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Tips to Keep the Labor Cost from Rising

The major costs incurred by any company are the wages and salaries of its employees. These costs are difficult to control as they must consider the needs of the employees too. As a manager, you must learn to manage conflict, so you must first discuss the proposed plan with the employees and then implement it.

In a small business each dollar counts. The main aim of the business is to survive in the market. To survive, the strategy is to conduct your business in the most cost-effective manner. The most important step is to get your budget in order.

Companies that lower the wages and compensation to reduce their costs might suffer from lower productivity, high turnover and a decline in work efficiency. Rewards and bonuses motivate employees to stay focused on the task and if these are removed then the employees will not give their best.

Tips to lower labor costs

The following are some ways that you can keep your labor cost down.

  • Review level of compensation: The paychecks and bonuses must be in line with the current market level. The employees should not be overpaid or underpaid.
  • Reduce employee turnover: The cost of hiring and training new employees is much higher than paying existing employees. Furthermore, there are additional costs of time and resources wasted. So to prevent this, existing employees must be retained.
  • Cross-train employees: Employees specializing in a particular skill are more expensive and less flexible. Training existing employees for different skills can help make the workforce more flexible and reduce the cost of hiring extra workers too.
  • Hire part-time workers: Part-time and freelance workers are only hired when in need of them. You can reduce your costs by hiring these workers who don’t require a high salary or insurance.
  • Reduce perquisites: Perquisites such as pension can be converted to profit-sharing plans where employees get a certain share of company profit. This way they become a part-owner and the company does not have to pay them high bonuses.
  • Eliminate redundancy between departments: There will be many workers doing the same job in different departments. You can periodically review your working processes to ensure minimal redundancy.
  • Automate non-critical tasks: Non-critical tasks or specialized tasks can be automated to reduce cost. The use of software technology to manage people and their tasks will ensure minimal error and also minimal cost.

The tips and tricks provided above can help the company invest smartly in different expenses. This is important especially for small businesses to make sure they use their scarce resource effectively.


The guidelines given above can be proved helpful in reducing labor costs. However, you need to make sure that the employees do not feel threatened or demotivated by these methods.

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