How to better manage employee costs
The costs of hiring an employee have risen significantly over the last few years. With the introduction of the National Living Wage, automatic enrolment to pension schemes and the Apprenticeship Levy, there are several more costs that organisations need to budget for that they didn’t need to before.
Then, when you add up the costs for things like overtime, bonuses, commissions, expenses, car allowance and so on, the amount you’re paying for each individual employee can become considerably higher than you may have planned for.
It’s likely that your business, like many others, only reviews employee costs once or twice a year at the most. This usually takes place when you’re in the process of reviewing all of your annual accounts ready for the new tax year. However, if your business offers varied pay rates or promotions, bonuses and benefits at ad-hoc times throughout the year, then you should be reviewing your employee costs on a far more frequent basis, as these costs can creep up quickly without you noticing.
So, if you’re concerned that your outgoings are getting a little too high and you need to stop this in its tracks before it’s too late, then read on as we explain how to keep your employee costs low.
Carefully consider any job advertisements and anticipate future wage increases, bonuses and benefits
Before employing someone, you should do some thorough research into the role you’re hiring for to find out the average industry pay rates in your location. You can then create a salary that accurately reflects this, taking it slightly higher if you’d like to offer a competitive rate. It’s also important at this stage to anticipate any benefits, bonuses or pay-rises that you are likely to offer a successful employee that excels in their first year in the role. This might be difficult to do for a person that you have not yet met, but it’s important to anticipate the most ‘expensive’ scenario so that you don’t become unstuck.
However, you also need to be careful not to make the advertised salary too high as this can be counterproductive. You want it to be high enough to attract good standard talent, but not too high that the employees expectations will be high too.
Equally, be careful not to offer salaries that are too low in a bid to save on costs. This can attract substandard employees, who don’t have the skills required to perform the role to the potential required. It can also make skilled employees feel undervalued and cause them to seek employment elsewhere and their work performance to drop.
Comply with National Minimum Wage laws and plan for increases
Also bear in mind that as an employer, you must comply with the National Minimum Wage law. This usually changes at least once a year, so be sure to keep track of this and plan for and promptly adjust wages accordingly to avoid penalties.
Carefully track hours worked and overtime
If you pay employees by the hour, then ensure that you keep track of the hours worked accurately. This can be done by installing some form of electronic clocking-in and out system whereby you can monitor the time your employee has spent working in the premises. Alternatively, you can use time sheets however this may not be as accurate. Ensure that clock-in and out times are recorded to the exact minute to avoid small extra amounts being added onto wages. When spread out over several employees and several days in the year, these pennies can add up to be quite substantial.
If you take strict control of working hours then you can use this to save costs. Ensure that overtime is only carried out when absolutely necessary for the needs of the business. If overtime is necessary, it may be worth considering what your customers/clients are paying for your service and whether this is relative to the amount of time spent working. If it isn’t then you should consider increasing these charges to ensure the extra cost isn’t being footed by your business.
Aim to keep productivity levels high to avoid employees losing motivation to complete their work during their set out hours. This can be done cost effectively, by providing the correct equipment needed for them to carry out their role efficiently and offering (small!) perks for employees that are performing particularly well.
Monitor your industry ‘average’ and aim to retain your employees, as hiring can be an expensive process
The key things to remember are to keep your employees wages to fit within the industry/location/role average, and if you wish to pay them more than this, ensure they are aware they need to perform higher than the average candidate so that you can get the most value from each employee.
To save on costs, never authorise overtime when it isn’t completely necessary and ensure customers are paying accurately in accordance with the amount of time spent delivering the service. Ultimately, you want to make a profit while paying employees fairly and charging customers the right price. If you strike the right balance, then this will provide a good working environment to enable productivity to flourish among employees and allow them to feel valued.
When employees are happy in their role, their performance is directly affected and will be of a higher standard. Low levels of productivity and/or high employee turnover can be very costly to your business. That’s why it’s important to pay a fair wage and provide employees with the right tools to allow them to do their job to the highest standard. Although this may seem costly to your business at the time, it can save you a lot in the long-term.
If you feel your employee costs are getting out of control and you don’t know where to begin to reduce them, then we’d be happy to help. Get in touch with our expert team today on 0333 939 80 40 or email us at firstname.lastname@example.org