Wages are the biggest overhead of practically any organization, and so the first place bosses look when trying to cut costs. But changing the level of compensation paid to workers is a risky business. It can reduce morale, force some of your best employees to leave and doesn’t always take into consideration the productivity contributions of individual members of your team. Often doing something as simple as cutting wages by a few percent can lead to a downward spiral in your business and the destruction of your company. Your best people leave for better opportunities elsewhere, and you end up with sub-par individuals who are willing to work for lower wages.
So what can you do to lower wage costs without fundamentally putting your business at risk?
Slash Employee Turnover
Reducing wages is unpopular. But sometimes it’s worth maintaining high wages if it cuts down on employee turnover. It is estimated that finding a new employee for an entry-level position can cost up to three month’s salary. Middle-skill employees are even more expensive to replace, costing up to 9 month’s salary to replace. High-skilled individuals and executives earning more than six-figures can often cost more than a year’s salary.
Thus one of the best ways to reduce your labor expenses is to cut employee turnover. But it’s not just the direct costs of recruitment: it’s all the indirect costs too, like the costs of retraining, retooling and the effect on morale. People like close-knit teams, and so when key players leave, it can have a knock-on effect on the rest of the team.
Cut Your HR Costs
Another way to cut your labor costs without slashing wages is to reduce costs in your HR department. Human resources automation is far more sophisticated today than it was just five years ago, and now there are literally dozens of technologies designed to reduce the amount of labor input in your HR department. With greater automation, you don’t have to take on new people as other members of staff leave. Instead, you can just let attrition take its course and replace individual workflows with automated processes instead.
Get Employees To Share Jos
Full-time employees are extremely expensive, thanks to legislation. But part-time employees are not nearly as onerous on your finances. Thus it may be possible to get two employees to share a job if both want to start working part-time. Ask your workers whether anybody would like to go down to part-time and then fill the hours either by bringing in another worker from outside your company or hiring another part-time member of your team.
Start Basing Pay On Commission
Ideally, you’d pay each employee exactly how much they’re worth. But this can be unpopular and reduce morale. One solution is to supplement wages with commission or fees. You may have members of staff who know that they’re good at what they do and so are willing to work for a lower basic rate and higher commission. This will then reduce your risk: employees only get paid if they perform.
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