What is your current labor cost percentage? Do you even know? To calculate the labor cost percentage take the company’s annual labor cost and divide by the company’s annual revenue. The result will be the labor cost percentage. Now that the labor cost percentage is known, let’s explore how to reduce labor costs and increase profit.

Here are 5 ways to save on your labor costs:

1. Reduce overtime

Be sure full time, non-exempt employees are not working overtime on a regular basis. Eliminate overtime and save 1.5 times the hourly rate per hour of work. In addition, be sure when overtime is approved that it is calculated correctly. For example, an employee that works the night shift may be eligible for a $3 overtime premium differential in addition to the base hourly wage. However, inadvertently, the employee is paid overtime at one and one-half the entire hourly wage, including the differential. The guidelines are very specific and there must be a contract between the employer and employee, contact The U.S. Department of Labor, Wage and Hour Division for applicable rules.

2. Part-time options.

Consider hiring two part-time employees to perform one job, also known as job-sharing. The benefit to the employee is flexibility and as a result the employee is more committed to the company. Consequently, the benefit to the employer is having two part-time loyal employees dedicated to a high level of performance in their job. In addition, because the two employees are classified as "part-time", the employer saves money on benefits offered to full time employees.

3. Reduce hours.

It’s possible that you may have some employees who would be happy to work reduced hours. You don’t know until you ask. This will give them extra time to pursue more quality family or personal time. And, jobs will be saved for people who the company has invested in to hire and train. Employee morale will improve because employees feel like they are a part of the decision making process, involved, and given a choice in their future with the organization.

4. Exempt staff.

Some companies negotiate special arrangements where overtime is paid to exempt staff. Perhaps certain departments or positions are paid above salary for overtime hours. However, it is imperative that over 50% of the work done by the employee is exempt. Nevertheless, this agreement not only puts the company at risk for claiming the employee as exempt but costs more money. Again, I cannot stress this enough, review The U.S. Department of Labor, Wage and Hour Division for applicable rules. Then, review & modify corporate policies for exempt staff.

5. Telecommuting opportunities.

This option will not save on direct labor costs but will save money on indirect labor costs. The more employees that work from home the less office space needed. Additionally, when employees work from home they typically incur the costs of the home office equipment, thus saving the company. Also, consider office sharing by several employees who work on-site on different days.

Christine Smith is Marketing Coordinator for Gatekeeper Business Solutions, Inc. Gatekeeper Business Solutions, Inc. specializes in a proprietary suite of software tools (LMS) that includes time and attendance, scheduling, and integrated payroll processing for mid-level private and public sector companies.