Four ways to drop labor costs without cutting staff
Whether your business is struggling financially or has spent beyond its budget for the year, you may need to cut costs.
Employee layoffs are one of the first cost-cutting strategies most businesses consider. According to recent research, nearly 194,000 US employees have lost their jobs in over 150 major layoffs in 2023.
However, this will not only drain your business of essential labor but also dent the morale of your remaining workers. This can affect productivity. So, instead of laying off workers, use these four tips to cut your labor costs.
1) Consider automating or outsourcing first
You first want to find ways to cut back on some of your existing costs, and automation or outsourcing can help. Find out if you automate some of your tasks, outsource them, or even do without them. You can also look for other ways to complete some tasks without investing too much money. But be sure that you don’t end up compromising the quality of your product or services in a way that will make you lose customers.
2) Use tax benefits
Tax benefits can be crucial in helping your business cut down on labor costs. While they may not directly reduce your labor expenses, these benefits can provide some financial relief and incentives. These can indirectly contribute to lowering your labor-related expenses.
For example, you can take advantage of different types of tax credits and deductions, including:
- Research and Development or R&D tax credits
- Employment-related tax credits
- Work Opportunity Tax Credits (WOTC)
- Section 179 deductions
- Employee benefits deductions, education, and training expenses
- Dependent Care Assistance Program (DCAP)
- Employee stock options and profit-sharing plans
3) Take a personal pay cut
This is the point most managers or employers aren’t comfortable with – taking a personal cut. Most employees earn a fraction of what their managers make while doing most of the work. And in some cases, how much you may save when you lay off a dozen workers may not even be up to a manager’s one-month paycheck.
So, consider a pay cut if you can. Ask yourself if you can go without a paycheck for a few months or significantly reduce your salary to get your workers paid. A step like this may be very uncomfortable, but it can be a major source of motivation for your workers to work above themselves.
4) Stop paying for unworked hours
Believe it or not, studies show that the business world loses a whopping $400 billion annually in lost productivity from paying workers for the time they have not worked. That is a massive financial drain for companies struggling with money issues.
So how can you prevent this? Stop paying for unworked hours. How? An easy solution is to invest in a time-tracking tool or software. Various options are available, but most are designed to help you track how your workers use their work time. You can easily avoid or prevent payroll losses from time theft and save your business lots of money.