8 effective ways to reduce staff costs in 2024 (without letting them go)

The Office of National Statistics revealed in May 2022 that staffing costs had increased for a third (33%) of businesses, with the accommodation and food service activities industry reporting the highest percentage, at 67%. Looking ahead, 29% of all businesses reported they expect staffing costs to increase in the next three months.

Inflation is hitting hard. Businesses are under pressure to increase salaries, but also reduce costs. And all this in a zero-growth economy known as stagflation, where costs of raw materials and transportation are also skyrocketing.

So what can employers do?

We invite you to come with us on this journey. Stay strong, check in on your company values and goals, and let’s look at other ways to reduce staff costs without letting your people go.

1. Reduce recruitment costs

The cost of recruitment should be factored into the hiring process. This can vary according to whether you use a recruitment agency or you do it yourself, and of course, how efficient (or not) your process is. It can stack up – the cost of recruiting needs to stretch quite far:

• Salary of your recruitment team
• Salaries of extra team members involved in the hiring process
• Internal commissions or referral bonuses you might have set up
• Advertising and online job board costs
• Software that you use to hire employees

Recruiters and agencies tend to be paid on commission which can be a percentage of the employee’s starting salary – typically 20%–30%. Based on average salaries at the moment, that means the cost to use a recruitment consultant is around £3,000 to £5,000.

One way to reduce your recruitment costs is to use a handy, all in one platform which manages your recruitment seamlessly and cost effectively.

Now, where would one possibly find such a thing? Well, right here, of course!

Vikings Group saves over £13.400 a year using our platform. And another of our lovely clients recently told us the key benefits for them have been “Definitely saving time and simplifying the process and saving money. It was the triple trifecta.”

2. Reduce employee turnover

Another way to save money is to reduce your staff turnover, because, let’s be honest – employee turnover is an unpleasant cost for any business to bear.

This starts right at the beginning with hiring the right person for the role, because anything less than the right “fit” can be costly to your business and lead to increased staff turnover.

The cost of staff turnover factors in a broad spectrum of costs, from loss in productivity to the time spent training your employees, plus any recruitment and equipment costs for your new hire, and the costs of finding a new person to fill the role. This has a knock on impact on staff morale and company culture, so it’s not a good spiral to get stuck in. Besides, it’s costly. In the UK, the average cost of employee turnover is around £11,000 per person.

There are many reasons why your staff turnover might be a little high. But focus on staff retention and you’ll hopefully see a decrease in staff turnover, and the costs associated with it.

3. Reduce employee absenteeism

Absenteeism is a gnarly issue for employers to deal with. It’s different from paid time off or sick leave. Instead, it’s when employees miss work “without good reason.” That is a fairly standard definition, but we don’t love it because it can reinforce negative behaviours in the workplace. That’s why we prefer to define employee absenteeism as the frequent planned or unplanned absence of a staff member.

While it’s hard to get the hard stats on it (employees don’t often feel empowered to give detailed explanations), the top reasons for absenteeism tend to be around mental health, burnout, or caring responsibilities. So let’s give that a name – wellbeing, or lack thereof.

But here’s the thing. According to research by Westfield Health, absenteeism cost UK businesses £14 billion in 2020.

This is something we can’t afford to ignore. If there was one upside to the pandemic, it’s that it shone a spotlight on how important it is to look after employee wellbeing and happiness. So employee wellbeing is trending, and we are all the way here for it.

A big part of our mission at Employment Hero is about improving employee wellbeing and happiness levels – a noble enough pursuit in itself, we think. But for employers, looking after your employees’ wellbeing is key to reducing employee absenteeism, which, in return, reduces costs of absent staff, improves your productivity, and boosts your bottom line. That’s a win-win-win-win in our book.

Need to test the temperature on your staff happiness levels? Be proactive with employee engagement using Employment Hero’s Happiness Survey.

4. Streamline payroll processes

Payroll can be quite a significant cost for small businesses – as well as the biggest headache. (Don’t worry, we won’t judge). But it’s not a cost you can just opt out. Employees aren’t going to pay themselves, right?

According to startup and scale-up growth funding specialists FundSquire, labour cost averages at 70% of all expenses in a given business. They also note that every year, companies spend over 100 hours manually managing the payroll for every 25 employees they have.

That just sounds costly. Fortunately, there are ways to streamline your payroll processes. From tracking attendance and timesheets, to accurately calculating wages, leave and overtime, you can save a whole lot of time and money by using payroll software like Employment Hero.

Cloud platforms can help you go paperless, too, so you can also save paper! Way to go for playing your part in saving the planet.

Besides saving cost, switching to paperless – for example, using electronic timesheets, you can automate processes on admin tasks.

5. Reduce labour costs with effective rostering

How did people survive before the internet? We just don’t know how employers managed time and attendance back in the day. Well, we do. It took them a lot of time and energy, on the regular.

Automating your time and attendance tracking system makes scheduling painless. When it’s configured to exactly what your business needs, it’s easy to budget and allocate shift patterns, as well as calculate wages, flag penalty rates for overtime or weekend work, and enable shift swapping.

We’ll give ourselves a little shout out here. Because our platform provides:

• digital timesheets,
• smart rotas (so you can assign skills, input availability, and allow the system to recommend the right people for each shift),
• and award interpretations (you can enforce various work rules to each employee’s start and stop times so that they can be automatically interpreted into each individual payroll element).

Embrace the joy of smart rostering and just watch those admin hours and costs go down.

6. Allow voluntary reduced hours

If you need to seriously rethink your workforce costs, one way to reduce costs without redundancies is to allow voluntary reduced hours – also called short-time working.

A voluntary reduction in hours means that you allow your employees to voluntarily reduce their working hours and pay for a specified period of time. Not all employees will want to do this, but some will if the alternative is a risk of redundancy or termination.

There are ramifications, of course. It can lead to a loss in benefits for the employee. If you go down this path, make sure to seek advice to ensure you’re following the letter of the law and you’re not engaging in any unfair employment practice.

Any changes to contracts must be agreed to and documented. Effective communication is also vital – make sure you get any changes approved by your legal team.

Bear in mind you need to be aware of your obligations should employees elect to take redundancy rather than agreeing to reduced hours.

7. Prioritise upskilling your employees

One way to reduce staff costs is to ensure your employees are up to date with relevant essential skills. It might sound counterintuitive to invest in learning and training when you’re trying to reduce costs, but hear us out.

Upskilling is vital to replace outdated skills that might actually be costing your productivity. Indeed, a study conducted by PWC found that four out of five CEOs believe workers who lack essential skills and training are considered a threat to organisational growth.

That’s why, as an employer, you need to offer learning and development opportunities for your team. Another lesson that Covid taught us is that change can happen in an instant. Businesses have been forced to adapt to new ways of working and had to learn the importance of training and educating staff so they are more dynamic and agile in the face of change. Upskilling your team comes at a far smaller cost to your business than hiring a replacement. By expanding the skillsets of your current employees, you will find yourself with a more diverse, agile, innovative, well-rounded workforce that can adapt quickly to change.

If you need a helping hand with providing cost-effective training and learning opportunities, look no further than our learning management system. Like a fiercely proud parent, we’re just so delighted with how it helps employees to learn and grow.

8. Reduce office costs

As it turns out, we’re very capable of working from home. Who knew? Before 2020, working from home was the exception and not the rule. But when lockdown hit in March 2020, it all changed. By April 2020, government data revealed that 46.6% of people in employment were doing some work at home, which ultimately peaked at 60% of the UK’s adult population working from home during the first coronavirus lockdown. The same research shows that 85% of employees currently working from home want a ‘hybrid’ approach of both; home and office working in future.

We’re huge advocates for remote, flexible and hybrid models for many reasons, employee wellbeing and improved retention just being two. Remote work also makes work more accessible and more inclusive.

But remote models also save money. And even if going fully remote isn’t an option for your company, a hybrid working model saves businesses an average of £8,100 per employee.

This is partly because utilising office space more flexibly can help reduce expenses by saving on traditionally fixed overhead costs, including rent, heating, and support staff.

So if you want to save money on your staff costs and remote work is an option for your business, then going remote is our best tip.

The wrap up

We hope you’ve picked up on a theme that’s been running through this post, which is that, ultimately, your company culture is key to reducing staff costs in the long run. Your success depends on the people who work for you. Making sure your company is a great place to work and has a thriving culture will go a long way to improve wellbeing in the workplace, reduce employee absenteeism and staff turnover, and attract top talent to work for you.

Check out our guide to developing company culture here.

For all things employment, we have you covered with our simple, cost-effective platform. We’re confident it can help save you a bob or two, so make sure you talk to our employment specialists to find out exactly how we can help you save money.