You might think of Labour as being an Operating Cost. But, in reality, if your employees are permanent, they are an Overhead or Fixed Cost. This is because it takes a while to make any changes to permanent staff. Alternatively, short-term workers can be taken off the payroll much faster. Here are options to reduce permanent staff costs.
If you do have casual, contracted or hourly workers that you can put on or off the payroll, that will impact your Operating Costs. This is covered in the earlier Lesson – C4.3.2 Surplus Labour Resources. Here, you will give some thought to reducing permanent wages.
Permanent staff are often covered by fair work legislation so it is not easy to make arbitrary changes.
You might be able to achieve some of the following, in the short term, to impact on costs as soon as possible:
- Ask for any voluntary redundancies. Look at this carefully though because:
- often those that will volunteer to leave are the ones who know they can get other jobs. The ones that don’t volunteer might be your drones who know they are unlikely to get work elsewhere.
- very often, redundancy means paying out a multiple of the weekly wage and accrued long service and annual leave. These lump sum payments might damage your cash flow. Which is not a good thing to do if you have cash issues.
- you don’t want to lose any mission-critical staff so retain the option to not grant voluntary redundancy in this case.
- Go to the list of articles: Constructive Dismissal and Redundancy
- Sometimes staff will take leave without pay; especially if they realise the alternative may be closure. Leaders should set the example in this case, though they might stay and work at no cost.
- You might be able to have staff take leave sooner than planned. That will not impact in the short term but may save paying later. This might be most appropriate when there is a shortage of work to keep them fully engaged.
- As discussed in C4.3.2 Surplus Labour Resources, you might be able to sub-contract your staff out to another organisation. This would be in the short term so that you earn enough to cover their wages; and sometimes a little more.
- If your 80/20 analysis of your best performing products suggest poorer performers, you might be able to close down some of those sections and dismiss the staff.
- Other inefficiency factors like Parkinson’s Law and the Peter Principle are discussed in the Diagnostics System accessible via the black box below.
- Outsource some roles like (e.g.) bookkeeping, sales and secretarial support. By moving this sort of roles to short-term labour they become easier to vary.
Go to the list of articles: How to Manage Outsourcing
We make the point that any actions involving your permanent staff to reduce staff costs are likely to be stressful and unpleasant for all concerned. Therefore, they should not be done lightly.
At this point, you are primarily concerned with rapid actions that can save money in the short term. Later, you can come back to optimise the staffing arrangements.
For more help understanding any issues relating to this Section of the Turnaround90 Campaign, use the 12Faces Diagnostic System to drill down to root causes of problems and find our suggested Treatments.