5 Ways Your HR can Make a Positive Impact on Labor Costs
Your Human Resource department specializes in finding, recruiting, and hiring the right people. They are great at onboarding, coaching and career development. It’s a top priority for them to keep your employees engaged and productive. They strive to reduce turnover and increase employee retention. All of these things are greatly important to your company.
Did you know that HR can also add a significant financial benefit to your company? HR can help to maximize ROI on labor costs. You hire the best employees and HR can help you to maximize their talents and skills. Your HR specialists can use HR technology to analyze positions, labor trends, overtime spend and a variety of other ways your labor costs may be inflated. Let’s look at 5 ways HR can impact your company’s finances.
1. Are you accurately capturing and recording employee time worked?
Did you know that the average employee steals 4-5 hours of work time each week? Have you stopped to consider how much that is costing you? Have you considered ways to minimize or eliminate this problem?
How do employees steal time?
Employees steal time by showing up late and leaving early. They steal time by “rounding” up when they record their time. They steal time by not accurately counting lunch breaks. They also steal time by working on personal tasks during working hours.
How can I stop this?
There are several steps that employers can take to reduce or eliminate time theft. Employer policies in the handbook can address time theft and repercussions. You can define what is considered acceptable for employees in regards to personal calls and tasks.
You should also consider a good time and attendance software. Consider what type of time keeping your business should employe. Employee time theft varies by time clock type. Plus, by automating your timekeeping system, it will save your payroll employees time. The time to enter payroll per employee can be reduced from 3-5 minutes to literally seconds for each employee. Plus it will reduce the time for them in correcting errors and reduce payroll costs.
- Eliminate time theft
- Decrease the time spent on payroll
- Eliminate duplications and payroll errors
2. Are your employees underutilized?
If your HR department isn’t tapping into the full spectrum of employee talent, then you are leaving money on the table. This affects the bottom line in several ways. Your company may be paying for specialists to do tasks that can be handled by employees with less education and a lower pay scale. That means wages down the drain.
There’s another problem with underutilization.
Employees who feel underutilized are more likely to have poor morale and poor engagement. This leads to disengagement and a decrease in production. This is where your Human Resources can make a big impact. Analyze job positions and skill levels. Look for employees who have been in the same job for an extended period of time. Consider if they might feel stagnant or bored. Experienced employees often have skills and knowledge that newer employees in the same job don’t. Consider how you can maximize those skills.
HR can also asses skills of new hires by tracking what skills employees have. Often employees are hired for specific skills and other skills and certifications mentioned on the resume are forgotten about or disregarded because they don’t directly relate to the job being filled. Consider tracking employee skills, certifications, and education in your workforce management software.
That will make it easier to see at a glance what other skills your employees have. This will also make it easier to see where employee skill deficiencies lie. HR can then work to cross-train employees and help them to develop new skills. This helps employees to feel appreciated and valued by the company.
- Paying skilled employees to do lower-level tasks
- Failing to utilize employee skills because it doesn’t apply directly to their job description
- Failing to cross-train employees
- Failing to recognize other skills of new hires
- Increasing employee boredom by failing to grow employees
3. Are you overspending on labor?
The highest cost in your business is probably labor cost. Labor cost varies depending on if your business creates products or provides service. In some businesses, labor costs can be as high as 70% of the expenses in a business.
That’s where HR becomes vital. Your HR professionals can take data from your workforce management system and provide critical data. They can accurately see which departments regularly use overtime, which managers have higher turnover, or which locations tend to have more sick days. This information can be critical in assessing what potential problems are, which is the first step to fixing them.
HR can identify employee trends, which employees habitually show up late. That’s more than just a discipline problem. Your employee might have personal needs that are interfering and knowing a pattern allows managers to address it and potentially accommodate those needs in a way that builds loyalty from your employees.
Labor data also allows you to accurately plan and predict. Through your workforce management system, you can more accurately forecast scheduling needs and make sure that you have the coverage needed. You can predict ebbs and flows based on historical data. This will help management to make better-informed decisions when hiring. Management will know if you are likely to need a temporary employee or a permanent one. You will know if the need is seasonal or part of a growth pattern.
4. Are you properly managing overtime costs?
More than half of all companies report having overtime costs. In some cases, overtime may be the best use of your labor costs. For instance, it may be less expensive than hiring a temp employee for a single shift. Or, the increased revenue from an unexpected surge in customer demand may mean the ROI is high.
But, often overtime is the result of poor planning. This happens when employees fail to finish a project on time and stay late to finish it. It happens when a direct manager asks an employee to stay late without realizing the employee will stay late on overtime hours. It also happens with managers fail to hire employees at the beginning of a need and wait until the need is so urgent that overtime has become a cultural expectation.
There are several questions you can ask when assessing overtime costs.
- What departments experience regular overtime?
- Which locations routinely log overtime hours?
- Which shifts often use overtime?
- Are there particular employees that routinely log overtime?
- Which managers use the most overtime?
- Should we hire additional employees to offset overtime use?
- Are there specific positions that regularly report overtime use?
5 Are you silo-focused when analyzing labor costs?
Inattentional blindness causes people to miss what is otherwise obvious. You may have seen a variety of stunts where the commentator asks you to focus on a specific task. While focusing on that task, you miss something obvious such as a gorilla or a note on a scoreboard. Inattentional blindness costs you in business.
This can happen when you analyze your labor costs in a silo. You miss utilizing valuable employee skills. You may hire employees under the wrong classification. If you are only hiring regular full-time employees, you are probably spending more money than you need to on certain jobs. Many skills can be outsourced to other professionals and save you the cost of a full-time employee. You can also utilize independent contractors and pay for services by the job or by the hour. This can save you on benefits and the effectiveness of the labor cost because independent contractors are motivated to finish a job and move on to the next one.
Additionally, hiring part-time and seasonal employees provides a way for you to get the assistance you need without committing to a full-time permanent position.
One note of caution:
Make sure that you properly classify employees. While diversifying your labor can reap big rewards in labor cost savings, it is also costly to misclassify an employee.
Your Human Resources is a valuable resource that many executives fail to take advantage of. By utilizing your HR and your HR technology, you can drastically increase the ROI of your labor costs.
If you are looking for more information on how to implement any of the steps listed above, please fill out the form below this article.
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