How To Reduce Labor Costs: 8 Practical Tips

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  • 5 min read
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    In this article, we share 8 practical tips for how to reduce labor costs and improve your profitability.

    Labor may amount to 20% to 40% of a project’s costs. That’s a huge amount—managing labor and its costs is critical to your business success. Unfortunately, labor costs are frequently complicated and difficult to manage. How do you know whether your employees are at their most productive? How do you reduce labour costs? How can you even make sure that they’re at the right site? 

    Many companies are still working with pen and paper records, text-based scheduling systems, and manually entered labor reports. When you don’t have the right tools, everything becomes more difficult—and more expensive. 

    Today, let’s look at how to reduce labor costs in construction through easy, practical tips that you can implement today.

    Get an App To Track Your Employee Hours

    Regular time, overtime, break time all must be accurately tracked before you can improve labor costs and compliance. Invest in time tracking software that accurately tracks time and completely automates calculating overtime hours.

    A GPS time tracking app doesn’t just record employee hours, but it can also attribute the hours by project and by the site. Once you have that information in hand, you can dig deeper into your productivity and your costs.

    Invest in the Right Pieces of Technology, Not Just Any Technology

    Don’t get “shiny new toy” syndrome. Every platform, app, and widget will promise to make your life easier. Some of them will, but some of them won’t.

    For most contractors, the “right” technology is easy to use and straightforward. If you have a small contracting business, an expensive “enterprise resource management” suite with all the bells and whistles is just going to bog you down.

    Reduce your administrative time and your payroll costs by investing in tools that will improve and automate your workflow without weighing you down, including construction GPS time tracking, payroll integration, and real-time scheduling.

    Workyard: The Time Tracking Tool That Just Works

    There’s a reason why Workyard has such fantastic reviews and ratings. Workyard was developed by contractors for contractors. It has all the features you need in a single package, from Quickbooks integration to real-time GPS tracking.

    Deploy Your Team Members More Effectively

    Don’t have your team running from one part of the city to the other, if you can avoid it. Every hour they spend commuting is an hour that they aren’t working. Schedule employees efficiently so they spend the least amount of time possible traveling.

    With real-time GPS mapping, you can pull up your current employee locations and deploy them to new sites effectively. Need to send someone to get a quick estimate for a client? Open Workyard and within seconds you’ll know which employee is closest. 

    Track Your Labor Costs in Real-Time

    Once you transition to a time tracking app, you can start reviewing your labor costs in real-time. Don’t just look at where your money is going—look at which projects and which employees are costing you the most. Use a real-time labor tracking app to tell when you’re about to go over budget or when a project is taking much longer than it should. 

    Sometimes, it’s unavoidable; the job just takes more time. But your real-time labor tracking app will also provide an audit trail, so you can bill overages to clients as your contracts allow.

    Build Job Cost Reports To Analyze Your Spending

    Run project cost reports and job costing reports to identify areas in which your company may be over-spending. Throughout a project, you can compare your job cost reports with your quotes to determine whether you’re still on target. After a project, you can analyze the differences between your job cost reports and your quotes to make your future quotes more accurate. 

    Negotiate Better Rates With Your Contractors

    When was the last time you asked your contractors for a quote? Have you been getting bids for each project, or do you have a few “go-to” contractors that you frequently employ?

    Over time, you may build relationships with suppliers and contractors and continue paying them the same rate that you started with (or higher). But as a proven customer, you have room to negotiate. Take the time to periodically connect with your contractors to verify that you’re getting the best possible deal.

    Bill What You Can to Your Clients & Reduce Indirect Costs

    When you can, let customers know in advance that there may be additional labor costs, material costs may go up, or complications may arise. 

    Whether it’s supply chain issues or weather variability, there are certain elements that you can’t control. This is often easier said than done, but many successful contractors find a structured way of ensuring they protect themselves against unforeseen costs arising.

    From an efficiency point of view, you also want to make sure you understand your labor burden so you can reduce your indirect costs. Your labor burden includes all the indirect costs of employing people. Knowing this number and the indirect costs contributing to it will help you identify opportunities to reduce indirect expenses and also make sure you are recovering all of your labor costs when billing clients. Use our free labor burden calculator to quickly work out this number for your business.

    Keep Your Employees Happy

    Turnover is extremely expensive. When an employee leaves, another employee has to be trained. They need to be brought up to speed on all the current projects, and they may not be at their most productive for weeks.

    Employees tend to be happiest when they find it easier to do their job. Use seamless, easy-to-use tools to get them up to speed with the right equipment and to support health and safety objectives.

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