Top tips for reducing employee costs

Are Your Employee Costs Too High?

Many employers typically assess employee costs once or twice a year, usually during annual account reviews or employee appraisals. However, if your business involves overtime rates, bonuses, shift-work rates, or variable rates, it’s crucial to consistently control and review employee costs.

Before hiring an employee, research the industry average salary for that role. Offering too little may deter top talent, while paying too much can establish a precedent that’s hard to modify, leading to excessive wage bills. Having the right employees is essential, but equally vital is ensuring they receive appropriate wages.

If an employee receives lower pay, they may seek alternative employment, leading to low productivity and diminished loyalty to your business. Conversely, overpaid employees might hesitate to leave, fostering complacency and viewing you as an ‘easy target,’ which can be both positive and negative.

 

Ensuring compliance with employment law is crucial, including paying at least the National Minimum Wage (NMW). The NMW typically changes annually, usually in October. If you have NMW employees, regularly check the rates to maintain compliance: 

For employees with varied pay (due to overtime, bonuses, etc.), maintain accurate records of hours worked. While many use timesheets, consider installing an electronic clocking system, particularly for hourly-paid employees. Fingerprint scanning clocking systems are recommended, ensuring employees can only clock themselves in and out, preventing manipulation by others.

Maintaining strict control over worked hours can lead to significant savings in wage costs. For instance, if an employee earning £10 per hour claims to work 9.5 hours per day (while actually working 9.25 hours), this results in an extra £12.50 per week – amounting to £650 per year. When multiplied by 10 employees, this totals £6,500 annually, highlighting how these additional costs quickly accumulate. Part of this control involves ensuring employees don’t take extra breaks or extend their normal break times, preventing a 15-minute break from turning into 20 minutes, and so on.

 

To maintain high productivity levels, provide employees with the necessary equipment in good working order. Often, excuses for low productivity blame a lack of equipment or malfunctioning equipment, such as “I couldn’t process the order because the computer kept crashing” or “I had to wait for the crane a few times today before continuing with the job.”

If overtime is necessary, consider whether customers are charged extra. If not, adjust quotes to customers to allow for completion within regular working hours. Overtime can become an expensive practice, and if possible, pass on the overtime costs to customers through increased pricing. If higher prices cannot be charged, avoid authorising overtime.

Read More:

• Understanding the Finance Act 2020 and director liability
• Understanding personal liability in Partnerships
• Steps to take when your cash flow is running low
• Top tips for company directors when negotiating with creditors
• What to do when your company is struggling to turn a profit

 

Here’s a summary checklist for keeping employee costs low:

• Strive to pay employees at least the industry average wage. This practice helps control costs by attracting productive and loyal employees.

• When offering higher wages to secure ‘top talent,’ communicate the expectation for performance above the average. It’s crucial to have performance management measures in place for this employment strategy.

• Maintain strict oversight of worked hours, especially for hourly-paid employees. If tracking employee hours becomes challenging, consider implementing an electronic clocking system.

• Ensure employees have the necessary equipment in good working order for effective and efficient job performance. Equipment-related issues can significantly impact production levels.

• Limit overtime levels and always include the cost of overtime in the sale price to the customer.

Remember, when employees feel valued and are treated well, they reciprocate with high productivity, effective work, and loyalty to the business. While it’s challenging to quantify the exact impact, this approach generally contributes to keeping employee costs under control.