SME Resources > Your Finance > Controlling your labour

Tags: Managing people

Controlling your labour

Carefully managing the people element of your business will save you time and money

What is it?

In simple terms it is about managing the financial aspects of your most valuable asset – your people.

Ideally all of us want to operate with the right people doing the right things at the right time – with no down-time. Here’s the catch – it's easier said than done!

What you need to know

  • The cost of the people element of your business is variable, which means that you can control it. This is unlike your rent for instance, which is often fixed. The fact that it is variable means that it can move up or down, in relation to your sales, every hour of every day.
  • Your cost of labour (wages and salaries) expressed as a percentage of your sales is a very commonly used performance indicator used across many different types of businesses. This is called your wage percentage or labour percentage.

It is crucial that you control the cost of your people so that it is in line with your targeted labour cost. Use the labour cost calculator to calculate your cost of labour.

What you need to do:

You can do this, alongside the obvious need to recruit and train effectively, through:

  • Knowing what your targeted wage percentage needs to be
  • Managing your labour schedules (rotas) to ensure that you have the correct amount of people with the right skills mix at work when you need them
  • Having an efficient payroll system to ensure that your team gets the correct pay, and that you control the accuracy of the total amount you pay for wages and salaries,  holiday, sickness, maternity, student loan repayments. It will also help you stay on top of your commitment to HMRC around ‘Pay As You Earn’ tax, employees national insurance  and employers national insurance

Why do it?

  • Because if you do not control the financial aspect of your labour it can very quickly wipe out your gross profit margin and put your business in a difficult financial position
  • It will give your business the best chance to achieve its targeted wage percentage, giving you a much better chance of operating a profitable department or business
  • You will have happier team members because they know when they are expected to be at work, their terms and conditions, and are paid correctly each payday
  • Happier team members stay with you saving you money on the cost of recruiting and training replacement team members

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Tools and assets

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External Link

HR and payroll software

Sage provides HR and payroll software that can be integrated

External Link

Rota planner template

Employee shift work template from Microsoft Office

External Link

Industry labour percentage for hospitality

Get ratios for benchmarking from Hotstats.com

Online Calculator

Labour cost percentage calculator

Keep track of how much your labour costs as a percentage of your sales