Are Your Labor Costs To High?

Are Your Labor Costs To High? 1

According to the U.S. Department of Labor, labor costs are one of the largest expenses for any business to absorb. Each industry is different, but in the retail industry which is a very large percentage of businesses in America is roughly 20% of total revenue. In other industries like the hospitality industry those percentages get closer to 30% to 50%.

The truth of the matter is labor costs are rising. In 2018 the retail, healthcare and finance industries were found to be the most likely to experience rising labor costs. The Bureau of Labor Statistics also found that 2 out of 3 “restaurants” had increased labor costs. This amounted to 41 out of 49 industries that had labor increases in their costs.

Keep in mind that although these figures are estimates accross the nation, each geographical region will vary a little bit in labor costs.

How to calculate your labor costs

In order to calculate your labor costs, you need to take your total revenue and divite it by your total payroll costs. Make sure you include any and all benefit packages you offer your employees. Here are some labor costs you should aim for by industry:

  • Retail = 15% to 20%
  • Restaurants = 30% to 35%

There are many more industries to list, you can find that here at the U.S. Bureau of Labor Statistics.

How to track your labor costs

Do you want to be more informed about your labor costs? If you adopt an employee scheduling software that also has a labor costs dashboard, you can track what your labor costs are. When I Work is free and will show you your actual and projected labor costs on the home screen and much more.

What is driving this increase?

The Bureau of Labor Statistics through their annual reports show that one of the largest factors to increase labor costs is overtime. The rules for overtime have also changed and are expected to increase even more going forward. In January 2020, an additional 1.3 million workers are required to be compensated for overtime hours. The big change here are employees that make less than $35,568 annually or $684 per week are included in overtime laws for the first time.

Are Your Labor Costs To High? 2

Other factors like increased minimum wage on a federal level and now making it challenging for states to get employers on board with a higher minimum wage.

Healthcare is another factor in labor costs that go beyond hourly wage. Sick time, vacation time, healthcare, worker comp have increased dramatically making it hard for small and medium businesses to keep costs under control.

All of these statistics are great, but when you are a small business with limited staff, how do you control these costs? Most small businesses don’t have the time, know-how or energy to keep up with all the regulation changes.

That is where outsourcing your payroll to a local payroll company that understands the local market and often can save you money over the big payroll companies.

Give us a call at Check-Write Payroll for a free consultation about your payroll.