Ways to Reduce Employee Costs

Cutting costs within an organization can be tricky. Downsizing may save money on the front end but often hurts the bottom line in the long term if you don't take measures to compensate for the loss of productivity. 

But, there are ways to lower employee costs without sacrificing the quality of service or long-term growth. If downsizing is not the solution, partnering with a PEO or HR Partner (PEO) is. Streamlining your HR processes is the most sustainable way to reduce costs and keep them low without sacrificing efficiency and productivity for ongoing growth.

In this post, we'll review a few ways HR partners can reduce employee costs and how you can take additional measures to lower these costs.

Why It's Crucial to Reduce Employee Costs

Your people are the most crucial part of your company, as they help companies grow and achieve productivity. As a byproduct, labor is also the most significant cost companies have – so reducing labor costs can significantly increase organizational profit.

In helping your revenue stretch further, companies can invest more in growing their business or upgrading processes. Outsourcing to an HR partner also gives your HR team a significant amount of time to improve work culture and employee experiences, which can empower employee productivity.

Factors Affecting Employee Costs

So many factors go into employee costs that are crucial to track. Reducing costs or increasing efficiency in any of these areas can significantly improve your company’s bottom line.

These factors include the following:

• Wages
• Overtime
• Cost of hiring and onboarding
• Insurance
• Retirement or 401(k)
• Holidays and time off
• PTO or sick days
• Training
• Payroll taxes
• Supplies and software
• Stipends or travel reimbursement

It can take six or more months for new employees to break even with the cost of hiring. Getting employees productive quickly helps balance out these costs, but lowering the associated expenses also makes this go further.

Ways HR Partners Help Reduce Employee Costs

Outsourcing HR to a PEO or HR Partner helps companies streamline their HR processes and lower the costs associated with each employee.

 Here are some of the critical ways they can benefit businesses:

Provide More Affordable Benefits 

Insurance premiums are a massive expense for employees and their companies. An HR Partner can give companies access to their benefits master plan negotiated by industry experts on behalf of thousands of worksite employees. Your employees can access a broader array of benefits while lowering healthcare expenditures, giving your team more support without additional cost to you. 

Outsource Tasks that Don't Generate Revenue

Many companies fall into the trap of trying to keep all HR-related tasks in-house — regardless of whether they contribute to revenue generation or not. However, this can have some fallbacks, especially when working with a small or overstretched team.

By letting your PEO handle tasks like payroll or benefits administration, you significantly free up time for your internal team, which gives them more capacity to focus on providing for your staff and create a more conducive work environment.

Reduced Turnover 

There are significant costs associated with the entire training and onboarding process. In addition to the costs of setting up benefits or the time lost from hiring, turnover also removes the previous employee's knowledge and experience in the role. It can take 1-2 years for the new hire to achieve the same level of productivity as the last employee.  

A partnership with a PEO can reduce a company's turnover rate by 10-14% per year compared to non-PEO clients. Reduced turnover equals reduced costs and improved profitability. 

Maintains Payroll Compliance

Even simple payroll errors can lead to severe liability issues and huge costs. For instance, one company was forced to compensate its employees a total of $951,456 due to a misclassification error. Employees experiencing payroll errors will start looking for new jobs, which makes ensuring error-free payroll critical to employee retention.

PEOs prevent payroll errors for their clients by staying on top of all the latest updates to federal, state, and local regulations and auditing their processes to ensure compliance. PEOs are strongly incentivized to provide a 100% error-free payroll – if an error comes to light, they will be held partially liable. 

Increased Employee Engagement 

Engaged employees are far more productive and help speed up company growth. A Gallup survey found that highly engaged teams show 23% greater profitability than their less engaged counterparts. Highly engaged and productive employees are a true asset to business organizations since these high performers can increase revenues without forcing their employer to increase headcount.  

Research strongly suggests that PEO client companies have employees who are more engaged than their counterparts in non-PEO clients. One study found that employees of PEO clients are 5% more likely to say that they are engaged with their company compared to workers in businesses without a PEO partner. 

Reduce Employee Costs by Partnering with a PEO 

HR partners directly improve cost savings for their clients by improving the quality of benefits they can offer, streamlining critical HR functions, and empowering businesses to create better work environments – which reduces turnover and improves retention. That offers an essential and highly beneficial alternative to downsizing that can help your company divert its revenue where it should go – in expanding your business.