How to reduce labour costs without losing talent

Labour costs giving you a headache? It’s time to take control. While cutting jobs might seem like the fastest fix, there are smarter ways to reduce your labour costs without downsizing the team.

In this guide, we’ll take you through how to strategically control labour costs, identify areas where you can reduce your costs without cutting jobs, how to maximise your scheduling efficiency and more. Our guide includes: 

• How to analyse your current labour costs
• Five actionable strategies for cost management 
• Where technology can make a difference

Whether you’re running a roster-based business or just looking to future-proof your growth, we can help.

What are labour costs?

When we refer to labour costs, we’re talking about the money your business spends on salaries, wages, benefits, payroll taxes and any other related compensation-related expenses. 

Labour costs are one of the largest parts of your company’s expenditure and getting them under control can help you grow your business to where you want to be. Failing to control them can severely harm your business’s future.

Strategic labour cost management

Looking to manage your labour costs? Here are a couple of ways you can get on top of your expenses without affecting your workplace’s productivity or morale.

Identifying cost reduction opportunities without job losses

One of the best ways to reduce costs without job losses is by automating manual tasks. If your team spends too much time on admin, automating these tasks is a powerful way to put their hours toward more productive, skill-suited work.

Balancing cost control with employee satisfaction

Of course, trying to be ruthless with cost cutting can come at the expense of employee satisfaction. For example, if you start trimming hours or jobs, then remaining employees may become overworked.

Some things to ask yourself when you’re controlling costs include:

• How does this impact my current workforce?
• Do these measures help my employees focus on work that suits their skillsets?
• Am I reducing the customer or client experience by implementing these changes?

By asking yourself these questions, you can make decisions that make sense for both your business’s bottom line and your workforce.

Optimising scheduling and roster management

Efficient rostering and scheduling can also help you manage your labour costs. Here’s how.

Minimising overtime through strategic rostering

Strategic rostering can help you minimise overtime costs. According to Employment New Zealand, employees shouldn’t work more than 40 hours per week (without overtime), unless agreed by both you and your employee.

By strategically rostering, you can ensure that each employee works as many hours as you need, without straying into overtime territory. Of course, some overtime may need to be allocated in high-demand periods, but this should be rare with the right rostering approach.

Demand forecasting and staff allocation

Forecasting demand can also help you with staff allocation, so you can ensure you’re not over or understaffing. Using past business data can help you identify how many hours you need to dedicate to a particular shift, as can determining the different skillsets of each employee within your workforce. Understaffing can be harmful for morale, while overstaffing can cause unnecessary labour costs to stack up.

Technology solutions for efficient scheduling

Want a simpler way to do your scheduling? A staff rostering program like Employment Hero can help. Make the schedule as far in advance as possible so you can minimise late surprises, or identify how many employees each employee has worked at a glance. Technology can help you simplify how much time you’re spending on scheduling while making the process more efficient. 

Streamlining business processes and operations

Another way of reducing your labour costs is by streamlining your business processes and operations. Here are a few ways to make things more efficient.

Eliminating redundant tasks and workflows

Regular audits can help eliminate redundant tasks and workflows. 

Questions to ask yourself include:

• Do these tasks contribute to our business’s productivity, or are they busy work?
• How much manual input do these tasks require from my employees?
• Is there a simpler or more cost-effective way of completing these tasks?

Once you’ve asked yourself these questions, process standardisation or automation might be the answer.

Process documentation and standardisation

An easy way to make things more efficient is by documenting and standardising regular processes. Platforms like Scribe and Loom can be used to map out your standardised operating procedures (SOPs) so they can be transferred throughout your workforce. Rather than having one or two employees with the knowledge for business-critical tasks, SOPs means every employee can access information when needed.

Automation opportunities in daily operations

When you start looking into your day-to-day operations, you might find a range of tasks that can be automated, so your employees can focus on more productive activities. For example, this could include data transferring, inventory management, appointment booking or customer service.

By automating these tasks, you more efficiently allocate your labour costs. It may take a little more work initially to identify the best platforms and software to automate these tasks, but once those technologies are set up, your employees can focus on doing more work that matters.

Smart recruitment and retention strategies

Another way to save on labour costs is through better recruitment and retention. Here are a few savvy methods.

Reducing turnover costs through better hiring

It might sound simple, but it’s true: reducing turnover costs helps save on overall labour costs. You can hire better by asking a few questions every time you add a new team member:

• Have I clearly defined the role I’m hiring for?
• Does the person I’m hiring fit the role description?
• What new skills are they bringing to the table?
• What areas of need in our business do they help address?
• Are they likely to be a good culture fit?

These questions can save you a lot of time and money.

Non-monetary benefits and employee value propositions

Employees also value non-monetary benefits when it comes to work. Some non-monetary things you can offer your employees include a strong work-life balance through flexible work arrangements, or professional development opportunities through training or mentorship. You might also want to enable public recognition within your workplace or grant extra time off for wellness or volunteering.

Calculating true cost of staff turnover

Staff turnover can cost your business more than you might expect. Calculating your true cost of staff turnover can be confronting, but it’ll help you get back on track.

The formula is: 

(Hiring + onboarding +  lost productivity costs) x (number of employees x annual turnover %) = annual cost of turnover.

Why is turnover so expensive? It costs time and money in many ways. That includes hiring costs, like advertising and recruitment agency fees, time put into onboarding and lost productivity as the new team member gets up to speed. 

To calculate your annual turnover %, divide the amount of employees who left by your average number of employees (add the number of employees at the start of the year to the number at the end of the year and divide that number by 2). Times that by 100 and you have your annual turnover %. 

For example:

10 employees left/28 employees at the start of the year + 32 at the end of the year=60)  x 100% = 16.67%.

Workforce flexibility and cross-training programs

Another way of reducing costs is by hiring and fostering multi-skilled teams. Rather than siloing skills, cross-training can help you in the long run. Here’s how.

Developing multi-skilled team members

Cross-training across departments can help improve your workplace flexibility. All too often, long-term employees will be the only ones that can complete business-critical tasks or procedures, and when they resign, their knowledge and skills leave with them. By fostering a culture where employees regularly collaborate with each other and upskill each other in the process, you can develop a truly potent workforce.

Flexible work arrangements for cost efficiency

Looking to reduce costs? Flexible work arrangements can help. Rather than paying for an oversized office for example, allowing your employees to work from home when suits them can allow you to use a shared or co-working environment. You may also find you can reduce costs like internet and stationery expenses. 

Shift bidding and employee self-scheduling

Shift bidding and employee self-scheduling can be done through a platform like Employment Hero. Rather than filling shifts yourself, employees can self-schedule. By taking responsibility for their own rosters, they’re more likely to show up for each shift, reducing last-minute shuffles.

Legal considerations and compliance in cost reduction

There are several compliance risks when reducing labour costs. 

First, you should be aware of employee rights and entitlements. Ensure that you’re meeting your legal obligations at all times. That could include taking alternative steps to reducing work hours, checking in with the workforce and seeking legal guidance. 

However, if you’ve exhausted all other options, reducing your workforce size may be the only option available.

Employment law requirements for workforce changes

Redundancy should be a last resort for your business but it may end up being necessary to stay afloat. Here’s how you should approach redundancies, and how you can maintain a fair process.

Redundancy as a last resort option

After exhausting all other options, redundancy may be necessary to reduce labour costs. Before making someone redundant, you must follow Employment New Zealand’s guidance. This means that you’ll need to consult with your workforce, and let them know that redundancy is on the table. You’ll need to explain why you’re considering redundancies and hear any employee concerns. 

Once this is done, you’ll then need to see if there are alternative roles within your business. However, if this isn’t an option, then you’ll need to start the formal redundancy process. This includes issuing a formal redundancy notice, containing the date of termination, the reason for the decision and relevant employee rights, including redundancy pay (if applicable), notice pay and accrued entitlements.

Redundancy is a huge step. For more information on the process, check out our guide to handling redundancy.

Maintaining fair employment practices during cuts

Maintaining fair employment practices during cuts can help save workplace morale. While no-one wants to have to make the decision to cut jobs, you can still approach the process with kindness and fairness. Some things you can do include:

• Develop a clear strategy around what roles or departments are being cut and why
• Communicate openly with both affected and non-affected staff
• Avoid discrimination – make decisions based on job-related criteria, not protected characteristics 
• Offer support like outplacement and written references

If you’re looking for a way to track your labour costs, then Employment Hero’s software can help. The platform allows you to track how much you’re spending on labour, empowering you to make strategic decisions.

That’s just one feature of Employment Hero. Our all-in-one Employment Operating System is designed to support you in everything HR, payroll and people. 

Ready to discover the power of Employment Hero? Book a demo today!

The information in this article is current as at 30 October 2025, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.