How to Control Your Labour Costs

Many economic factors are pressuring Australian businesses to calculate, monitor, and control their labour costs: inflation, interest rates, and trade tensions to name a few. Since the cost of housing and living has risen sharply, many employees are seeking higher wages and better benefits. Supply chain disruptions are also pushing businesses to protect their margins.  

Fail to calculate your labour costs and you could erode your profit margins. You could also make uninformed decisions about staffing and miss increases in demand. However, if you monitor your labour costs closely, you can make better financial decisions and capture growth opportunities. Ultimately, this can help your business and employees thrive.

Given the tough operational environment, let’s explore how you can centralise your workforce data using tools like foundU and monitor your labour expenses to make good strategic decisions.  

First, we’ll break down what labour costs are and the data points that businesses often fail to capture, leading to inaccurate calculations. Then, we’ll dive into some practical ways you can implement real-time monitoring.  

What are labour costs?

Labour costs are the expenses that come from employing workers. They can include wages, employee benefits such as superannuation and paid leave, payroll taxes, and other related costs like recruitment and training. 

Wage costs are a subset of labour costs, being a direct payment made to employees for their labour, such as salaries and hourly wages.

Workforce management data that is often underutilised in labour cost monitoring

Operational data flows through your business every day. Every time a shift is rostered, worked, submitted, and approved, pay and leave entitlements accrue. If you gather this information at scale, you can gain a real-time snapshot of your business's labour expenses. However, you need to be tracking these data-points to get accurate insights.

Award requirements and pay rules

Award interpretation is the process of figuring out the minimum legal pay and entitlements an employee is entitled to. Pay rules are what you use to make sure that these rates are applied correctly for all employees in all scenarios that they may work in. If you don’t apply the correct awards and rules, your wage calculations will be wrong.

Overtime and penalty rates

Overtime rates kick in when an employee has worked over the standard working hours outlined in their contract or award. Penalty rates are higher pay rates that employees need to be paid when they work particular hours or days. Failing to account for these higher pay rates means that you can underestimate labour costs when you build your rosters and make scheduling decisions.

Employee classification 

Employee classification involves categorising employees based on factors like their job duties, responsibilities, qualifications, experience, and length of employment. These factors determine the pay rate, benefits, and work conditions that need to apply to each individual based on industry awards and agreements.

You also need to keep track of employee progression, as employees could advance to higher classification levels as they gain experience and meet new requirements. This helps you avoid inaccurate payroll calculations and compliance issues that accumulate over time.

Leave entitlements 

Leave entitlements sum up the paid or unpaid time off work that employees are legally required. They could include annual leave, personal or carer’s leave, parental leave, long service leave, community service leave, compassionate leave, unpaid family and domestic violence leave, and public holiday leave. Employees accrue leave entitlements over time, and you need to keep track of these obligations to calculate the full cost of employing staff.

Geolocation and time-tracking

Allocating a shift on a roster doesn’t mean that an employee will end up working in the exact time and place that you have assigned. Late arrivals, changes in operational plans on the day, and unplanned absences can create variances between your rosters and attendance data.

That’s why you need highly accurate time and attendance tracking tools that help you monitor when and where employees end up working. Being able to capture shift notes helps you interpret the reasoning behind hours worked when your team approves shifts. Not only is keeping this information stored a compliance requirement, it also gives you deep insights into employee productivity and labour costs.

Practical ways to monitor your labour costs

With so much data required to keep track of your labour costs, you need to run your calculations in a structured and automated way. While you might be able to start out with manual calculations when your business is small, they will create too much stress and room for error when your workforce grows.

Centralise data collection

The Super Guarantee may increase in the new financial year, so make sure that you implement the new rate in your payroll platform effective from July 1. If you’re using foundU, this will automatically be implemented for you.

Automate award interpretation

Make sure that your award interpretation and pay rule engine is built into your payroll system. This helps you automate many aspects of compliance, helping you meet complex industrial relations laws that can kick in when your employees work across multiple roles and awards in a range of scenarios.

Implement real-time monitoring

Using foundU’s time and attendance software, you can instantly capture hours worked and keep track of your labour costs in real-time. This helps you make immediate adjustments to staffing levels and manage your rosters better in the future. Make sure your workforce management platform gives you live wage calculations, overtime, and compliance alerts on your roster so that you can calculate wage costs by hour and day. This helps you make smart decisions before you assign shifts.

Use reporting tools

When your employee data management, rostering, time and attendance, and payroll tools are all built into one system, you will minimise the risk of integration issues and data errors. In foundU, you can manage multiple business units in one system and use labour management reports to analyse wage costs by site, activity, and cost centre, giving you operational insights into your entire business. 

You can also use wage costs reports to learn about how efficient your workforce planning and rostering has been in the past. Analysing your wage costs and demand across peak seasons, helps you make the right staffing decisions in the future. 

Tracking your labour costs drives sustainable growth

Labour costs can be one of the biggest business expenses. Tracking them empowers you to set the right price for your products and services and capture the next big growth opportunity with confidence. It makes scaling up sustainable while creating stability for your employees.

It’s an essential part of maintaining financial health and being competitive. Using an integrated workforce management platform like foundU, you can proactively monitor and optimise your labour expenses – helping your business grow. 

Interested in monitoring your labour expenses? Book a demo of foundU today.