Managing Labor Costs Without Sacrificing Employee Loyalty

As your small business grows, labor costs will inevitably rise, taking a toll on cash flow and your bottom line.  In fact, labor expense is typically the highest cost of any operation - as much as 30% or more of revenue can get funneled into payroll alone. As you try to implement plans for labor cost management, its important to make sure you do so in a way that does not erode employee good faith. The following are tips for managing labor costs without sacrificing employee loyalty.

• Implement an Incentive Based Model:  If you tie employee pay or bonus to performance goals, you’ll find that your team is better incentivized to work harder and become more aligned with the overall success of the business.  This simple change can not only drive up productivity but will also have you feeling good about paying your employees more.  You’ll be doing so as a reward for a business goal achievement that benefits the organization as a whole.
• Reduce Workplace Stress: Most people are willing to accept a lower salary if they enjoy their work environment. Small changes to the workplace like offering flexible hours, encouraging breaks throughout the day, or by providing snacks or the occasional lunch can help take the pressure off, resulting in happier and more loyal employees.  In addition, stressful environments can reduce productivity and give rise to “sick days”. By reducing stress in the workplace, you’ll have happier, healthier, and better performing employees.
• Outsource for Short Term Needs: Hiring an employee can be a big commitment, especially when you consider the time it takes to find the right person for a position, coupled with training costs, employment benefits, and potential turnover.  Try hiring freelancers on a contract basis for short term projects or when you’re not quite sure how to forecast what the needs or permanency of the position will be.   

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