Two areas that keep small business owners on their toes consistently is labor demand and payroll burden. With limited resources available, these two closely intertwined aspects require careful management so businesses can secure the right staff while keeping payroll costs manageable. As a small business owner, how do you find the proper balance between both demands? This article will explore strategies for optimizing your costs and profitability while ensuring you are able to recruit and hire top talent.
Payroll burden is the total cost that businesses incur by employing staff. Beyond just salary, this can include taxes, training, benefits and insurance. Payroll burden can be seen as both the direct and indirect payroll costs of employing workers.
Managing the payroll burden can be a major headache for small businesses. To maintain competitiveness and profitability, they must have a clear budget for their total workforce cost while still being able to serve their customers.
Labor demand estimates the number of employees a business needs to fulfill its goals. It can be based on factors such as seasonal variations or target productivity measures. Having the right staff with the right skill set is essential for small businesses to be successful and remain profitable. This means adequately meeting labor requirements while ensuring payroll costs are within budget.
Small businesses are consistently one of the most important sources of jobs in the American economy. According to the United States Small Business Administration, small businesses created 10.5 million new jobs from 2000 to 2019.
However, despite employing 46.8 percent of U.S. employees, small companies face difficulty filling their available roles due to increasingly competitive labor market conditions. Wages at small businesses can’t always match those offered by bigger enterprises easily. Additionally, healthcare costs remain an issue for businesses without substantial personnel budgets, making it difficult for smaller firms looking toward long-term employee engagement strategies.
“They have the need for workers — they just have a little bit harder time finding it,” said Marty Mucci, chairman of the board of directors at payroll and human resources (HR) company Paychex.
Small businesses need to offer competitive compensation packages to attract the best candidates. Unfortunately, this is in direct conflict with the goal of minimizing the payroll burden. It’s incumbent upon business owners, then, to find a happy medium in which they’re able to recruit and retain skilled new hires without breaking the bank.
Small businesses are looking to fill open positions, but they’re finding it difficult to hire in this economy. If you want to recruit the best employees, check out our guide on how to improve your hiring process.
Balancing payroll burden and labor demand is about ensuring the cost to hire and retain staff is sustainable for your business’s budget while employing enough staff to meet your business’ needs. Small businesses can use the following strategies to balance payroll burden and labor demand:
Small businesses must prioritize efficiency and resourcefulness when it comes to labor costs. Ensuring employees are well-trained and properly managed can help limit employee turnover rates. Limiting employee turnover reduces the amount of time and money a business must spend to attract, hire and train new candidates that, in turn, reduces payroll burden.
It’s also important to consider current economic trends when making these decisions. For example, keeping an eye on inflation rates in today’s market is critical, as inflation can impact wages and other employee-related costs.
Small businesses are feeling the squeeze even more in this economy due to increasing inflation. As the Consumer Price Index shows, inflation is causing significant increases in everyday costs like food and fuel. That means the average worker is seeking higher wages to afford the same consumer purchases as before.
Given that two out of three business owners aren’t paying themselves due to inflation, it is obvious that small businesses are facing significant financial constraints when it comes to increasing salaries for their workers to match increasing inflation. Additionally, inflation can lead to minimum wage increases which will force some employers to increase payroll burden or reduce their staff to a level lower than optimal labor demand.
Small businesses can remain competitive despite increased labor costs through careful planning and intentional hiring. Entrepreneurs should consider strategies, such as outsourcing, financial incentives, training and development investments and technology, to ensure their payroll burden remains manageable while also meeting labor needs. Planning ahead and anticipating hiring needs and related payroll expenses will help small businesses meet both labor demand and payroll budgets.