The Biggest Cost of Doing Business: A Closer Look at Labor Costs
company-employees

The Biggest Cost of Doing Business: A Closer Look at Labor Costs

HR Co-owns Labor Costs

As any company leader knows, the biggest cost of doing business is often labor. Labor costs, which can account for as much as 70% of total business costs, include employee wages, benefits, payroll or other related taxes. Yet, according to a Paycor survey, HR professionals only spend 15% of their time managing labor costs. Attracting top talent, engaging new employees and developing them over the course of their career are always top of mind for HR professionals, but herein lies a critical opportunity for HR to step out of its comfort zone and contribute much-needed value to an area typically owned by Finance.

The cost of employee benefits, which can account for up to 30 percent of overall labor costs, are a significant expense as well. According to Mercer’s 2017 survey of employer-sponsored health plans, the average increase over the past five years for large employer-sponsored health plans has hovered around 3 percent, but in 2018, costs were expected to increase 4.3 percent, the largest increase since 2011.

Operating with Fewer Resources and Smaller Budgets

In the face of rising costs, it’s understandable that companies are looking to reduce their labor spending and total benefits costs. In fact, SHRM found that 46 percent of employers are taking steps to reduce the cost of medical plans in 2018 by offering lower-cost, high-deductive plans. Many organizations are feeling the pressure to do even more with less—fewer employees, fewer resources and smaller budgets. So, what can you do to confront the labor cost issue head-on and find solutions?

labor-cost-reporting

Gain better visibility into payroll costs

As the saying goes, “Know your enemy.” Understanding the root of the problem is absolutely necessary to finding a solution. Having an accurate picture of your labor costs allows you to identify trends and pinpoint the issues. Start by asking questions like: Are we overspending on labor? Are we underutilizing our workforce? Are we properly managing overtime? If your overtime costs have been unusually high lately, uncovering the root cause will depend on having accurate payroll data that is easily accessible. From there, you can identify trends and insights into when the most overtime hours were being logged, which departments or employees were working overtime and whether a similar peak occurred in the past. Armed with the right data, you will be able to create a strategy to correct the problem.

In addition to solving current issues, having access to labor information allows you to plan for the future and help your organization make more informed decisions. When you have a clear understanding of employee compensation and benefits costs, you can plan better for annual wage increases and additional headcount as your company grows.

Answers to Your C-Suite’s Most Pressing Questions on Employee Labor Data

The C-level wants to uncover gaps. Who’s at risk for resigning? Which locations are experiencing the most turnover? With Paycor Analytics, we can help you answer the right questions about your workforce by transforming complex data into clear, direct answers.

labor-cost-analyis

Labor costs are rising, counteract with workplace efficiencies

Once you have a solid understanding of your current labor costs and trends, you’ll probably be looking to reduce them. Here are a few ways to increase overall efficiency and make a positive impact on the bottom line:

  • Implement a time and attendance solution to ensure employees are clocking in and out correctly, reducing time theft, properly managing overtime expenses and mitigating compliance risk.
  • Select a unified solution for HR, payroll and timekeeping to increase process efficiency and guarantee accurate and complete labor data.
  • Find the right HR solution to streamline administrative processes and free up time for value-added tasks, helping ensure that labor is worth the cost.
  • Automate benefits administration so you can help guide employees through benefits selections and identify the packages and plans most attractive to your workforce. Armed with this data will help ensure that you’re not wasting resources and money on plans employees are not utilizing.

Labor costs are rising, and executives are on the lookout for areas where they can reduce spending. The right technology can give HR the visibility into key labor metrics and help you maximize efficiency, enabling your business to achieve its goals. Plus, by taking on greater responsibility in helping to manage and forecast labor costs and collaborating with Finance leaders will help you be seen as a strategic leader within the organization.

About Paycor

More than 30,000 medium-sized and small businesses trust Paycor to help them manage their most valuable asset – their people. Paycor is known for delivering modern, intuitive recruiting, reporting & analytics, HR and payroll software, but what distinguishes us is our singular focus on helping business leaders, entrepreneurs and HR professionals make a real difference in their organizations. Contact our team today to learn how we can help you make an impact in your organization.

Contact Our Team Today

Sources: Bureau of Labor Statistics, Reuters, National Business Group on Health, Deloitte

More to Discover

Take Our HR Benchmarking Quizzes

Take Our HR Benchmarking Quizzes

Paycor's research shows that 75% of high-functioning HR teams spend their time on mastering key pillars of HR excellence. Want to know how your team stacks up against others? Take our benchmarking quizzes to find out and get customized action plans based on your results. Recruiting Benchmark Quiz Benefits Benchmark Quiz Labor Costs Benchmark Quiz People Management Benchmark Quiz Compliance Benchmark Quiz

Webinar: COVID-19 and Unemployment Cost Management

Webinar: COVID-19 and Unemployment Cost Management

With unemployment across the U.S. skyrocketing, Ohio and 18 other states are revising unemployment laws to ease the burdens of Americans everywhere. How will these laws affect business owners? What do leaders need to do to remain compliant? Watch this webinar to learn more. Speakers: Ezrie Yellin and Katie Watkins Ezrie has worked in the HR compliance industry for 15+ years. He works across HIREtech’s technical and business teams to ensure that all products and services deliver the best user experience while enabling compliance across the employee life cycle. Katie leads the client relations team at HIREtech for several products, including Unemployment Claims Management. Her proficiency in cultivating processes that bridge the gap...

9 Ways to Manage Costs - Infographic

9 Ways to Manage Costs - Infographic

HR and business leaders are looking to cut costs—but cut too deep, or in the wrong places—and you’ll pay for it down the road. Check out this infographic to learn the 9 ways business leaders can manage costs and return to profitability in the future. Forego Discretionary Spending Develop a 90-day cashflow forecast based on your fixed and variable costs. Then, stress test the forecast against best/worse-case scenarios. You want to get a sense of how much (and where) you need to cut. Reduce Extra Supplies & Inventory Reevaluate inventory and supplies from the bottom up—ask what you need, rather than what you can reduce. Consider both best-case and worse-case scenarios: running down stocks might leave you unable to meet the demand of a...

8 Ways Manufacturers Can Manage Costs and Prepare for Future Growth

8 Ways Manufacturers Can Manage Costs and Prepare for Future Growth

It’s no surprise that many manufacturers are struggling: worldwide lockdowns have hurt demand while all-important supply chains have been badly damaged by factory shutdowns, particularly in China. At the same time, many businesses have been forced to temporarily cease operations, with remote work not an option. Businesses are hurting and even a quick return to normal won’t fix things. View 8 Ways Manufacturers Can Manage Costs Challenges Ahead Stay at home orders, radically reduced demand and disrupted supply chains are putting enormous pressure on the manufacturing sector. No matter how the upcoming months play out, manufacturing will be dealing with the ripple effect of this public health crisis for a long time. To help, we are sharing...