How to reduce salary costs in a small business.
As I already wrote, you can use both direct and reverse indicators of labor intensity. But many businesses instead of these indicators use a direct indicator – labor productivity and this is limited. In most cases, this may be sufficient. But to assess the impact of salary costs on the overall performance of small businesses, this indicator alone is not enough, and relative indicators should be used.
Labor productivity is a very important indicator. It can be determined for each employee of the business, and for its units. In a small business, for simplicity, you can use the average labor productivity of a small business as a whole. It is defined as the ratio of the cost of production produced over a certain period of time by the business to the number of workers producing it. Those. it is determined how much production in monetary terms each small business employee produces, for example, for a month (or for another period of time). By comparing these indicators, for example, on a monthly basis, you can track whether business workers are working better or worse.
Ways to reduce labor costs in small businesses.
Using real performance indicators, you can easily determine how to reduce salary costs. You can see how each employee of the business works by comparing his performance with the average for the business. And in time to take appropriate measures.
What measures should be taken, how to reduce salary costs, what ways to use to reduce labor costs? As in any case, there are several options for reducing wage costs.
Do not hire people with a minimum wage and low qualifications.
efficiency_ grows At first glance, the most obvious, but also the most erroneous way. To hire people with a minimum wage. But their qualifications will be at the same level, which will inevitably affect both the quality of products and their productivity. And I have already repeated many times that what you can’t save on is quality. And I have already said that the qualifications of workers in small businesses, as a rule, should be high, and in many cases small businesses are supported by this qualification.
Force workers to fully utilize working time as intended.
I do not urge employers to stand with a club over the employee’s head and prevent distractions from work. But to explain to people that the use of working time for other purposes is theft, the businessman is obliged. The same theft, as well as the theft of something material, only not criminally punishable. But administrative penalties, up to dismissal, can be used. After stealing working time from a small business, they reduce its efficiency and profit. I always warned about this for newly hired employees.
And the monthly monitoring of labor productivity can help, as I have already said above. This averaged indicator will be an indicator. With its reduction, you should immediately take up the establishment of order in small business.
Train your employees.
It is necessary to conduct ongoing training of their employees, to improve their skills. I already talked about this in an article on working with personnel. I will only add that healthy competition between workers positively affects their productivity.
Introduce specialization in the production process.
To detail the entire production process, dividing it into operations and to specialize workers in the implementation of these operations. This allows you to introduce elements of a large business, where productivity in specific operations is usually higher in a small business. The higher the level of specialization will be in small business, the higher will be labor productivity in business.
Small business will be able to produce much more products without increasing the number of employees (wage costs). Naturally, the effectiveness of small businesses can grow significantly.
But that is not all. Specialization allows the use of lower skilled workers in production, which will also reduce salary costs. The process of employee training will be greatly simplified and accelerated, and the dependence of small business on highly skilled workers will decrease. Here are the benefits a small business can bring with specialization.
But the process of specialization must be linked to the level of sales. If the level of sales does not allow a significant increase in production, specialization should be introduced gradually, without increasing the number of employees.
Get rid of extra people.
You should not keep unnecessary, underloaded people in small business. This may be a common truth, but more than once I had to see businesses where employees were inactive, and they found any job to load. This is not true.