Employment in the UK recently reached record levels. Usually, that leads to wage increases, with companies under pressure to offer higher compensation to win over or retain staff. Of course, it's not quite that simple at the moment — wage growth has slowed.

Still, if employment continues to increase, higher staffing costs are almost inevitable. Recent stats from the Office for National Statistics (ONS) found that vacancies remain close to a record high, with retail, health, social care and hospitality sectors topping the list.

With Brexit on the horizon, skills shortages in these sectors will only worsen. With staff costs likely to increase in response, it's critical that businesses learn to manage staffing resources as efficiently as possible — without impacting service levels.

That means no cutting back on staff coverage at the busiest times, and no firing expensive experienced staff just to replace them with cheaper interns or apprentices.

After all, compromising service- or other business-critical functions in the name of cost savings will only cost you more further down the line.

Cutting unnecessary labour costs

Economics has a simple answer to higher labour costs: replace labour with capital —aka machinery and tech. While this has been applied directly in many businesses (think self-service checkouts and warehouse robots), in industries like care and hospitality, these direct replacements are rarely possible.

Instead, tech (capital) can be used to reduce labour costs and increase the productivity of labour more indirectly. For example:

  • Use last year's sales data to plan this year's rota so that staffing levels are closely matched to demand.
  • Encourage remote workers (such as domiciliary carers) to use Waze (or similar apps) to optimise routes to appointments and reduce travel time.
  • Notify staff of changes to the rota electronically (through a messaging app or rota planning software) to prevent costly shift mix-ups and double bookings.

These measures will vary depending on the structure of your business and current pain points. Now, we'll look at a few common staffing cost problems in more detail.

Overtime costs

In many industries, unpaid overtime is expected of staff. But if you're paying staff at or just above the minimum wage, even a few minutes of unpaid overtime each day could mean you're breaking the law. But overtime rates can get expensive, fast — particularly if you need to use a premium rate to incentivise staff to take on the extra hours.

Long shifts also reduce performance and productivity. In sectors like care, mistakes can be highly dangerous, and tired staff are more likely to make these errors.

If overtime costs are a problem (both directly and indirectly), it's time to rethink your overtime policy. Take a look at our full guide to managing overtime for more details.

However, if you think your overtime costs are caused by staff inflating their hours on their timesheets, you'll need a different solution. Ditch paper-based timesheets in favour of a digital clocking system that's harder to cheat. Check out our article on time theft to learn more.

Agency and relief workers

In some sectors, the cost of filling rota gaps with agency workers is huge. Relying on these workers to provide coverage at short notice is expensive — and often unnecessary. For example, the NHS has cut spending on agency workers by a third thanks to the use of 'bank staff' — internal workers who have agreed to work flexible shifts.

Whatever sector you're in, you can take a similar approach. Build a list of staff who are willing to work shifts at short notice, and contact them when you need to fill a gap instead of relying on agency workers or overtime.

Choose a method for communicating shifts to these staff — whether it's through a messaging app, email, or text messages. Make sure shifts are assigned fairly to these 'bank staff'.

Zero-hours contracts

These controversial contracts are often misused by businesses, but they can be beneficial to both employees and employers if they're implemented correctly.

They're particularly useful for businesses where staffing requirements fluctuate significantly and unpredictably from week to week. If you want to use zero-hours contracts to their full potential, you must make sure that staff are happy with them, too. If your zero-hour contract workers would rather be on a permanent contract, they won't stick around for long.

Legislation regarding these contracts varies between regions within the UK. Last year, Wales introduced changes requiring all employers of zero-hours domiciliary care workers to offer them a choice of contracts (including guaranteed hours) after three months. Elsewhere, some companies including McDonald's have offered all their staff the chance to move to fixed-hours contracts. We expect other regions and companies to follow suit, so be aware of the potential implications if you choose to use zero-hours contracts at your business.

Shift clashes, missed shifts, and other scheduling mix-ups

Another overlooked form of staffing inefficiency comes through rota-related mistakes. From unforeseen shift clashes in retail to 'overscheduling' part-time staff, rota mix-ups always have at least an indirect effect on your bottom line.

For example, in the care industry, if a carer doesn't have access to the latest rota, they may turn up hours late for their shift — leading to several missed home care visits. While most home care providers will have back-up plans to provide cover for missing staff, service users may still be frustrated by delayed visits, or perhaps by not seeing their usual carer.  If missed visits are mismanaged, they can even impact the welfare of service users.

These rota mix-ups usually occur because of a failure to communicate changes with all relevant staff. Communication needs to be prompt, clear, and reliable. You can read more about rota communication solutions here.

Inflexibility in staff scheduling

Once shift communication is efficient and you have a bank of staff who can work at short notice, it's easier for you to build a schedule that's more flexible.

An inflexible schedule leads to under or overstaffing, unhappy staff, and can even affect the service you provide.

The rota manager should always try to be flexible with scheduling, allowing for changes to staff availability, sudden fluctuations in customer demand, or other staffing emergencies. Moving shifts around to fit your employees' personal lives might seem overly generous, but if the rota allows it, why not?

As long as you take a fair and balanced approach to staff unavailability requests, your flexibility will only benefit your business.

Retaining staff

Optimising your rota isn't the only way you can control staffing costs. To make savings in the medium to long term, you'll need to look at the bigger picture: staff turnover.

When tight margins restrict your ability to offer pay rises or bonuses as motivating factors, you need to take a different approach to retain staff. Sectors like care, retail and hospitality are renowned for high staff turnover rates — and with vacancies growing, finding replacement employees is harder (and more expensive) than ever.

Therefore, investing some time and money into reducing staff turnover is a good idea — and it doesn't have to be expensive!

For example:

  • Periodically offer staff training and development opportunities (e.g. first aid, fire safety, managerial training)
  • Improve the working environment (add plants, invest in new furnishings, upgrade equipment)
  • Offer more perks and benefits (like flexible hours)
  • Be transparent about processes like shift allocation, promotion and pay rises

We've assembled a comprehensive guide to employee retention for SMEs, if you'd like further details on these processes.

Final thoughts

Letting staff go is the easy way to cut staffing costs, but it's rarely the best way. Firing an employee can start a ripple of other staffing problems, as your remaining staff struggle from a bigger workload and worry that they might be next in line; and your customers and clients may even start to notice that your service is stretched.

Tinkering with overtime policies, scheduling, and other processes can help you make those incremental savings that are so important when you're operating on a tight margin.