Tag: wages

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3 things to remember when calculating labor costs

Astronaut Dog Crunching Numbers on a Board

Summary

  • Calculating labor costs can be complicated, involving things like benefits, taxes, and overhead expenses.

  • While labor costs are a natural part of running a business, there are ways to cut down on them without sacrificing employee or customer experience.

  • Scheduling and labor forecasting software is vital for calculating labor costs accurately. 

A crucial part of any company’s profitability is calculating labor costs correctly. Whether you’re a small cafe, a chain of restaurants, or a global enterprise, you need to know how to calculate the cost of your labor and understand how it affects your bottom line. 

Here are three essential things to consider when trying to figure out how much you’re actually spending on labor, how to remain profitable, and how to ensure your employees are getting paid accurately. 

1. Labor costs go beyond wages. 

Obviously, wages make up the majority of your labor costs; however, you need to remember that you are spending much more on employees than just wages. 

For employee compensation alone, wages and salaries cost employers 69% of the total cost, while 31% accounts for benefits, according to the Bureau of Labor Statistics (BLS). On top of that, there are other things to account for, such as taxes and overhead costs. Here’s a quick rundown:

  • Salary – As mentioned, this takes up a considerable portion of your labor costs. This is the monetary value that you pay your employee for the work they perform.
  • Payroll taxes – Some of these are taxes withheld from the employees and are typically matched by employers by a certain percentage, including Social Security payroll tax and Medicare payroll tax. 

Meanwhile, there are payroll taxes that are shouldered by employers alone, such as the federal unemployment tax (FUTA).

In addition, you should also account for payroll taxes imposed on a state and local level.

  • Benefits – Benefits such as paid time off, health insurance, and dental insurance also factor into your labor costs, particularly if the majority of your workforce is salaried.
  • Overhead costs – These are costs associated with running the business, such as building costs, utilities, property taxes, transportation, and administrative costs. 

Clearly, calculating labor costs should be inclusive of both direct and indirect expenses. Direct expenses are for producing a product, such as the wages of people in charge of production or rendering your services. While indirect costs are supplementary to that, such as administrative staff wages and building and equipment costs. 

Navigating the different factors affecting your labor cost is complicated and laborious, but it’s vital to understand all the costs and expenses that go into it. Doing so helps you determine profitability, spot areas where you can save, adjust your pricing, and determine business feasibility. 

2. Yes, you can save on labor costs. 

A lot goes into labor, and, of course, most of its cost is necessary. However, the good news is that labor is your most controllable expense; this means that the easiest way to reduce your overall operating costs is to optimize where and how you are spending on labor. Here are some of the things you can do to cut down on unnecessary labor costs:

Eliminate time theft

Time theft occurs when employees receive pay for time spent not working while technically on the clock. Buddy punching, inaccurate clock-ins, falsifying timesheets, unrecorded breaks, and attending to personal affairs while on the clock are some of the ways time theft is committed. 

The thing about time theft is it can be difficult to notice since instances of it are typically small and irregular. But over time, these occurrences can balloon into significant dollars lost. 

Solving time theft ensures everyone is working when and where they should be. To do this, you need an airtight time and attendance system complete with geofencing, photo-ID clock-ins, and pin numbers. All of these measures and more help ensure the right people are recording their time accurately and truthfully. 

Also read: 5 ways employees commit time theft (and how to reduce them)

Build schedules based on demand

Accurate demand forecasting is the key to both saving on labor costs and improving your ability to meet customer needs. Knowing exactly where and when you expect high foot traffic or sales can prevent accidentally over or understaffing shifts. Being prepared also helps reduce instances of unnecessary overtime as you’re less likely to request staff to keep working after the end of their shift due to an unforeseen rush. 

This all sounds well and good – but how does one actually forecast demand? What factors go into it?

Webinar: How to Forecast Your Schedule Based on Demand

 

Well, a lot of factors affect demand and required labor. To have an accurate forecast, you need to look at things like historical sales, booked appointments, economic trends, weather, foot traffic, and more. A robust labor forecasting system uses machine learning to account for all of these factors. With it, you can paint an accurate picture of your upcoming demand and schedule your staff accordingly.  

Classify employees correctly

Managing labor costs starts with classifying employees correctly. Salary, benefits, tax rates, and eligibility for federal and state-based policies depend on their classifications.

Assigning the correct classification to employees is critical to paying them correctly and complying with labor laws. Therefore, you also avoid the risk of legislation and penalties due to non-compliance.  

Sync scheduling and time tracking

Tracking where you are overspending on labor helps solve a majority of your labor cost issues. By syncing your scheduling and attendance systems, you’ll be able to see variances on timesheets between scheduled time and actual time worked. At a glance, you’ll be able to quickly see the shifts where you are spending more than expected. 

Global pizza chain Domino’s saw tremendous success using this technique, reducing labor costs by 11% across Europe, Oceania, and Asia.

Case Study: Domino’s Pizza

 

Boost employee engagement

Employee engagement has a significant impact on the cost of your labor. According to Gallup, disengaged employees cost the world $7.8 trillion lost in productivity. That’s 11% of the global GDP. Aside from low productivity, poor employee engagement can also result in high turnover – this means increased recruitment, onboarding, and training costs. 

Webinar: How to Drive Engagement for Hourly Employees

While employee engagement programs usually come at a cost, that doesn’t mean you must break the bank for these initiatives. At the end of the day, it’s all about employees finding value in the work they do. Tailor programs that foster growth, flexibility, and good communication. Prioritizing these things doesn’t always mean hosting lavish events and activities; what’s more valuable is integrating regular feedback loops into daily workflows. 

3. Technology is vital to calculating labor costs, but…

You need to find a software system that suits your business; otherwise, it will just cause confusion, additional admin work, and potentially higher costs. When you use an inadequate system, you risk forfeiting a healthy ROI due to constant reworking and prolonged training expenses. 

When looking for an HCM platform to help you with labor cost calculations, here are a few functionalities you’ll need to consider:

Labor forecasting 

Go for a platform that has a robust labor forecasting capability. With solid labor forecasting, you can accurately schedule your employees according to demand. This, alone, can curb your labor expenses as you’re not at risk of over or understaffing, and you can keep overtime and differentials to a minimum.

Many platforms claim to have some form of labor forecasting, but not all are comprehensive enough. Look at how the platform forecasts and which factors it takes into account when creating demand predictions. Is it only creating predictions based on historical sales data? If so, there is a good chance it lacks flexibility and only looks at surface-level data.

Accurate time and attendance tracking

Time and attendance tracking is vital to paying people correctly, preventing time theft, and optimizing labor costs.

Make sure you go for a system that enables employees to clock in and out easily, whether on-site or out in the field. Another vital area is the speed by which these clock-ins are recorded on timesheets. A platform that can do it in real time would be ideal.

Determine how the system spots and flags potential issues with time and attendance. The last thing you want is to scour through timesheets manually to spot irregularities. 

Timesheet to payroll processing is another crucial element. What are the safeguards the platform has in place to ensure accurate computations? How easy is it to transfer approved timesheets to payroll? What’s the level of admin work needed, if any? 

Strong payroll system

Payroll systems have a basic but extremely important task: withhold necessary deductions, pay employees on time, and pay employees accurately. This might seem straightforward, but this whole process can be tedious when different employee classifications, benefits, and pay rates come into play. It can become even more difficult if scheduling and timesheet data have already been corrupted upstream due to poor time and attendance management. 

Labor compliance

To avoid costly DOL fines and class action lawsuits, you need to prioritize compliance with both federal and state wage and hour laws. Like forecasting, many HCM platforms claim to have some form of labor compliance feature. But not all are robust enough to keep pace with federal and state-based regulations. 

An ideal HCM system ensures compliance at every step of the employee lifecycle. This means it should be able to flag potential risks during employee scheduling, timesheet export, and payroll calculations. Furthermore, it should be consistent with any developments or changes in federal and state-based rules.

Employee engagement tools

How the platform handles employee engagement is another vital feature you should be looking for. Most HCM software help with sending out and processing employee engagement surveys. While that’s important, it also pays to have a feature that allows for more immediate feedback and employee recognition. It also pays to understand how they process the information gathered from these surveys and feedback loops so that you’ll know whether it would be beneficial in your decision-making process. 

Control your labor costs with Workforce.com

While it might seem like a daunting task to find a platform that covers all these areas, there is actually a fairly simple solution. 

Workforce.com is an HCM platform tailor-made for calculating labor costs for shift-based businesses. Within its ecosystem are tools for time and attendance tracking, demand-based employee scheduling, labor forecasting, labor compliance, employee engagement, HRIS, and payroll. 

Find out more about how Workforce.com can help you calculate labor costs by booking a call today. 

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Practical tips for better employee experience going into 2022

Summary

  • “Antiwork” culture is fueling the labor shortage.

  • To attract workers again, employee experience needs to be improved.

  • Addressing the fundamentals of workforce management can make employees happier, engaged, and productive. 

Most people at some point have felt the urge to pull a Christopher McCandless. The notion of dropping everything and running away to the Alaskan wilderness in an old van is a refreshingly romantic one, especially for the unfulfilled employee. Who needs overbearing managers, rude customers, and exhausting overtime hours anyways, right?

“Antiwork” and the American labor shortage

Rejecting the status quo in favor of pursuing unconventional lifestyles and career paths is back in vogue now, thanks to an existential crisis sweeping the workforce. Spurred by the pandemic, disillusioned people everywhere are questioning what it means to be happy in their work.

These sentiments are in large part felt by young people part of the “antiwork” movement. They are tired of the structure behind traditional work-life – all the clock-ins, deadlines, barely livable wages, and whatnot. 

As a result, America is facing an unprecedented shortage in labor. According to a Peterson Institute for International Economics report, the country still needs 6.2 million jobs filled. Even still, many are choosing to opt out of the workforce. 

Perhaps it is time employers take a look inward for a moment to reevaluate how employees feel about their jobs. A report from Gallup measuring factors like employee stress, anger, sadness, and worry says that overall employee engagement is down 2% globally, with only 23% of people saying they are very happy working for their employer. In America and Canada, only 34% of employees said they felt engaged in their work. 

So, workers are angry and worried in the workplace; that isn’t great. And it certainly isn’t helping the labor shortage. Heading into 2022, businesses should seek to reevaluate their understanding of employee experience and strive to improve it. 

Of course, this is not all about the worker; poor employee experience translates to both time and monetary costs for businesses. Frustrated and disengaged employees usually take longer to complete tasks, and their work is often below standard. This can all lead to higher employee turnover, which is very costly to businesses. Sometimes, replacing a worker can cost nearly 20% of what they make annually. 

Improving employee experience

There are many informative lists out there regarding how to improve employee experience, with most suggesting things like team bonding events and haphazard appreciation gestures. While useful at times, these tend to be very vague attempts at solving the issue. Instead, it is worth tackling employee experience from a workforce management perspective. Many issues in employee experience stem from improper scheduling and attendance practices. Solving these problems will not only improve how employees feel about their jobs, but will also help businesses retain employees, attract new hires, and control labor costs. 

So, here’s what you can do:

Raise wages

This may seem obvious and overly simplistic. However, it is often because of this simplicity that managers overlook raising wages.

In these times, workers want to be recognized as human beings, and as such, be compensated accordingly. They want living wages more than they want 90-day bonuses. Some businesses already recognize this, choosing to adopt “pro-employee” mentalities and accept short-term increases in labor costs.

“There are a number of ways you can attract folks,” says Andy Cole of Elite Staffing during a Nov. 8 Workforce.com webinar. “But what we feel right now is that wages are by far the number one reason as to how you get people in the door.” As COO of a staffing agency covering 2,000 locations, Cole understands well what workers value most right now and going forward into 2022. 

Offer opportunities for shift feedback

Employees like to be heard, especially when it comes to how they feel about their shifts. Providing them with a tool to automatically rate shifts every time they clock out will give managers valuable insight into how satisfied employees are with their hours, coworkers, and environment.  

It is important to receive feedback on a regular basis. Doing this helps managers identify and resolve underlying issues employees may have early on before things get out of hand. 

Utilize shift swapping functionality

Sometimes, life happens. And when life decides to happen, rigid schedules can become a nightmare. Offering flexible technology that lets employees easily find shift coverage can go a long way in improving employee experience. 

“I think [my employees] being able to select the position or the shift for that day is really helpful because they feel like they’re helping the team,” says Katie Strehlow, an HR generalist for a baseball team in California. “They come in with a positive attitude, which always leads to a better work performance.” Her employees use shift swapping technology on their phones; she says it has led to an increase in engagement, satisfaction, and performance. 

Clean up your leave management

Recently it was discovered that Amazon has been incorrectly handling paid and unpaid leave for employees due to flaws in their time and attendance software. Many of these employees were wrongfully fired after the software marked them as “no shows” while on leave. If Jeff Bezos’ empire gets leave management wrong, so can any business. 

Employees must have proper visibility into their paid and unpaid leave. They also need to know that it will never be mishandled or miscalculated. Leave management systems that cater to employee experience should be accurate, transparent, and easy to use; ensuring these things helps employers build trust with their workers. Leave management should also integrate with scheduling systems, so as to easily avoid accidentally scheduling people when they are away. 

Enhance scheduling visibility

With fair workweek laws popping up across the country, it is becoming apparent that employees highly value predictive scheduling practices. Employers should make sure they send out schedules far in advance so as not to surprise their workers. 

In addition, schedules should be published onto a single live platform for all employees to view anytime, anywhere – this eliminates the confusion and frustration that comes from repeatedly sending out different schedules across an entire workforce. 

Personalize with granular employee data

It is helpful to have an in-depth workforce management system that provides data down to the individual. Understanding employee preferences through metrics like where and when they consistently show up late, or for what shifts they usually request a swap, helps managers address underlying experience issues. 

Granular employee data also helps managers equitably distribute shifts. For instance, managers can actively see while scheduling which employees have been given the fewest hours, and then react accordingly. Segmenting data in a personalized way like this also provides insight into sales vs labor hour metrics; managers can use this information to recognize and help out employees who might be struggling with productivity. 

Automate time tracking

According to a recent article from Forbes, outdated legacy systems are often unable to efficiently automate time tracking; the inconvenience of this harms employee experience and increases administrative costs. 

Hourly employees want their lives to be easy, especially when it comes to monotonous tasks like clocking in and out and filling in timesheets. They also want peace of mind regarding the timeliness and accuracy of their paychecks. Automating time and attendance guarantees employees are paid correctly every time, eliminating the headaches of variables like overtime and pay differentials. An automated system like this also serves to make your employees’ jobs easier, improving their overall experience. 

Slick and easy UX

If employees are unable to navigate basic tools for their jobs, their experience is undoubtedly going to get really sour, really fast. Complicated and broken UX can cause anger and stress for employees and its something businesses should seek to eliminate. 

UX experts note easy logins, straightforward interfaces, consistent styles, and easy to find policies/contact info as several principles that should be considered when designing systems to maximize employee experience.

It comes down to the basics

To improve employee experience, you first need to solve workforce management. Scheduling and timekeeping are the fundamentals of how a business, and its staff, operate on a day-to-day basis. Streamlining these areas always results in higher employee motivation, engagement, and happiness. 

Want to get started? Hop on a call with us today. We’ll talk you through it.

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The FLSA Nightmare Behind Chipotle’s Bonus Program

Last week Chipotle announced a new bonus plan that could earn its employees up to an extra month of pay each year. Per the chain’s press release, the program is offered quarterly and can result in a bonus worth one week’s pay, calculated as an individual’s average weekly pay per quarter. To qualify for the quarterly bonus program, restaurant teams must meet certain sales and cash goals.

This bonus program has the potential to be a great way for the restaurant to break through in a tight labor market to attract talent. It also, however, has the potential to pose an FLSA nightmare. Bonus payments often count as part of a non-exempt employee’s regular rate of pay, thereby increasing the overtime premium owed to that employee.

Section 7(e) of the Fair Labor Standards Act requires the inclusion in the regular rate of pay all remuneration for employment—except seven specified types of payments). Non-discretionary bonuses do not full under one of those seven exempted categories. A bonus paid pursuant to an incentive program (like the program Chipotle just announced) is the definition of “non-discretionary,” and therefore must be accounted for in the calculation of an employee’s regular rate of pay for overtime calculation purposes.

For purposes of calculating the regular rate of pay, the bonus does not have to be included in its entirety in the week it is paid. Instead, an employer can apportion the bonus amount back over the workweeks of the period during which it was earned. The employee must then receive an additional amount of compensation for each workweek that he worked overtime during the period equal to one-half of the hourly rate of pay allocated to the bonus for that week multiplied by the number of statutory overtime hours worked during the week. If it is impossible to allocate the bonus, an employer can select some other reasonable and equitable method of allocation.

If a bonus payment already accounts for the overtime premium, then no additional payment is required. For example, a bonus plan may pay, as a bonus, a 10% premium of an employee’s total compensation, including overtime premiums. In this instance, the payment already covers overtime, and no additional overtime is required.

Like most wage and hour issues, the handling of bonus payments to non-exempt employees is complex, and presents a real trap for the unwary employer. If you are considering paying bonuses to hourly and salaried non-exempt employees, you should run it past employment counsel before making the payments to ensure you are not committing an FLSA violation in the mechanics of the bonus payment.

Also in The Practical Employer: 

The Customer Isn’t Always Right: The Museum of Sex(ual Harassment)

I Really Thought People Knew Better Not to Advertise Jobs ‘for Whites’

How to Fire an Employee