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4. Reduce Unnecessary Employee Expenses

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One of the largest expenses for any employer is often the cost of employees. Employees often believe their cost is simply their salaries, but as an owner, it becomes obvious that salary is only one part of the employee expenses. A business owner may find that the costs of his or her employees can greatly exceed the cost of their salary. At some large Fortune 500 companies, the rule of thumb is to take an employee’s salary and double it to determine their cost. For small businesses, this multiplier may not be as high, but employee expenses will add up.

To begin determining your employee expenses, include all employees as well as any other individual that works for your company including consultants, interns, temporary help, and bookkeepers. However, do not include yourself in this group even if you work at your business and pay yourself a regular salary. List each of these individuals as well as their salary and any other expense associated with their employment. It may surprise you how many expenses an employee incurs. The following are some employee expenses to include:

• Overtime: Include any money regularly paid for overtime. If this occurs very infrequently, include all estimated overtime costs.

• Bonuses and/or commissions: Include any money provided to an employee as a bonus or commission payment.

• Employment taxes: Include the payroll taxes on each employee’s salary and bonuses.

• Benefit premiums: Include any company-sponsored premiums toward insurance, medical, dental, and retirement contributions.

• Benefit management expenses: Include any expenses related to providing the employee benefits. For instance, payroll services, retirement contributions, and management fees.

• Perks: Include the cost of any company perk that is offered. Company perks include any items paid for by the company that are not required by law or as a contracted benefit, including lunches, training, and company phones and cars.

• Meal reimbursement: Include an estimate for reimbursing employees for meals when they are working late.

• Mileage reimbursement: If you regularly reimburse employees for mileage, include an estimate of the monthly amount.

• Management time and expense: If you have any managers responsible for managing your employees, include the estimate of the costs spent on each employee.

• Technology costs: Include the cost of the employee workstations, resources, software licenses, and any other technology-related expenses.

• Workers’ Compensation Insurance

Try to make this list as comprehensive as possible so that you can easily see how much each employee actually costs the company.

Although the costs of each person are now in black and white, for many business owners, this is one of the hardest areas in which to reduce costs. Loyalty to one’s employees is often a characteristic of a strong leader and the idea of reducing employee numbers or benefits is abhorrent. However, during troubled times, these decisions must be weighed against the success of the company as a whole. If the company fails to survive, none of the employees will have salary or benefits; therefore, employee costs must be reviewed as part of a reasonable expense review.

Of course, costs alone cannot drive reductions in this area. In order to ensure that you correctly reduce employee costs you will need to understand not just what every employee costs, but also what each employee does. If your organization is large, this may require the assistance of your management team. From there, review the list to determine if there are any areas in which costs can be reduced. As difficult as it may be to consider, reducing your staff overhead, perhaps by extending your own hours may help you during this initial catch-up period.

The following sections outline areas that you can concentrate on to help you reduce your business costs. If you make the changes to reduce costs in these areas, you will be able to improve your profitability faster.

19 Ways to Survive in a Tough Economy

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