How Startup Businesses Can Reduce Labour Expenses

New businesses have loads of expenses to deal with, and unless you’re running a one-man show, labour costs are one of those. Already established companies usually have strong budgets for recruiting and retaining top talent – something that is often too expensive for a startup. In fact, labour expenses are one of the biggest costs of running any business, accounting for up to 70% of total business costs, and can easily eat into the finances of any business startup. If you’re an entrepreneur struggling under the burden of high labour costs, here are some strategies you can use to reduce your labour costs in your startup business.

1. Improve your hiring process

Improving your hiring process will ensure that you land the right talent. It would also help you reduce your turnover and streamline your business operations. This way, you’re less likely to deal with frequent resignations or dismissals from new employees due to poor productivity and no-shows. Improving your hiring process can also help you identify the type of talent worth hiring right from the beginning. You will also be able to identify the right seasonal or temporary workers, depending on your business needs. If you have or need a larger workforce, you can consider using experienced HR IT services to help reduce manual, mundane tasks through employee life cycle automation. Such services can ensure that recruits are productive from day one, reducing your need to rehire and cutting recruitment costs.

2. Hire more freelancers than paid full-time workers

Freelancers usually cost less or offer a more cost-effective labour option to full-time employees for two main reasons. First, freelancers are inherently cheaper than the salary that an employer on your payroll may command throughout a project’s timeframe. A salaried worker attracts other expenses like tax, insurance costs, etc., even when their take-home salary appears slightly lower than a freelancer may charge.

Secondly, freelancers tend to be more productive, work within agreed deadlines, and you’ll only pay per project. After an agreed-upon work is completed, that’s it.
Thirdly, freelancers have the exact skill sets you need to complete a job, which means they’ll give you better value for money. Thankfully, you can find freelancers for almost any business task. And their services will prove especially beneficial if your business does not need a large staff size.

3. Reevaluate how you compensate your staff in the future

Consider reviewing how you compensate your workers. That does not necessarily mean you need to start cutting back on salaries. Instead, reevaluate how you compensate your workers in the future. For example, think more about performance bonuses instead of considering automatic annual salary increments. This way, not only will you save up a lot of money, but you’ll also end up rewarding productivity and hard work. And this will encourage your workers to give their best. Also, compensation does not always have to be monetary. You can consider non-monetary alternatives like extended leave periods, special privileges at work, etc.

4. Invest in IT and the right technology for administrative tasks

Thanks to technology, you can take care of many recurring administrative tasks without hiring and paying full-time workers. Tasks like accounting and bookkeeping duties, various front-desk responsibilities, customer service management, and other administrative tasks can be handled by specialised software and online tools that automate these tasks. And the great thing is most of these tools are either available for free or are cheap enough to fit into your small budget.

5. Take advantage of cheap labour

Cheap does not always mean bad. Depending on your business needs, you can take advantage of cheaper labour sources to handle minor and temporary business tasks. For example, you can consider recruiting interns to take on the extra workload and supplement the efforts of your main staff. That is a cheaper option than recruiting new full-time workers and putting them on salaries. It may even prove a better option to add more workload on your staff and increase their salaries.

6. Reduce the number of working hours

You can save your business a significant amount of money by switching to part-time working conditions instead of full-time. And a great way to do this is to create a working arrangement where two part-time workers can share a full-time work schedule. Another great way to reduce the number of working hours is to prioritise productivity over work attendance. Instead of paying workers just for showing up to work (and probably not working for hours), focus more on paying for the number of hours a worker is productive at work.


Marketme is a leading small business to small business news, marketing advice and product review website. Supporting business across the UK with sponsored article submissions and promotions to a community of over 50,000 on Twitter.