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Understanding Employee Cost: Strategies to Minimise Expenses and Maximise Efficiency

The foundU Team
June 19, 2024
14 Min Read

Employees are the backbone of any enterprise and what will make or break your business. It is, therefore, essential to understand the actual cost of an employee and how to reduce employee costs for an efficient, successful organisation while offering attractive rewards and benefits for your hardworking employees.

Employee cost includes direct and indirect expenses, and this blog will explore those expenses, essential strategies to minimise employee costs, and how leveraging foundU’s all-in-one workforce management platform can help you find the best talent in the most efficient, cost-effective way.  

What is Employee Cost?

Employee cost is the total cost of employing your workforce and includes direct costs such as:

  • wages,
  • superannuation,
  • leave entitlements,
  • allowances, commissions, and benefits, and
  • insurance,

amongst others.

Indirect expenses include:

  • recruitment,
  • training and onboarding,
  • professional development,
  • staff turnover, and
  • absenteeism.

Costs can add up quickly and greatly impact your business’s success.

All organisations large and small and across industries, need an efficient way of keeping track of employee costs through an integrated platform such as foundU’s  workforce management platform

How Much Does an Employee Cost?

Employee costs can quickly run into the thousands, and can vary depending on the industry and award.

Understanding these costs can help you run your business efficiently and reduce the cost of employee turnover and the negative impacts this can have on your business.

Salary or Wages

Salary is the most significant employee cost. As of July 2023, the minimum wage in Australia is $23.23 per hour or $882.80 per week.

If you want to attract the best candidate, you will need to research the average wage for the industry, for the same level of experience, and in the same location, as wages will vary based on these factors. For example, wages in capital cities and metro areas are generally higher than those in regional or smaller cities.

There are also complex awards and legislation around the management of wages, and ensuring compliance is essential. foundU offers outsourced payroll services to share the load help you keep on top of it all, and stay compliant. 

Benefits

Benefits such as workplace perks, pocket money allowances, financial health and wellbeing tools, professional development budgets,  and extra leave days can add up in cost.

They are however a great way to keep the cost of employee attrition down, as they entice top candidates and retain them long-term. This is important for a business, as the  cost of losing an employee can be as much as 34% of the worker’s salary.

Employer Payroll Taxes

Payroll tax is a state or territory tax paid by an employer and is calculated based on the total monthly wages paid to all employees. You will only pay the tax if the total wages paid are over the tax-free threshold for the state or territory you’re based in. 

Compliant payroll is essential, and there are specific rules, complex legislation, and ongoing reporting requirements that can attract significant financial penalties if you are found non-compliant.

Training and Development

Onboarding an employee includes orientation training, ongoing training, mentorship and coaching, all of which all involve time and resources.

The cost of onboarding a new worker can take at least three months, and it can takeup to two years for an employee to be fully productive.

If you want to reduce the cost of employee turnover, you may also need to pay for professional development and other additional courses to retain them long-term. 

Workspace and Equipment

Your new employee will need the right equipment to do the job. This includes a desk, computer, software licences, phone and other necessities. Nowadays with hybrid work, you may also need to provide remote work equipment such as laptops and appropriate workstations.

Employee Turnover

The cost of employee attrition is significant and should not be ignored. Employee attrition is the inability of an organisation to retain staff. The negative impacts on a business include:

  • Lost productivity—there is less output as others have to pick up the slack.
  • Lost knowledge—outgoing employees take their expertise and knowledge with them, which takes time to regain and retrain.
  •  Hiring and replacement costs—recruitment agencies typically charge 15% to 25% of the employee’s income if you recruit yourself, it can affect your business’ productivity. 

Common Variables Affecting Employee Cost

Industry and Job Role

Each industry has benchmarks and minimum pay rates which fall under awards that govern minimum employee entitlements. Some industries require the use of multiple awards covering different job roles and responsibilities. If the work being performed does not fall under a definitive award, an employee is covered under National Employment Standards.

Keeping track of this can be challenging, but foundU reduces this complexity by providing an all-in-one platform that handles employee information, leave entitlement, pay rules and other essential information along with an award engine purpose-built for Australian businesses.

Geographic Location

Variations in living costs in different geographic locations can influence employee costs. Generally, workers in urban areas earn more than those in rural areas with similar skill levels by  as much as 7.5%. This is due to the size of the economy influencing the cost of living – urban areas with a larger economy tend to have a higher cost of living, which is reflected in the average wage.

Work Experience and Education Level

More experienced and higher-educated employees typically command higher salaries. The  average salary for an employee with no tertiary qualification is $900 per week compared to $1,428 per week for someone with a Bachelor's degree. An entry-level employee will also earn significantly less than someone with years of experience. 

Company Size and Sector

Larger companies may offer more comprehensive benefits packages, affecting the overall employee cost. Smaller companies may also rely on casual or part-time resources to flex with seasonality demands, which can reduce overall employee costs.

Market Conditions

Economic conditions and labour market trends can also influence wage levels and employee costs. Inflation can influence wage growth as well as demand for specific skill sets. Some industries, such as health care and telecommunications, have competitive remuneration due to a demand for highly skilled workers and shortage of talent.

Regulatory Environment

Changes in labour laws and regulations have a significant impact on employee costs. Australia’s national minimum wage is reviewed annually by the Fair Work Commission, and the various awards present in many industries and sectors are also regularly reviewed. This means that wages, benefits, and compliance are constantly changing, and companies need to devote a significant amount of resources to understanding their obligations. There are heavy penalties for failure to comply.

How to Reduce Employee Cost

Optimise Benefits Packages

Do a careful analysis of your current benefits and see how they’re being used or if they’re getting much engagement, and make adjustments as necessary. Cutting out underutilised benefits is one of the easier ways to reduce employee costs with minimal impact on most staff.

Implement Telecommuting

Remote or hybrid working is a great way to reduce office-related expenses. You save on office floor space, which leads to savings in rent and utilities, cleaning services, food and drink and office equipment costs.

Offering a flexible working policy is also a great way to help reduce the cost of employee attrition and improve recruitment efforts, as it makes your company an attractive workplace.

Automate with Technology

Improve your efficiency by leveraging technology to automate and streamline operations. This will reduce the time it takes to perform routine tasks, which means you can schedule fewer people at a time to lower employee costs. It also means employees are free to focus on more productive, profitable company tasks.

Enhance Employee Retention

Focus on retention strategies to decrease employee turnover such as:

  • Incentivise performance with bonuses to encourage employees to perform at their best.
  • Make wellness a priority, for example, providing Employee Assistance Programs, Pocket Money Allowances or gym memberships. Happy workers are productive workers.
  • Implement a flexible working policy such as hybrid work, swapping shifts, and reduced hours.
  • Improve company culture by listening to employee feedback. 

Outsource Non-Core Functions

Work with freelancers for non-essential tasks to save on employee expenses.

Outsourcing non-essential tasks allows your employees to focus on more productive, profitable tasks.

Leveraging Technology to Control Costs

Use tech solutions to control employee costs. Technology can automate many tasks commonly performed, such as:

  • Optimising scheduling to reduce unnecessary overtime with systems like foundU’s Rostering system, which calculates employee costs in real time based on scheduled shifts.
  • Well-designed communications tools help managers track field workers and schedule changes.
  • Data collection and analytics to help reduce human error, reduce administrative burden, identify opportunities and trends and improve operations. 

How foundU Helps Manage Employee Costs

As Australia’s only true, all-in-one workforce management platform, foundU can help manage your organisation’s employee costs by:

  • optimising recruitment operations and seamlessly onboarding new employees,
  • Improve payroll processing times,
  • efficiently managing staff through optimised and costed rosters,
  • Reduce data entry and manual handling of employee information

plus more.

Our platform helps you navigate complicated payroll legislation and stay on top of compliance requirements.  We help businesses of all sizes within all industries. 

If you want to know how to optimise employee costs and enhance business efficiency,  Contact foundU today or  Book a Demo to see how the platform works.

Check out our  blogs and customer stories for more advice and tips on accelerating your business success.

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