Think Like a CFO: How to Maximize Your Labor Spend
Posted on December 27, 2017
Human Resource’s top priorities include: finding the right people, getting them to join the team, onboarding, coaching, career development, and keeping everyone engaged and productive. These are areas where HR excels, and, of course, all of those things are profoundly important and necessary to the health of your organization.
But, there’s also a big opportunity for HR professionals to add value to the financial side of the business. Start thinking about how different categories of workers — salaried, variable, seasonal — get paid and how best to maximize that spend. In other words, you need to supplement your HR knowledge and start thinking like your CFO.
Here are some questions to consider:
Are we overspending on labor?
Labor costs are typically the largest expense for a business. Having an accurate picture of your labor costs enables HR to identify trends and pinpoint the issues. Armed with the right data, you can create a strategy to correct the problem. Plus, in addition to solving immediate issues, having access to labor data helps you better plan for the future and reduce expenses.
Are we underutilizing our workforce?
If HR isn’t tapping into the full spectrum of talent in your company, you’re leaving money on the table. By not taking full advantage of your employees’ potential, disengagement and lack of motivation soon follow. This can lead to a dramatic decrease in productivity and high turnover. A solid career development program and clear advancement paths can make a world of difference.
Are we accurately capturing and recording time worked?
According to the American Payroll Association, the average hourly employee “steals” anywhere from 50 minutes to 4.5 hours per week by showing up late, leaving early, or taking long lunches and extended breaks. Almost 75% of businesses in the U.S. are affected by what is known as “time theft.” Cutting down on a few minutes of “stolen” time for each employee can save you thousands of dollars each year. HR can lead the way by championing a time management solution that accurately tracks and manages hours, eliminates duplication errors, and reduces payroll losses.
Are we properly managing overtime?
According to a Paycor survey of more than 30,000 organizations, more than half (53%) of respondents indicated that they had an overtime expense in 2016. If this sounds like your company, you have the opportunity to have a genuine impact on the bottom line. Accurate data can help answer questions like:
- Should we hire additional employees to offset the higher cost of overtime?
- Which locations log the most overtime?
- Which departments experience the most overtime?
- Which managers have the most overtime?
- Is there a plan for scheduled versus unscheduled overtime?
With analytics, workforce time capturing software and a partnership with finance, you can help your organization optimize the total spend on your labor.
Are we looking at our labor costs in silos?
The rise of the gig economy is definitely having an impact on estimating labor costs. If you’re not adding non-employee (freelancers, contract workers, consultants) and contingent labor into the labor cost equation, your numbers will be way off. When your labor costs are siloed, you run the risk of potentially misclassifying employees and non-employees, which can result harsh fines if the company is audited. To prevent costly mistakes, you need a system that can automate your pay to help ensure labor compliance.
Companies that integrate disruptive, transformative HR technologies will increase revenue and productivity up to 9% while lowering HR costs by 7%. Your CFO will really like the sound of those statistics, so get disrupting! The best way to start working with finance is to just jump in with both feet and tackle a project together. Here are some “starter” projects to consider:
And if you’re looking for more suggestions on reducing labor expenses across your organization, visit the HR Center of Excellence Labor Costs Hub.
 Richard Dobbs, et al., “The Future and How to Survive It,” HBR (Oct. 2015).