6 ways organizations can realize a labor cost reduction.

Amid growing concerns that a global recession is imminent, business leaders in nearly every industry are considering various cost reduction measures. Labor costs are often a prime target of these cost-cutting strategies.

However, reducing your workforce spend can be a little tricky. On one hand, labor costs typically make up a large portion of the overall company budget. Being able to cut costs in this area can have a significant impact. On the other hand, you must maintain competitive salaries and benefits to acquire and retain the talent you need to grow your business.  

It’s important to take a broad view and consider a range of ways to reduce labor costs. This should include examining the financial impact of trends in your existing workforce — such as rates of absenteeism and staff turnover.

In this blog, we look at six areas where business leaders can support cost savings and highlight some specific solutions that can unlock valuable benefits for your business.

1. lower staff turnover and absenteeism

If you're preoccupied with immediate labor costs, such as paying to advertise job openings and onboarding new workers, you might overlook the financial repercussions of what's happening in your existing workforce. Employees leaving or taking a lot of time off is a good example.

If your organization is like most, having the right workers with the necessary skills available at the right time is paramount to meeting productivity goals and delivering goods and services on time. Consequently, high rates of staff turnover and absenteeism can cause significant and costly problems within your organization.

The most obvious cost implication of people leaving or being absent is having to pay for additional staff to fill workforce gaps. These gaps could result in high levels of overtime hours or the continuous need to fill positions. There are also indirect costs that aren't as simple to track in your budget, such as the productivity losses that occur when an experienced employee departs or you’re forced to run a shift with limited employees.

These consequences can be felt across various areas of the company, as people from different departments have to redeploy resources to keep the core business running.

Solutions: 

• Keep turnover down with a dedicated employee retention plan, potentially focusing on concepts like your employer brand, staff development opportunities and how you can promote a good work/life balance.
• Create attendance policies that state exactly what you expect of your employees. Enforce them consistently across the entire workforce.
• Keep track of absenteeism rates. Reward those with good attendance records and engage with those who are frequently absent to discover the root cause and look for a solution.
• Improve your recruitment and selection processes to ensure you're hiring the right people at the right time and minimizing staff churn. An HR services expert can help you do this.

2. realize a time and cost reduction by relying on flexible staff

A common cost challenge for companies is having to hire flexible staff to increase production capacity at times of peak demand or when the workforce is temporarily depleted because of people being absent or on leave. Having the capability to scale your workforce up and down as necessary can allow your company to meet production goals while cutting overall costs.

Aside from direct costs, such as filling temporary roles and maintaining contingent workers, business leaders should consider the time and productivity implications of bringing new people on board. For example, when workers have to take time out to help train contingent workers, their own output could suffer as a result.

Furthermore, the HR department has to consider the costs involved in regular recruitment and candidate selection, which affects the time you're able to spend on improving your existing workforce.

The procurement team, meanwhile, has to account for the cost of training materials and other assets required to ensure new hires are prepared to do the job well.

If you frequently rely on contingent workers to fill workforce gaps or temporarily increase capacity when production picks up, you could benefit greatly from working with an HR partner that specializes in flexible staffing.

Solutions: 

• An HR services firm can take on the administrative burden of recruiting flexible staff, managing key tasks such as onboarding, shift planning and supplying clothing. In fact, the right HR solutions company can handle the entire contingent workforce management process.
• A dedicated partner can also act as your front office for any temp-related issues or questions that arise on-site. This allows your team to be available to handle issues with your existing workforce.
• Electronic time-sheeting and invoicing can make these core processes more reliable and efficient. An automated scheduling platform can help you fill all shifts with qualified workers and reduce the challenges caused by absenteeism.
• Combat productivity losses with initiatives like proactive skills management, which could come in the form of a training program combined with effective workforce planning.

3. optimize wages and benefits

It goes without saying that pay and benefits make up a substantial proportion of your overall workforce management spend. Given the size of the financial commitment involved, particularly for larger organizations, it's certainly worth thinking about your pay points and whether they're set at the optimum level.

If wages are set too high, you could find that the amount you're spending on labor is simply unsustainable. On the other hand, if they're too low, you might struggle to attract and retain high-quality candidates. It’s vital to find the balance that allows you to secure the talent you need without damaging your bottom line.

Solutions:

• Conduct a thorough job analysis and evaluate the skills and experience required to carry out each role properly to ensure you’re setting salaries at the right level for all job postings.
• Obtain up-to-date talent and salary insights to better understand candidate expectations and to compare your current salary offering with other employers in your industry.
• Reduce travel expenses by working with an HR services partner to improve your talent pool structure and prioritize local recruitment.
• Study laws and regulations in the territories where you operate. In the EU, for example, rules are likely to be stricter than they are in some other regions, and labor agreements often include elements like salary scales.

4. reduce over-planning

Over-planning — where you pay for more capacity than you need and end up with workers who aren't required — is a common source of inefficiency. This often occurs during points of low demand in the production cycle, which could be caused by seasonal trends, customer demands or broader economic factors.

Keeping over-planning to a minimum helps you manage costs by only paying for the labor you need. This can be particularly important if your company depends heavily on hiring contingent workers. It also supports productivity by ensuring that the resources you do have are being used as efficiently as possible.

Solutions:

• Analyze your workforce capacity utilization to better understand how efficiently your resources are being deployed, how often over-planning occurs and why it occurs.
• Look at options for redeployment. Can employees be helpful in other ways at times when they're not required to support production? Can cross-training employees help reduce the number of workers needed to fill each shift?
• Work with an HR services firm to study trends in the sector and make informed predictions about fluctuations in activity and demand.
• Create a strategy for forecasting the future skills and labor needs of your organization.

5. limit new hiring

Recruiting new staff is often essential. If you're going through a period of rapid growth or entering a new market, for example, you're likely to need more manpower and specialized skills to support your expansion.

But it's also important to consider the cost and hard work involved in bringing in new personnel, from hiring and onboarding to training and on-the-job coaching. If you can take steps to reduce the number of new hires, the benefits can be significant.

Solutions:

• Consider how reskilling or upskilling current staff could provide the talent you need without having to hire.
• Engage with your most valuable existing workers to ensure they're happy and committed to the company. Offering a pay raise or enhanced benefits to retain high-level talent — as long as this is an option under labor agreements — could prove more financially viable and better for the business than hiring someone new.
• Establish a pool of proven, vetted workers who can come in and function at a high level at times of peak demand. This means when you do need to hire staff, you can target people who won't require a lot of support and training.
• Develop a comprehensive employee development program so you can help your top workers advance within the company. This step narrows skills gaps within your organization and can increase retention rates.

6. work with a talent company

You may not even realize how much time, money and resources are going to hiring new employees and managing your current and future workforce. Direct costs, such as salaries and benefits, overtime hours and job postings can be easy to track. Indirect costs, such as turnover and productivity loss, may not be as clear, but they can still have a significant impact on your company budget.

Forming a partnership with an HR solutions company is one of the fastest and most effective ways to get your employee costs under control. Paying fees to work with a talent company may seem counterintuitive to your cost-cutting efforts. However, the expertise and advanced services provided by a professional HR service company can actually help your organization realize a cost reduction in its workforce spend.

One of the biggest benefits your organization can gain from working with an HR solutions partner is a significant increase in your quality of hire, which can improve retention and productivity rates.

Dedicated HR service providers specialize in recruiting the right people for specific roles by taking a rigorous and proven approach to candidate screening, analysis and reference checking. At Randstad, this is done by deploying the optimal balance between technology and human touch points. Using innovative HR technology throughout an engaging recruitment process enables our teams to hire for both job, boss and company fit.

Solutions:

• The right HR services partner can help you find the best applicants quickly and easily, by providing access to a pool of pre-vetted talent.
• An HR solutions partner, such as Randstad, can develop a customized services plan and cost reduction strategy tailored to meet the specific needs of your company. This customization ensures you only pay for the talent recruitment and workforce management services your organization requires.  
• The services and expertise of an HR solutions partner can help you optimize your flexible hiring and align your talent supply with production cycles. For example, Randstad Inhouse Services can handle the entire contingent workforce management process from end-to-end.

Randstad Inhouse Services specializes in working side-by-side with clients to analyze HR processes and identify opportunities for cost savings. We can work directly with your leadership teams to develop effective cost-cutting strategies.