Labor cost

For business purposes, labor costs are anything and everything remotely related to compensating your employees.

Labor costs include such expenses as:

• Hourly wages
• Salaried wages
• Payroll taxes
• Overtime
• Health care
• Bonuses
• Sick days
• Vacation days
• Insurance
• Benefits
• Meals
• Supplies
• Training costs

Many managers overlook the majority of the expenses on this list and only calculate labor costs according to hourly or salaried wages. That’s a huge mistake and one that can be illustrated by examining the importance of accurate labor costs in any business.

First and foremost, labor costs are important because they can average a whopping 30-35% of your business’s total revenue. In some cases, labor costs can go even higher.

In addition, labor costs factor heavily into your prime cost, which is a key metric for efficiency.

When you get right down to it, the key point in the discussion is that, while you may pay your team members a set amount per hour, the actual labor costs your business accrues are much higher because you have to factor in many, if not all, of the other expenses listed above.

Regardless of how much your business spends on labor costs, chances are, it’s a lot of money leaving your business every year. If you don’t have control, your bottom line will suffer.

Calculating labor costs is relatively easy (as math goes), but it does require that you first assemble all the expenses that you pay your employees. That may take some time.

Once you have all those numbers at hand, you can calculate labor costs with the following steps.

1) Determine Gross Pay

For this explanation, we’ll use a fictional employee with the following details:

• Paid hourly
• Works full time
• Pay rate equals $13 per hour

Gross Pay = Pay Rate x Gross Hours
Gross Pay = $13/hour x 2,080 hours
Gross Pay = $27,040

2) Calculate Net Hours Worked

You’ll never know exactly how many hours a team member will work, but you can formulate a pretty good guess by examining past attendance records.

For this example, our fictional employee loses 10 days (or 80 hours) in one year due to holidays, vacations, and illnesses.

When you subtract those lost hours from the gross hours in the previous step, you’re left with 2,000 net hours worked (2,080 – 80).

3) Add Other Annual Costs

In addition to wages, your business also pays insurance, taxes, overtime, and benefits. Those numbers total $4,000 in additional expenses associated with one employee’s labor.

When you add that to the gross pay calculated in step one, you come up with an annual payroll labor cost of $31,040 ($27,040 + $4,000).

4) Calculate Actual Hourly Labor Cost

Once you’ve got all those other numbers, you can calculate the actual hourly labor cost.

Here’s the equation:

Actual Hourly Labor Cost = Annual Payroll Labor Cost / Net Hours Worked
Actual Hourly Labor Cost = $31,040 / 2,000
Actual Hourly Labor Cost = $15.52 per hour

That number tells you that when all the other variables are factored in, you’re paying your employee $15.52 per hour of actual work.

Tracking labor costs is all about efficient record keeping and reporting. The Sling app makes that simple with a built-in time clock and powerful reporting features.

Sling automatically imports hours worked after your employees clock in and out and allows you to calculate and track labor costs over any period of time you choose.

Optimizing your labor costs doesn’t mean you have to pay your employees less. In fact, there are better ways to manage one of the biggest expenses your business deals with. Here are a few tips to help you get control.

• Plan your schedule a month in advance
• Tabulate labor costs as you schedule
• Incorporate a rotating shift
• Train employees to fill in at other positions
• Establish clock-in, clock-out regulations
• Reduce absenteeism
• Decrease employee turnover
• Analyze labor trends

So how do you go about implementing these tips without cutting into the time you spend on other tasks? Sling is the answer.

The best way to calculate, track, manage, optimize, and lower your business’s labor costs is to use the Sling suite of software tools.

Sling gives you unprecedented access to — and control over — all the variables that affect labor costs, including:

• Employee scheduling
• Time and attendance
• Wages
• Budgets
• Task management
• Communication
• Reporting
• Location management
• Integrations

We built Sling with workforce management in mind. As such, scheduling, time tracking, and team optimization are the foundation of the Sling app.

Sling helps you quickly and easily create schedules one month, two months, even six months or more in advance. And, with its built-in artificial intelligence (AI), Sling automatically notifies you if your schedule conflicts with requested time off, contains double-bookings, or exceeds the overtime hours you’ve set.

With those features, there is less back-and-forth trying to get everything to fit once you’ve completed the schedule. But the benefits don’t end there.

Sling also acts as a time clock for your team. You can set up a central terminal or allow your employees to clock in and out right from their mobile devices. With Sling’s powerful geofencing feature, you can prevent early clock-ins and missed clock-outs with the touch of a button.

Sling even lets you optimize labor costs by setting wages per employee or position, track your labor budget, and receive alerts when you’re about to exceed those numbers.

With all of that information at your fingertips, you’ll be able to see how much each shift will cost as you schedule it in real time. That’s control you can’t get with other scheduling apps.

Sling truly is the go-to solution for all of your scheduling and labor-costs-management needs.