strategic positions where their talents make the most impact.

7. Involve Employees in Cost-Cutting Efforts

Employees who feel their voices are valued are happy employees, and happiness translates to better performance and higher productivity. Involving staff in the discussion when it’s time to tighten the belt goes a long way.

People on the ground can provide deeper insight into how a company can cut costs without necessarily trimming payroll. At the very least, seeking their input is great for boosting morale and might even mitigate some of the negative effects if and when some jobs have to be eliminated.

Reduce Labor Costs With the Help of C9 Staff

Smart hiring practices and efficient workforce management are huge contributors to keeping labor and operating costs down. You can implement any or all of the recommendations above, or you can keep things simple and easy on your end by partnering with a trusted offshore outsourcing provider that can get you the right people and manage your entire team.

C9 Staff can provide the best, multi-skilled talent from anywhere in the world at cost-efficient rates. Through our unique end-to-end managed services, all your recruitment, workforce management, and payroll functions are taken care of, so that you worry less about labor spend and focus more on scaling your business and generating revenue.

Contact C9 Staff today to learn more about how our outsourcing services can help reduce your labor costs significantly.


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