Published March 30, 2010

6 Tips To Reduce Labor Costs

Too many small business owners consider employees as a burden and a massive expense. Although labor and employee salaries are a significant portion to any small business budget, they are still necessary to the success of the company. Thankfully, there are ways to reduce labor costs and keep your company growing and successful.

  1. Avoid Overtime

    Overtime can be a heavy labor burden. Paying 1-1/2 to 2 times the regular hourly rate can add up quickly, especially in times of heavy production. Cutting labor costs by reducing overtime for non-exempt employees is a good strategy. Read below to find ways to prevent overtime.

  2. Hire Temp Help

    It is common in many small businesses to have peak periods of business production. A retail specialty store may have extended hours and need more employees during the year-end holidays. A clothing designer business may need extra help to produce summer styles. Whatever your need, you can look to temporary agencies to help cut labor costs.

    Why hire a full-time or even part-time employee when you only need extra help at certain times of the year? Temp help is a great way to reduce labor costs and keep your production or sales going strong.

  3. Streamline Processes

    One problem that many small businesses face is inefficiency. This stems from the lack of established and written procedures that your employees can use to make their jobs easier and faster.

    Don't reinvent the proverbial wheel every time you need a project done. Reduce labor costs by using tools like a conveyor belt for assembly, hierarchy of approval for purchase orders, written recipes for your chocolate confections, etc.

  4. Use Technology

    Technology can help you in cutting labor costs as well. Computers can automate many tasks that might need an unnecessary manual hand. Equipment can greatly reduce production time and costs, especially for certain heavy labor jobs. Even simply computer software can enhance and improve project management and workflows so that more gets done with less labor.

  5. Hire the Right Worker for the Right Job

    Know what each job entails and what necessary skills are required to perform them. Then hire employees that best match those skill sets. Your bookkeeper should have college-level accounting training. A plumber should have passed an apprenticeship. Hiring the best candidate for each job will both reduce labor costs and increase your production and efficiency.

  6. Train Your Employees

    You can help your staff and employees become more efficient and more proficient in their jobs by training and educating them. Offer an education bonus for those who wish to take a college course, attend a seminar, or even attend a conference. The benefits you'll see are greater production and ultimately a reduction in labor costs.

    Your employees don't have to be a burden. Give them the tools they need, and create efficient processes to help reduce labor costs and improve your bottom line.