9 ways to reduce labor costs

As your small business grows, it’s important to keep a close eye on labor costs. On the one hand, you want enough staff available to make customers happy and keep up with any rushes. But without solid processes and systems for tracking time and improving payroll efficiency, it can quickly consume more of your time and budget than expected.

That’s why reducing labor costs and streamlining processes is the best way to give your business stability and help you work towards your goals.

Not sure how to reduce your labor costs? We’re here to help! We’ll walk through nine of the best ways to reduce labor costs and improve efficiency. We’ll also give you tips on scheduling, time tracking, and payroll that will help your business thrive.

9 ways to reduce labor costs and improve efficiency

Thankfully, there are many steps you can take as a manager or team leader to reduce your labor costs and improve efficiency. And, with the right tools, you can even increase profitability at the same time. Let’s look at nine of the best ways your business can get started with reducing labor costs.

1. Avoid overtime

As your business grows and you give staff more hours or add more employees to payroll during busy times, tracking overtime is more important than ever. While overtime can be a useful tool in some situations, managers should not use it for the sake of convenience. You should only use overtime when it provides a greater return than the costs. It’s also important to ensure that your business is staying within its staffing budget and that you’re scheduling employees appropriately.

An image of a Homebase timesheet, which shows what time an employee clocks in and out, their total time, paid and unpaid breaks, tips, and overtime.
Homebase’s timesheets make it easy to track employee overtime. Source: joinhomebase.com

Overtime fees are typically 1.5x an employee’s hourly rate. To avoid them:

  • Accurately record timesheets
  • Ensure workers have enough rest between shifts
  • Use tools that trigger overtime warnings

When you use Homebase, managers get alerts when employees are close to or have gone into overtime hours so that they can take action if needed.

2. Streamline processes

It’s essential that your business runs efficiently and that your staff doesn’t waste time completing unnecessary tasks. Wasted time translates to wasted budget spend, especially if employees are doing tasks that have already been completed by someone else or are no longer necessary.

To prevent inefficiency, introduce systems for employees that help them make the most of their time. For example, a restaurant might have a roster to check stock in the morning and evening so staff doesn’t waste time running to the store room during busy times in their shifts, which can potentially have a negative impact on customer satisfaction as well.

Make a list of all the regular tasks your employees work on and map out the best time for them to be completed. You should be able to identify tasks that can easily be completed back to back or otherwise streamlined. Having a checklist with all necessary tasks and having staff sign off when they’re completed can help everyone on your team know if someone else has already taken care of a specific task. 

You can also take advantage of a communication tool like Homebase’s shift notes. These let you assign tasks or make a note of what’s been done and what needs to be done while you’re scheduling staff. That way, your teams can spend time working on something else.

3. Automate time and payroll systems

Manually running timesheets and payroll is a huge drain on time for managers. You don’t want to waste valuable time on time card approval and entering employee hours, PTO, or missed punches when there are more pressing tasks that need your attention. Plus, manual payroll processes are prone to human error. You don’t want to be in a position where you inaccurately pay employees or make mistakes when calculating overtime – that potentially land you in legal trouble.

Instead, using a tool like Homebase will help your business set up a fully automated system for tracking time and paying staff. Homebase’s time clock and payroll features allow employees to easily punch in and out, and instantly convert your timesheets into hours and wages in payroll. Plus, it can automatically calculate wages and taxes and send the correct payments to employees, the state, and the IRS.

An image of the Homebase Payroll UI, which shows the employee name, gross wages, taxes, net pay, company taxes, and total payroll cost.
Homebase makes it easy to run payroll and automatically calculates taxes. Source: joinhomebase.com

Plus, you can run payroll anytime, anywhere with just a few clicks. Automating time and payroll systems will be a great boost to reducing your labor costs and making your business processes more efficient.

4. Reduce staff turnover

Any business owner or manager knows that recruiting employees isn’t cheap, and it’s much more expensive to hire new staff members than retain current ones. Finding qualified candidates is a costly process, and conducting interviews takes up managers’ time that could be spent elsewhere. Reducing staff turnover is the best way to prevent your business from spending too much time and money on hiring.

To save money on recruitment, think about different ways to keep your current employees happy. Give them as much autonomy as possible over shift swapping, and use a communication app that creates a positive work culture. Homebase’s employee scheduling and team communication features are great tools that can help you in these areas.

You might also consider the flexible pay benefits that many small businesses and top employers like Uber, Doordash, and Amazon offer. By offering these competitive benefits, you can attract new hires and keep teams happy by showing you care about their financial well-being. You can also compete with the flexible pay perks offered by top employers like Walmart, Uber, and Amazon.

An image of the Homebase Scheduling tool, which shows employee names and when they are scheduled for shifts.
Homebase’s scheduling feature makes it easy for employees to know when their shifts are and swap them if needed. Source: joinhomebase.com

Holding regular staff meetings and asking employees for feedback is a fantastic way to make them feel heard. Your team has a central role in your organization’s success, and they might have ideas that can improve workflows or processes.

You can also consider adding staff perks to increase workplace satisfaction, such as employee discounts or recognition programs. When your team members feel valued, they’re less likely to leave your business for another opportunity.

5. Avoid early clock-ins

While it’s great that your business might have some team members that are highly motivated and arrive early for their shifts, some individuals may use early arrivals as a means of time theft. In these cases, employees will punch in early but not actually begin doing any tasks until their official shift start time, even though you’re paying them. 

For example, a diner employee might clock in early for the morning shift and spend the first half hour scrolling on their phone rather than starting opening procedures. This can quickly bring up your restaurant’s labor cost and put a strain on your payroll and staffing budget. And in some cases even lead to unplanned overtime fees.

Using a time clock system, like Homebase, that sets limits or blocks early clock-ins is a simple and affordable solution to this problem. That way, you can determine parameters for how long employees can be punched in before and after their shifts and prevent time theft.

6. Track time to the nearest minute

It’s common for businesses to round time clock increments to the nearest 5 or 15 minutes. However, recording employee punches to the nearest minute can stop staff members from hanging around before punching out in hopes of rounding up their time. These minutes of wasted time add up, and depending on how frequently this occurs, it can really impact your bottom line.

Employees will likely feel frustrated if the extra minutes they work aren’t counted towards their paycheck, so paying them for every minute can both save your business money and fairly compensate staff. Instead of rounding time to the nearest 5-30 mins, track time to the nearest minute with the help of an intuitive time clock, like the one offered for free with Homebase. 

Even if you do choose to round time to the nearest increment rather than the nearest minute, Homebase will automatically do the rounding for you. Manually processing timesheets and doing the rounding yourself opens you up to human error. This can result in a violation of labor laws if you’re always rounding down, which deprives staff of rightfully earned wages.

7. Make sure employees take their breaks

Your employees should always be taking their scheduled breaks, regardless of how many customers you have at any given moment. Not only is your business required by most states to provide breaks during shifts of 5-8 consecutive hours, staff members skipping unpaid meal breaks adds to labor costs and can push employees into overtime.

To ensure your employees are taking their scheduled breaks, use an app like Homebase timesheets to see exactly when team members punch in and out, and highlight any schedule variances. From there, managers can decide if they need more coverage to take care of customer rushes at certain times rather than asking staff to work through breaks. If employees are skipping breaks to leave early or clock more hours, that will also be easy to identify.

8. Schedule staff for peak periods 

Scheduling more staff members for peak periods and fewer staff members for slower times is a great way to efficiently distribute your workforce and reduce labor costs. Plus, it’s a better experience for customers if there are enough staff members to reduce wait times and provide better service.

Businesses affected by peak shopping or dining periods often need to prepare for more customers and hire seasonal employees or extra staff for certain periods and holidays, which can be challenging to account for.

To easily track when your peak periods are and assign staff accordingly, use a tool like Homebase’s scheduling. It can be integrated with your point-of-sale system to identify busy periods. At the same time, our manager log lets you add notes and give a human perspective on the data collected. 

That way, you can reduce scheduling challenges, and staff won’t be overwhelmed or bored due to understaffing or overstaffing. Keep in mind that it’s a time clock violation to ask employees to punch out during slow times. Appropriately allocating hours will reduce your labor costs and keep you out of legal trouble.

9. Eliminate buddy punching

One of the most common forms of employee time theft is buddy punching. This occurs when a team member punches in for someone else who has not actually arrived or started work. Old-school time clock methods like a physical timesheet, ID scanner, or punch card make it easy for buddy punching to occur. And while some businesses have tried using facial recognition software or biometric time clocks to eliminate buddy punching, these aren’t legal in all states and can pose privacy issues.

Time theft can be very costly for a business – in fact, it’s estimated that it can inflate payroll by an average of 2.2%. This can be extremely detrimental to your bottom line and cause financial strain for your business.

When employees clock in, they are prompted by Homebase to enter their personal pin. This prevents buddy punching.
Homebase’s personal employee pin feature can help prevent buddy punching and time theft. Source: joinhomebase.com

To prevent buddy punching and other forms of time theft, use a simple but intuitive application, like Homebase’s free time clock. Homebase includes features that are specifically designed to eliminate time theft, including:

  • Taking a photo of employees each time they punch in
  • Providing custom pins for each team member that they need to clock in and out
  • Setting geofences and time constraints to prevent unapproved off-site and early punches

Reducing labor costs will help your business thrive

Reducing labor costs is one of the best ways for you to ensure that your business has a solid foundation to grow in a financially sustainable way. This is important for all small businesses, but especially if you work in the restaurant industry or have a seasonal operation where your customer numbers fluctuate throughout the day or at different times of the year.

This isn’t always easy, especially if you have a small staff or don’t have a lot of time to dedicate to researching your peak customer times. Thankfully, it doesn’t have to be complicated.

With a tool like Homebase, reducing labor costs and streamlining processes for efficiency is easier than ever. Get started today and watch your business and your employees thrive.

Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.

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