Simple Strategies to Reduce Labor Costs

Picture of Katie Fleming

Katie Fleming

Co-founder and COO of Owner Actions

Two people use low-stress strategies can help you reduce your labor costs.

Labor cost might be one of your biggest expenses. And, if you’re like many business owners, this could be a place you’re looking to cut costs. Of course, drastic cuts to these costs can hurt your business. They can keep you from responding to demand, capitalizing on opportunities, and pivoting in ways that can help you succeed over the long term. Moves to reduce your labor cost can also hurt team morale and affect their engagement.

It can be tough to reduce labor cost and avoid these risks. Here, you’ll find some practices that can help you find the right balance:


Strategy 1: Eliminate overtime and excess hours on the clock

Extra employee hours can implode any business’s labor budget. To avoid labor cost overruns, you can take three steps:

  1. Study your business’s demands, peaks, and troughs of production. This can help you identify when and in which departments you could reduce hours.
  2. Review your employees’ practices. Try to find and eliminate work redundancies and time-intensive processes that offer little value in return.
  3. Implement a time and attendance system, such as QuickBooks Time, to ensure that time in and out of work is properly reported. Time and attendance systems can also help you manage the availability of overtime shifts and eliminate inaccurate claims of overtime hours.


Strategy 2: Hire temporary workers to cover peaks in demands

It’s expensive to have full-time employees on staff, but lots of managers up their hiring when demand peaks. Instead of onboarding more full-time employees, cover your short-term peaks with a temporary workforce. Short-term (“temp”) workers can take on simple tasks for a fair hourly rate—one that doesn’t include the benefits or bonuses you might pay your permanent team members or, in some cases (such as when you hire temp workers through an employment agency), payroll taxes.

If you’re looking for high-quality temp workers, you might consider Flexjobs, a popular site for finding experienced professionals located anywhere in the world, or a local staffing agency.


Strategy 3: Automate when possible

Think about incorporating technologies a computer or system could take on much more efficiently than a human could. Automation can be costly to implement. However, those costs can often be quickly recouped as the tools reduce the need for human labor hours.

Need some ideas for automation? Labeling, packaging, and order fulfillment are some of the many processes you might automate in your business.


Strategy 4: Outsource labor-related tasks

One major was to reduce your labor cost is to outsource.

Consider working with firms that specialize in employee-related tasks. Outsourced HR teams, scheduling apps, and payroll firms can often complete tasks that are traditionally kept in-house for a fraction of the cost of a full-time employee.

If you already employ an HR team, appointment setters, or a payroll administrator, this move could be a painful one for your business. It may mean eliminating those roles or reducing those employees’ hours to cover truly essential tasks. Or, if your HR, appointment reps, or payroll team members are among those that frequently log overtime hours, this shift could help them complete their work within a reasonable number of hours each week.

If you’d like to connect with an outsourced HR firm, Bambee is a great option.


If you’re interested in learning more about outsourced payroll processing, check out these options:


If you’d like to learn more about scheduling programs, here are a few to keep in mind:



Strategy 5: Outsource job functions

Other job functions like accounting, billing, marketing, and after-hours service can be outsourced to firms that specialize in those areas. Many can complete your important tasks at a per-hour or per-task rate, which could help you reduce your labor cost significantly.

Our top picks for these four functions are:








After-hours service


Strategy 6: Find ways to improve safety and reduce the occurrence of costly accidents

Set aside time to monitor your team’s practices and spot opportunities for training. Based on what you see, you could adopt new safety protocols or buy new pieces of equipment that can help you avoid on-the-job accidents, workers’ comp claims, and paid time away from work.

Would you like support from a safety expert who can help you find your greatest risk areas? Connect with a safety pro at Safety Plus. Their online hub is also a great resource for free videos or onsite consulting and training.


Strategy 7: Revisit the benefits you offer

It’s nearly impossible to eliminate benefits midyear. But you can look into healthcare and benefit options that could help you—and your employees—save big in the coming year. Employers who move to lower-cost, higher-deductible plans can save big, as do those who automate plan administration. Run through these options with your benefits broker, or use one like eHealth insurance, which offers healthcare, vision, dental, and other coverages.


Do you have less than 50 people on staff? Your employees may be better served through government healthcare exchanges than through an employer-sponsored program. In many cases, subsidies are available for employees making up to $205,000 per year. You can find your state’s exchange at

You can also look into revamping your perk program to include more cost-friendly alternatives or eliminate the benefits or perks that your employees aren’t really using. Survey your employees and ask what’s being used, what’s valued, and what can be eliminated from your benefits package.


Strategy 8: Rethink your annual pay increase plan

Be sure to study the true cost-of-living increases for the nation and your region before setting your pay increase plan. This move can help you avoid a major expense when the economy’s rate of growth is slower than your typical rate increases.

The Social Security Administration offers a scale that could help you with these calculations. The Bureau of Labor Statistics also provides the Employment Situation each month, and it gives industry-specific guidance.


Strategy 9: Reduce hours

A final, more drastic way to reduce labor cost is to reduce your hours of operation. You could experiment with a modified work schedule, perhaps by closing operations for a half-day each week or closing every other Friday, to save on hourly wages, energy costs, and other per-hour costs of operation.



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