Simple Strategies to Reduce Labor Costs

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

Labor costs are often one of a business’s largest expenses. However, drastic cuts to these costs can inhibit your ability to respond to demand, capitalize on opportunities, and pivot in ways that can help your business succeed over the long term. Further, moves to reduce labor costs can demoralize your team and undermine their engagement and motivation in their work.

It can be a challenge to reduce labor costs and avoid these risks, but the following practices can help you find the right balance:


Strategy 1: Eliminate overtime and excess hours on the clock.

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

1.Study your business’s demands, peaks, and troughs of production to identify when and in which departments you could reduce hours.
2.Review your employees’ practices 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, manage the availability of overtime shifts, and eliminate inaccurate claims of overtime hours.


Strategy 2: Hire temporary workers to cover peaks in demand.

Rather than onboarding more full-time employees, consider covering short-term peaks with a temporary workforce. Short-term workers can take on simple tasks in exchange 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 temporary workers through an employment agency), payroll taxes.

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


Strategy 3: Automate when possible.

Considering incorporating technologies that can be completed much more efficiently through automation than by human hand. While some automation is costly to implement, many of those costs can be quickly recouped as the tools reduce the need for human labor hours.

Labeling, packaging, and order fulfillment are some of the many processes that you might consider automating in your business.


Strategy 4: Outsource labor-related tasks.

Consider working with firms that specialized in employee-related tasks. Outsourced HR teams, scheduling apps, and payroll firms can often complete tasks 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 payroll administrator, this move could be a painful one for your business: It may mean eliminating those roles or reducing those employee’s hours to cover truly essential tasks. Or, if your HR, appointment reps, or payroll team members are among those frequently logging overtime hours, this shift may help them complete their work within a reasonable number of hours each week.

If you’d like to connect with an outsourced HR firm, you may consider the following option:

  •  Bambee – This affordable outsourced HR service starts at around $99/month.


If you’re interested in learning more about outsourced payroll processing, connect with one of the following providers:

  •  Quickbooks Payroll – This software easily integrates with other Quickbooks tools and starts at around $45/month.
  • Gusto – This full-service payroll processing service pairs you with payroll professionals who can take on your essential payroll tasks. It starts at around $39/month.


If you’d like to learn more about small business scheduling programs, click to learn more about the following options:

  • Quickbooks Time – This solution easily integrates with other Quickbooks tools and starts at around $20/month plus $8 per employee.
  • When I Work – This popular employee scheduling, messaging, and shift-planning solution starts at around $2/month per employee.



Strategy 5: Outsource job functions.

Other job functions, such as accounting, billing, marketing, and after-hours service, can be outsourced to firms that specialize in those areas. Many can complete essential tasks at a per-hour or per-task rate, which can help businesses reduce their labor costs significantly.

Our top picks for these four essential functions are:


  •  Bench – This outsourced bookkeeping and tax filing service starts at around $160/month.
  • QuickBooks Live – This live bookkeeping allows you to access professional accounting support. It fully integrates with QuickBooks and starts at around $200/month.



  •  QuickBooks – This popular software allows you to generate and submit custom invoices. Pricing starts at around $16/month.
  • Square Invoice – This easy-to-use software is popular because it allows for fast payments with no monthly fees. Processing rates apply.



  •  Social Pilot – This service can help you manage all your social media activities across platforms. Pricing starts at around $26/month.
  • Constant Contact – This solution can help you automate and manage your e-mail marketing needs. Pricing starts around $20/month.
  • Zoho CRM Plus – This solution can help you manage your contacts and coordinate your sales, marketing, and support efforts. Pricing starts around $57/month.


After-hours service

  • AnswerForce – This service provides reliable 24/7 live answering, CRM integration, and eCommerce order entry. Plans start around $130/month for 100 minutes of service.


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

Set aside time to monitor your employees’ practices and spot opportunities for training. Based on what you see, you might adopt new safety protocols or purchase new pieces of equipment that can help you avoid on-the-job accidents, Workers’ Compensation claims, and paid time away from work.

If you’d like support from a safety expert who can help you spot your greatest risk areas, consider connecting with a safety professional as a VectorSolutions. This online hub is a great resource for free videos or onsite consulting and training.


Strategy 7: Revisit the benefits you offer.

While it’s nearly impossible to eliminate benefits midyear, you may look into new healthcare and other benefit options that could help you—and your employees—save significantly in the coming year. Employers who move to lower-costs, higher-deductible plans often realize tremendous savings, as do those who make moves to automate plan administration. To evaluate your options, consider working with a benefits broker such as eHealth insurance, which is an online broker offering healthcare, vision, dental, and other coverages.

If you employ less than 50 people, your employees may be better served through the 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 may also look into revamping your perk program to incorporate more cost-friendly alternatives or eliminate benefits or perks that your employees underutilize. Survey your employees to learn what is being used, what’s valued, and what can be eliminated from your perks offerings.


Strategy 8: Rethink your annual pay increase plan.

Be sure to study the true cost of living increases the nation and your region experience each year before establishing your pay increase plan. Many businesses follow a set pattern of increases, even when doing so pushes compensation ahead at a much faster pace than the economy’s rate of growth.

The Social Security Administration provides a scale that may help you with these calculations. The Bureau of Labor Statistics also provides a monthly document titled Employment Situation that gives industry-specific guidance.


Strategy 9: Reduce hours.

A final, more drastic way to reduce labor costs is to reduce your hours of operation. You might 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.



Looking for more articles and advice to optimize your business? Log into your owner’s portal for a step-by-step guide that will help you lead your team, navigate risks, save money, and grow your business.


Share on facebook
Share on twitter
Share on pinterest
Share on linkedin

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts