According to statistics from the U.S. Department of Labor, labor costs are one among the largest expenses any company has to absorb. within the retail industry, they average roughly 20% of total revenue—even quite the cost of inventory on hand in most cases! Other industries, including the food and hospitality fields, often see that percentage are available closer to 30-35%, and it can easily be up to 50%.
Labor costs are rising, period. In 2018, retail, health care, and finance were found to be the highest three industries most likely to experience growing labor costs. The Bureau of Labor Statistics also reported that two out of three “food services and drinking places” industries had increases parturient costs, and hourly compensation had risen in 41 of 49 industries surveyed. In many cases, the value of labor is now second only to the cost of real estate.
Keep in mind that although these huge figures are just averages, it’s not uncommon to work out individual instances race even higher. for little businesses, labor costs can garbage down earnings in a heartbeat if risk factors aren’t actively monitored and adjusted—or employers aren’t in compliance with the newest labor laws.
How to Calculate the Labor Costs
Take your total revenue from sales and divide it by your total payroll. make certain to include the cost of any benefits packages your company offers as well. A solid labor cost percentage goal to draw a bead on in retail (durable or non-durable goods) is 15%-20%, while within the restaurant industry, 30% is taken into account “safe.”
Want to be ready to check in on this more often? Start using employee scheduling software that has labor cost dashboards. once I Work is free and will show you your actual and projected labor costs on the home screen as well as show you the cost of labor as you create the schedule, and supply a labor breakdown report for you as well.
What Drives Labor Costs So High?Despite what you’ll think, hiring more employees won’t have an enormous effect on your labor costs as a function of sales. That’s because it’s not your hourly wages that are driving your labor costs sky high. It’s the overtime.
The Bureau of Labor Statistics’ annual reports show that one among the largest contributing factors to increased labor costs is overtime accrual. for instance , in 2010, retail and wholesale employers in New Jersey shelled out over $227 million in overtime. That accounted for 4.6% of total statewide revenues for the whole year.
Many retailers and restaurateurs are forced to pay time-and-a-half wages or maybe double-time to employees who work over 40 hours in a given work week. Even salaried employees could also be eligible for overtime rates if they work in excess of average hours, counting on how employee contracts are structured.
Look to your employee scheduling software. It should have overtime warnings so you’ll create the schedule more effectively and not overload single employees.
How to Decrease Overtime and Deflate Labor Costs
The Bureau of Labor Statistics’ annual reports show that one among the largest contributing factors to increased labor costs is overtime accrual. for instance , in 2010, retail and wholesale employers in New Jersey shelled out over $227 million in overtime. That accounted for 4.6% of total statewide revenues for the whole year.
Changes to overtime rules
And overtime is close to get even bigger. Over the past year, new overtime laws expanded who is roofed under overtime and eligible to receive overtime pay. Starting January 1, 2020, a further 1.3 million workers are required to be compensated for overtime hours worked. Hourly workers who make but $35,568 per annum , or $684 per week, are included under these laws for the primary time—on top of the workers making the previous cutoff of less than $23,000. In short: there’ll soon be more potential employees who can earn overtime than ever before.
New advanced scheduling laws
Changes to labor laws outside of overtime impact small business labor costs also . New laws like fair workweek, parental leave, and wage ordinances all equal higher costs for employers. Embraced by a growing number of cities and states, fair workweek laws require that employers create employee schedules beforehand and pay employees a premium if their schedule changes, or if they’re asked to figure outside their scheduled hours. Employers are not any longer able to cut employee shifts unexpectedly, ask employees to “clopen”, or use just-in-time scheduling to assist cut down on labor costs.
Higher wage
Employers are expected to schedule better, but also pay more. While labor costs have gone up, so have employee wages. “Living wage” ordinances and legislation calling for a wage of $15 an hour has increased hourly income past the federally-mandated $7.25 in cities and states across the country.
A wage represents the hourly pay a worker must earn to support themselves and their family based on their location. With the bulk of minimum wage workers not able to afford housing, a wage ensures employees can meet minimum standards of living. But it also puts a replacement burden on employers. Under California state law, employers with 26-plus employees must pay $12 an hour, and employers with 25 employees or less must pay a minimum of $11 an hour. As of Dominion Day , 2019, large cities like Seattle and San Francisco also require employers to pay hourly workers $15 an hour.
Healthcare, benefits, and more
Remember: labor costs don’t just include hourly wage. They also include healthcare, vacation time, bonuses, and leave . Over the last 15 years, the value to cover one employee under group health insurance rose nearly 200 percent from $2,196 to $6,435—making it difficult for little businesses to afford to offer group health insurance at all.
While these laws are an attempt to help employees have a better work-life balance and quality of life, they are doing have a secondary effects on business owner’s bottom lines. only one change to the equation can spell disaster, especially in retail and restaurant industries with already-thin margins.
How to Decrease Overtime and Deflate Labor Costs
With all of this in mind, how are you able to avoid overtime and keep your business running smoothly? Essentially, there are some effective ways you can kill overtime expenses:
Ensure accurate and adequate staffing
Making sure that you have enough people on hand and in reserve to handle the amount of business you’re doing and to cover emergencies such as sick calls is an important part of preventing excess overtime. in fact , having the ability to do this hinges on your ability to compile accurate predictions of your company’s sales and production on a daily – and even hourly – basis.
Once you’ve got these predictions in place, examine your schedule to make sure that you have just enough employees available to handle that load. Don’t have an honest way to access or edit the work schedule? Use an employee schedule maker. If not, consider rescheduling or maybe hiring part time employees to fill in the gap, instead of relying on overtime hours as a “cure-all.”
Consider cutting hours of operation
Along with adequate staffing, see if your business hours actually reflect sales and business demand. Does your restaurant earn enough profit to form up for the labor costs of having a morning shift? Should your coffee shop close early after serving commuters on their way to work? Should your restaurant open late on the weekends to catch the Saturday night crowd? Make sure having staff on the clock matches up with sales—and that it’s worth paying the additional cost.
Track employee hours
Keeping an up-to-date tally of what percentage hours your employees have actually worked – not just how many they’re scheduled for. this may allow you to spot potential overtime offenders before it becomes a problem. Look to your employee scheduling software. It should have overtime warnings so you’ll create the schedule more effectively and not overload single employees.
Enforce stricter clock-ins and clock-outs
Restrict early in-punches and late out-punches. And watch out for buddy punching, when fellow employees punch in or out for each other. Even incremental overtime can have a dramatic effect on your labor costs, so it’s worth being strict.
Cut shifts if necessary
Don’t be afraid to chop shifts if your daily business doesn’t support your current staffing load. it’s going to not be the easiest decision, but the health of your business may depend upon it. However, business owners beware: before cutting shifts or changing employee schedules, check if your locality has fair workweek laws. Fair workweek laws require employers to supply employees a “good faith estimate” of hours they can expect to work. If you would like to make big scheduling changes, ensure they don’t come with potential penalties.
Improve employee efficiency
Multiple industries report that their productivity actually decreases when employee hours increase. Why? More staff and more hours don’t necessarily make your business run any faster. In fact, overworked employees are more likely to form mistakes or have accidents on the job.
Instead, corporate offices and retailers round the world have been moving away from rigid job descriptions to more flexible plans. Effective cross training can allow a limited number of employees to accomplish more. It eliminates downtime, excessive overtime, and protects employees from burnout.
For example, if your hostess can jump in if a server goes home sick; she will keep diners happy without adding extra payroll. If you’ve got a skilled barista who needs a break, someone from the kitchen can take over in order that they don’t leave for a job with more flexible hours. Likewise, if a cashier can stock shelves during slow times, your stock people can advance to other things or punch out early.
Automate certain tasks
Businesses throw away a minimum of $1 trillion every year on lost productivity—without needing to. Today, it doesn’t take an employee on the clock to finish core business functions. Customer management systems and email programs make it possible for businesses to automatically answer customer inquiries and reach out to prospective customers without an employee sitting at a desk.
Screening potential hiring candidates, employee onboarding, and sales reporting can all be automated too. rather than accepting some tasks as the cost of doing business, see if you’ll help employees spend their time on the clock on what matters, and not add more labor costs for busy work.
Offer employee incentives
Keeping your employees happy and incentivized is important for the health of your business. Regular performance evaluations and employee advancement programs function as motivational tools to encourage employees to offer and learn more. Merit-based raises and performance bonuses are an excellent option as well, but even something as simple as an additional day off per month can be motivation enough to get the extra cooperation you need.
Create a politician overtime policy
Overtime may be a culture as much as a cost. If your business doesn’t have a politician overtime policy, it’s time to form one. Put to paper how overtime works, who approves overtime hours, and the way employees will be paid for additional shifts. Consider putting a cap on overtime hours—whether that’s what proportion overtime employees can work per quarter or even the entire year. Once you’ve got boundaries in place, people are going to be more likely to stick to them and treat overtime as the exception, not the rule.
Watch Your Labor Costs Drop
As an owner or manager, your first responsibility is usually to the business. That doesn’t mean you’ve got to be hard or impersonal, but bowing to the desire of your employees will always complicate matters. the following pointers will help you lower your labor costs and increase productivity while minimizing conflict with employees.
