5 strategies to reduce labor costs for 2023 (2023)

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5 strategies to reduce labor costs for 2023 (1)

The year 2023 promises new challenges for HR departments. Economic burdens such as rising inflation rates and high energy costs are putting pressure on companies and employees alike. As a result, the focus will be on both cost control and cost reduction. (Topic also covered earlier this yearblog entryby our CEO Avtar Jasser.)

In this blog post, we discuss five crucial HR strategies that can help organizations manage costs while improving employee engagement, retention, and overall performance.

1. A people-first approach

5 strategies to reduce labor costs for 2023 (2)

A “people first” approach is a key strategy that needs to be implemented in all aspects of HR and leadership. Keep your people focused, lead with a human approach, make sure your people's needs are met, and make sure they have a good experience.

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Imagine a people-first approach to combating current trends like “The Great Redundancy” (the tendency of employees to quit their jobs in droves, often due to economic and social disruption caused by the COVID pandemic). -19) and Quiet Quit. ’ (refers to employees who quietly leave their jobs, often out of dissatisfaction).

Leading and supporting employees with an authentic, agile and empathetic mindset is crucial to retaining them, which in turn is important to avoiding unnecessary costs and keeping your organization on stable ground. A recent Gartner studyGartner's top HR priorities for 2023, found that leader and manager effectiveness is the top priority by 2023 and ranked as the top priority by 60% of HR leaders.

In addition to the benefits for employees, a human-centric approach is also closely linked to more corporate success. a study byGallupshows that companies that prioritize the well-being of their employees tend to achieve higher sales as well as higher customer satisfaction and employee engagement.

In short, taking a people-centric approach and making sure your employees feel supported will result in long-term cost savings, as well as increased productivity and morale.

See our previous article for more tips on getting in touchthe blog.

2. Prioritize performance management and learning

5 strategies to reduce labor costs for 2023 (3)

Performance management and learning to improve and develop your employees will be more important than ever in the future. This is evident in the success of software company Adobe and food giant Cargill, both of which have seen significant improvements in employee engagement and retention by implementing more flexible and continuous performance management approaches.

Adobe reports that the employee's absenceTaskby up to 30% shortly after adopting a more flexible approach to performance management. Likewise, Cargill reported that 70% of employees felt unwellmost appreciatedB. through regular status meetings or check-ins with your superiors.

Retaining and developing talent internally is vital for any business as it ensures the business has the right expertise to meet current and future needs. However, talent and skill development requires structured and systematic oversight by HR and management teams.

To ensure success, organizations should consider implementing a performance management strategy that includes regular check-ins, clear performance expectations, and opportunities for growth and development.

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Additionally, providing employees with educational and career development opportunities can help retain top talent and attract new hires, thereby reducing hiring costs.

These initiatives will not only save money in the long run, but also create an environment where employees feel valued and motivated to do their best. By focusing on performance management and skill development, organizations can realize a number of benefits including increased productivity, greater employee engagement, reduced costs and better retention rates.

You can find more information on this on our pages on the subjectContinuous performance managementj.

3. Focus on employer branding and employee engagement

5 strategies to reduce labor costs for 2023 (4)

Attracting and retaining top talent is a challenge many companies face in today's competitive business environment. Employer branding and employee engagement are critical elements in overcoming this challenge and achieving retention and recruitment success.

A strong employer branding strategy is essential to attracting and retaining top talent. This means that you are clear about the culture and values ​​of your company and how they align with the needs and goals of potential employees.

By collecting employee feedback, employers can gain valuable information that they can use to make improvements that benefit both the company and its employees. In addition, employee feedback can also be used to identify areas where costs can be saved or processes improved for greater efficiency.

to perform regularlyThe pulse surveyThis allows organizations to understand how employees are feeling and identify areas for improvement. By acting on this feedback, companies can improve the employee experience and increase retention rates.

4. Be aware of cycle fatigue

5 strategies to reduce labor costs for 2023 (5)

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In order to survive the changes in the working world, many companies had to implement changes in their projects and organizational structures. However, surveys show that employees are becoming increasingly jaded and resistant to these changes.

2016 orChanges to the Gartner Workforce Surveyshowed that 74% of employees were willing to change their work behavior to support organizational change, but that number has fallen to 38% by 2022. This is a clear indication that employees are fed up with constant change and are resisting it.

Change fatigue can negatively impact employee engagement, productivity and even turnover. It can also hinder the success of major organizational changes.

To resolve this issue, we recommend that you communicate the benefits of the changes to your employees and provide them with support and resources to adapt to the changes. Regular check-ins and feedback sessions can also help employees feel supported and valued during and after the transition.

If you are interested in learning more about this topic, we encourage you to watch our on-demand webinar.“Everything changes again. Do your employees suffer from "change fatigue"?

5. Automate processes and introduce digital HR systems

5 strategies to reduce labor costs for 2023 (6)

HR departments are under increasing pressure to improve efficiency and data quality. One solution to this challenge is the introduction of digital HR systems and processes. A digitized HR function with high quality, securitypersonnel master datait is essential for operational human resources.

When information is stored in multiple systems and data quality is low, tasks tend to be time-consuming. As the workload increases and priorities conflict, the risk of analysis and reporting becoming less reliable increases. Poor data quality and the lack of reliable analytics make it difficult to make fact-based strategic decisions. Also, with bad data and reports, you risk making wrong decisions, which in turn can have unnecessary (and potentially expensive) consequences.

The introduction of digital HR solutions can help to avoid these problems. By centralizing HR data and automating processes, digital HR solutions can improve data quality and accuracy, and increase efficiency. In addition, through a secure flow of HR master data, other departments have the trusted data they need for budgeting, vacation, and security access and management.

Digital staffing solutionsYou can also improve decision-making by providing real-time insights into employee data. This can help managers identify trends and patterns and make more informed decisions about managing, recruiting and retaining talent.

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In summary, 2023 looks set to be another challenging year for HR with a greater focus on cost control and reduction.

By implementing a people-first approach, adopting digital HR solutions, prioritizing performance management and learning, and adopting flexible work arrangements, companies can manage costs while improving employee engagement, retention and overall performance.

At CatalystOne, we understand the importance of profitable HR strategies and are here to help organizations meet the challenges of the year ahead. We recommend keeping these strategies in mind and making sure they are incorporated into your 2023 workforce plans. By implementing these strategies, you will help your organization remain stable and better positioned to thrive in the year ahead.

5 strategies to reduce labor costs for 2023 (7)

5 strategies to reduce labor costs for 2023 (8)

Øystein Kjelling, February 23, 2023

Øystein is a digital marketing specialist at CatalystOne. Her experience lies in writing and marketing in various industries. Øystein is interested in digital trends, good communication and has a close relationship with HR.


What are the 5 basic steps to controlling labor costs? ›

5 Tips to Reduce Labor Costs
  • Provide employees with predictable work schedules. ...
  • Reduce pay overages. ...
  • Reduce labor costs by optimizing schedules. ...
  • Reduce employee turnover and increase productivity. ...
  • Incentivize performance.
Jul 8, 2022

What is one strategy to reduce labor cost? ›

Combine vacation and sick leave in one paid-time-off bucket. By combining paid vacation and a reduced amount of sick leave, you can reduce your costs associated with absenteeism. For example, if you provide two weeks annual paid vacation and two weeks sick leave, instead provide three weeks paid time off.

What are three ways to reduce Labour expenses by reducing the size of the Labour force? ›

Technology, outsourcing, and downsizing are the three methods for reducing labor expenses by reducing the workforce.

What are the four 4 main processes of cost management? ›

This involves resource planning, cost estimation, cost budgeting and cost control.

What three 3 action should be taken to reduce production cost? ›

There are a few ways to lower production costs: improve process efficiencies, negotiate better pricing with suppliers, and find less expensive materials or labor. You can improve process efficiencies by streamlining operations, automating tasks, and reducing waste.

What are cost reduction strategies? ›

Cost reduction strategies are practices and principles designed to optimize operational efficiency. They cover all aspects of running a business, from hiring employees to booking flights. Successful implementation works by streamlining processes, allocating resources effectively, and eliminating waste.

What is an example of cost reduction strategy? ›

Cost reduction is a raw dollar-pinching approach with the key objective of cutting necessary and/or unnecessary expenses. For example: switching off the air-conditioner after working hours or using compatible toners for MFPs (Multi-Function Printers).

What are the best way to reduce cost? ›

7 tips for reducing expenses in your business
  • Make a plan. You need to evaluate where your business is now and where you want to take it in the future. ...
  • Track expenses diligently. ...
  • Benchmark against your industry. ...
  • Manage variable costs. ...
  • Get tough on fixed costs. ...
  • Invest in technology. ...
  • Offer incentives to staff.

How can employees control labor costs? ›

One way to directly curb your labor burden is to reduce Perquisites commonly referred to as "Perks", or reducing employer voluntary benefits, such as health insurance, flexible spending accounts, and retirement plans.

What are the four factors that can affect labor cost? ›

There are many factors that contribute to the total labor cost percentage for a business, including the type of business, the industry, the unit labor cost, location, and the number of employees. The type of work, and the wage rates can also affect the total labor cost percentage for employees.

What are the 5 functions of cost management? ›

Planning, communication, motivation, appraisal, and decision-making are the features that make managing costs an important business procedure. Resource allocation, cost estimation, cost budgeting, and cost control are the major functions of the cost management process.

What are the 3 pillars of costing? ›

23.6. 3 Strategic cost management has three important pillars, viz., strategic positioning, cost driver analysis and value chain analysis.

What are the four tools of strategic cost management? ›

Here are some of the most common strategic cost management techniques:
  • Bundling. It's the method of combining two or more products and offering them as a package and at the price of one.
  • Activity-Based Outsourcing (ABC) ...
  • Total Quality Management (TQM) ...
  • Life Cycle Costing (LCC) ...
  • E-Business.
Dec 27, 2021

What 3 things can you do to control costs? ›

Here are five cost control methods that allow a company to maintain and track its overall costs:
  • Planning the budget properly. ...
  • Monitoring all expenses using checkpoints. ...
  • Using change control systems. ...
  • Having time management. ...
  • Tracking earned value.
Mar 10, 2023

What are 3 examples of prevention cost? ›

Prevention Costs:

Examples include new product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and training.

What are the 3 production strategies? ›

Three common types of manufacturing production processes are: make to stock (MTS), make to order (MTO), and make to assemble (MTA). Such strategies have advantages and disadvantages in labor costs, inventory control, overhead, customization, and the speed of production and filling orders.

What are the four habits to cut costs? ›

You can save money by practicing the Four Habits of Saving Money: Reduce, Reuse, Repair, Recycle Page 13 Module 7: Financial Fitness Facilitator's Manual Mindanao Youth for Development Project Life Skills Curriculum, adapted from EDC's WRN! Curriculum ©2016 Education Development Center, Inc. All Rights Reserved. Page ...

How can we reduce costs in 2023? ›

From budgeting to swapping bills, here are some ways to save money in 2023.
  1. 1 – Keep track of your spending habits. If you're partial to a specialist coffee or like to splurge on clothes, it might be time to rein it in. ...
  2. 2 – Reduce electricity usage. ...
  3. 3 – Review your subscriptions. ...
  4. 4 – Cut the cost of your water bill.
Dec 19, 2022

What are the four ways of improving efficiency of labour? ›

(1) The payment of wages should be fair and prompt. (2) A part of profit, earned by the concern, must be paid to workers as an incentive. (3) Working conditions in the factories should be improved. (4) The total period of work per day should not be more than eight hours.

What reduces labor productivity? ›

What Factors Decrease Labor Productivity? Labor productivity can arise from a decline in workers' skills and education. An uneducated or unmotivated labor force is, therefore, a big concern for corporations. Additionally, being unable to catch up with technological progress elsewhere can leave productivity behind.

What will reduce labour productivity? ›

Factors that can affect labour productivity include workers' skills, technological change, management practices and changes in other inputs (such as capital). Multifactor productivity (MFP) is defined as output per unit of combined inputs.

Why is it important to reduce labor costs? ›

Rational and intelligent labor cost control will boost productivity and enhance profits. By keeping a keen eye on the cost of labor, you can save money in the short and long terms. Although this is the most obvious benefit, you will learn to recognize many other benefits once you begin the process of cost reduction.

What are 3 methods employers use to reduce labor cost when dealing with unions? ›

Three methods employers have used to reduce their labor costs when dealing with unions are: To hire consultants to legally fight with union's influence. To head off the union by making their leaders the part of the management or directors. To share profit with employees.

What are the steps in cost control process? ›

The following four steps are associated with cost control:
  • Create a Baseline. Establish a standard or baseline against which actual costs are to be compared. ...
  • Calculate a Variance. Calculate the variance between actual results and the standard or baseline noted in the first step. ...
  • Investigate Variances. ...
  • Take Action.
Jun 26, 2022

What is the process of labour cost control? ›

Labor cost control includes the process of developing various forms, studying and recording the activities and performance of workers, calculating the correct amount of wages and making payment in time. It also include the process of analyzing and reporting labor cost to the management for planning and decision making.

What are the three main areas of cost control? ›

Some of the areas where a cost control is essential in a Business are: (i) Labour (ii) Materials (iii) Sales (iv) Overheads and(v) Energy!

What are the 5 steps of the control process? ›

The control function can be viewed as a five-step process: (1) establish standards, (2) measure performance, (3) compare actual performance with standards and identify any deviations, (4) determine the reason for deviations, and (5) take corrective action if needed.

What is effective cost management? ›

Effective cost management processes require accurate cost reporting. This involves access to real-time cost data and insight using data visualization. Variances from budgeted costs must be measured, and corrective measures taken. Cost management strategies and budgets take shape as a project plan is created.

What are the factors influencing labor costs? ›

The minimum wage, overtime pay, payroll taxes, and hiring subsidies are just a few of the policies that affect labor costs. Policies that increase labor costs can substantially affect both employment and hours, in individual companies as well as in the overall economy.

Why do we need to control labor cost? ›

Rational and intelligent labor cost control will boost productivity and enhance profits. By keeping a keen eye on the cost of labor, you can save money in the short and long terms. Although this is the most obvious benefit, you will learn to recognize many other benefits once you begin the process of cost reduction.

Why is labour cost difficult to control? ›

Control of labour cost is not as easy as that materials cost. The human element in labour makes difficult the control of labour. Labour Laws in India are such that one can't dispense with the labour even if not need it for some reason. Moreover, it is a perishable commodity and can't be store like materials.

What are two labor union strategies? ›

Union Tactics

The tactics available to the union include striking, picketing, and boycotting. When they go on strike, workers walk away from their jobs and refuse to return until the issue at hand has been resolved.

How do you cut costs without cutting staff? ›

So, consider ways to retain talent by cutting company costs without cutting staff.
  1. Reduce Power Use. ...
  2. Analyze Costs and Minimize Spend. ...
  3. Negotiate With Suppliers. ...
  4. Restructure You Rent. ...
  5. Maximize Productivity. ...
  6. Digital Everything. ...
  7. Reduce Wages & Reduce Hours. ...
  8. Rewards.

What is the best way for companies to avoid a labor strike? ›

How to Resolve a Strike
  • Bridge the worker-management divide. ...
  • Practice empathy. ...
  • Maintain a positive attitude. ...
  • Allow for worker autonomy. ...
  • Provide employees with the information they need. ...
  • Consider appearances. ...
  • Consider employee safety.
Nov 30, 2022


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