Andrew
Burak
CEO at Relevant

How To Reduce Labor Costs Without Cutting Headcount

#Dedicated teams

If you have been doing business in any sector of the economy, then you may already understand how expensive it is for an employer to gain access to quality labor.  

Also, according to Statista, The US employment cost index saw a significant surge of up to 0.7 percent in the second quarter of 2020. 

Photo credit: Statista 

Coupled with the horrendous impact of the coronavirus pandemic, what this means is that a lot of companies might find it challenging to pay their employees, and they might have to look for ways of reducing labor cost without reducing headcounts.

When your company is in a financial strain, finding a way to cut costs is invariably one of the first solutions any business owner will consider. Considering cutting costs makes the business owner carefully evaluate their business to determine the best area in which a cost-cut will be most beneficial. Since the cost of hiring labor is continuous, many business owners will try to offset their business expenses by cutting labor costs.

Please note that the salaries and hourly rates mentioned in this article don’t equal the cost of hiring offshore software developers through outsourcing companies. Read more about how offshore software development cost is formed in another article.

Tips on how to reduce your labor costs without reducing your employee headcount

 While reducing the cost of labor may be a savvy idea, have you considered the fact that when you lose an employee, you do not just lose the person. You lose all their skills, knowledge, and most importantly, their experience working on the job? Have you ever wondered if there may be other ways to reduce labor costs without needing to let go of half of your workforce?

Letting go of an employee is not the only way that one can cut back on labor costs. In fact, letting go of an employee alongside their unique skill set just to save the company a few extra dollars in revenue may be the least smart thing to do.

Would you like to learn how to reduce labor costs through other more creative strategies? Below are a few sneaky ways to reduce labor costs without affecting your employee headcount:

Reduce the number of working hours

You can save your business a lot of money by making some previously full-time jobs part-time. Most employees will prefer taking an hour cut to being out of a job altogether.

 An excellent way to achieve this is by job sharing, an arrangement where two part-time employees share a full-time working schedule. This arrangement cuts down labor costs, and if planned carefully and executed correctly, saves you the need for extra office space, as two employees are working on the timestamp of one employee; thus, neither employee will need to use the office at the same time.

 If carried out on a large scale, then cutting back on employee hours by adopting job sharing may enable you to downsize your office space as well. This will be possible because you will now require only half of the size of your original workspace since your workforce will be sharing their hours.

 Alter your rosters to match your company’s spirit

Perhaps you run an event planning outlet, and you have noticed that the bulk of your planned events and client consultations take place over the weekend.

In such a situation, it will be smart to alter your company’s calendar to fit your business activities by cutting down on your staff number and hours during the week when business is slow, and you can handle all of the requests with a small workforce. This arrangement is bound to serve your business better than inculcating a traditional workweek.

Give your Employees a break

By encouraging your employees to take advantage of their annual leave, you not only invigorate their spirits, but you also save your company a lot of labor expenses as well.

Additionally, you can make the offer better for them by introducing and alternating between both paid and unpaid leave. Doing this will involve the use of a carefully mapped out roster that ensures that no area of your business is left understaffed for too long, ensuring a smooth running of the business operations.

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Cut down on employee wages

This may be one of the most challenging administrative decisions to make, however, depending on the severity of the economic situation that you find your business in, you may need to cut back on the amount you pay your employees in wages.

If the general economic climate is not encouraging as well, then your employees may be more willing to take a pay cut over the prospects of being out of a job.

To make the prospect of getting paid less for the same amount of work more bearable, you can sweeten the deal by offering them specific incentives and cost-effective benefits.

Be careful when implementing a pay cut; however, as if it is not done correctly, a pay cut can increase resentment among employees and lead to a decrease in productivity.

A great way to implement a well-planned pay cut is by reviewing your payment schedules to see if the level of compensation for each employee on your workforce is in line with current trends. You can do this easily by gathering information about what other companies pay their employees who perform the same functions.

Take advantage of cheap labor

Whenever your business is at its peak of operations, and you notice that you need more hands to help you manage the ever-growing demand, you can cut the amount you potentially spend on labor by hiring interns instead of full-time employees with full-time salaries.

Employ Technology

Technology, when used effectively, is an efficient tool for cutting labor costs to a significant degree.

Using computers and the internet of things, business owners can automate several processes, thereby reducing the cost and duration of production. This move alone can help you save a lot of money that would ordinarily have been spent if these processes were manually operated.

Review your payment model

A great way to cut down on costs is by reviewing your payment model, or in other words, by reviewing how your employees are paid.

You may have been compensating your employees based on an hourly wage or a fixed salary; making way for a new financial model may be the most effective way to cut costs when you can no longer afford to pay them a fixed amount of money.

One of such adaptable models you can work with is a commission arrangement. Instead of paying your employees a fixed rate, you can pay them based on the amount of value they bring to the organization.

To pull this off successfully, you can replace your full-time employees with freelancers who work based on a commission agreement.

Tap into the Global talent pool

Did you know that the average annual earnings of an employee in Ukraine are over three times less than the average earnings of an employee performing the same task in America?

Cutting down on labor costs by tapping into the pool of talents worldwide is not just a smart way to reduce the costs of production but also a way to invigorate the spirit of your establishment through diversity and new perspectives.

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What’s more, is that a study carried out at the National Institute for Economic and Social Research deduced that outsourcing your business process to a team of international professionals allows your business to become more efficient.

In our e-book titled “How to fill the tech talent gap easily and quickly with a remote workforce,” we bring you timeless solutions to help you solve the shortage of technical talent in your company by giving you all the information that you need to tap into the global talent pool.

Our e-book will teach you everything you need to know about outsourcing, such as where to find the best specialists, average work rates, and how to choose the best option from the pool of alternatives available to you. 

All over the world, the average cost of hiring a software developer difers from one country to the next. In the United States, for example, they could earn up to $90,000 per anum, while in eastern Europe, hiring a software development specialist may cost around $42,000 or less. These differences in wage percentage are due to a long list of external factors such as demand, a higher cost of living in the countries with higher freelancer rates, as well as a rigid taxation system.

Have a look at the graph illustration below to gain a better idea knowing where to go to outsource developers makes all the difference both in terms of quality and cost.

the average yearly react.js salaries around the world
* Note that the salaries mentioned above don’t equal the cost of hiring software developers through Relevant. Read more about offshore software development costs in our article.

Pros and Cons of hiring employees abroad

Picture this scenario: you run an e-commerce store and one day, you notice that a vital feature (without which your customers cannot check out) is not functioning properly. You immediately contact your team to begin troubleshooting the issue, alas, there is just one little problem. Your software developer is across the world and already fast asleep in their time zone.

As with any other thing, outsourcing business processes to an international team of experts does have its pros and cons; today, we shall be talking about both.

Pros

pros of hiring employees abroad

Cost management

Although it certainly costs money to outsource your business processes, it costs less than it would retain an in-house professional in a country like the United States. Additionally, global wage rates may be lower in foreign nations than they are local and you get to save money that would otherwise have been spent training employees since you are hiring experts.

A higher level of expertise

Outsourcing to international experts allows a company to gain a higher level of insights and expertise on the final product.

Frees up time to focus on other key processes

By outsourcing some business processes to an external workforce, a company will be able to focus its energy and resources on the core areas where they are needed the most.

Risk management

Outsourcing certain business processes allow an organization to distribute their risks and limit their liability. Since each outsourced employee is an expert in their field, the risk of having an error occurs is significantly reduced.

Cons

cons of hiring employees abroad

Overexposure

Working with a global team of employees exposes your business to certain risks. These risks are further multiplied because outsourcing exposes sensitive and confidential information about your company to strangers who you may not know and trust. This places sensitive data about your company (such as employee information and web passwords) at a higher risk of a security breach than working locally.

Lack of quality assurance

In many instances, outsourcing doesn’t end there. The individual or company you have outsourced your business processes may sub-source it to another and another. These several levels of outsourcing may put the quality of the final product out of your company’s control.

Hidden costs and fees

You may not consider the hidden costs involved until they need to be paid. Outsourcing tasks to international organizations may have certain unseen fees, taxes, and tariffs that may be unapparent to you in the beginning. This is why it is doubly important to read the fine print and thoroughly research your planned contract relationship with any global organization before diving in.

Lack of synchrony

Remember our earlier example of the e-commerce store? Due to varying time-zones and a variety of other factors, one of the significant downsides of outsourcing your business processes is that work doesn’t always get done at the time you want it. Since there is no way to control the factors at play, deliveries may be inconsistent.

In the final analysis, the pros and cons of outsourcing your business processes reveal that there are a lot of benefits to be derived from outsourcing. Nevertheless, one must be wary and knowledgeable about the process, lest they end up bearing the brunt of unforeseen costs.

Relevant can help you hire developers in Ukraine

We help you build an affordable dedicated software development team and give you access to a range of specialists with any skill and seniority. Our model is best suited for companies seeking to extend their expertise, companies working with stiff deadlines, startups that need to scale fast, and anyone else who needs their business processes managed by offshore IT specialists.

We start by listening to your requirements to ascertain what exactly you need. Next, we assess candidates by a 5 steps selection process: pre-screening, soft skills interview, hard skills, English, gathering references. Using our knowledge and years of experience, our experts will seamlessly integrate the team into your company’s workforce. With a large pool of partners and freelancers, we will find suitable tools and methodologies that assure you fast turnarounds. 

You get the needed specialists under your complete control, just as with your in-house team. The only difference is that the team works remotely and we handle all the administration.

Contact us today to discover how we can put our years of experience to work for you.  

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Written by
Andrew Burak
CEO at Relevant
My company has helped hundreds of companies scale engineering teams and build software products from scratch. Let's connect.

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