Recently, I had an employer client who was worried about how much lower than market they thought they were paying their employees.

After we market priced their jobs and did the employee analysis, they had far fewer pay changes to make than they originally assumed. In fact, they could do the changes this year instead of over multiple years.

One of the biggest costs of doing business is labor. Labor can account for as much as 70% of total business costs.

And each time you increase the cost of labor, you must increase your revenue to cover that.

FORMULA = Labor Cost Percentage = (Total Labor Cost / Total Gross Sales) x 100

Include the cost of base pay, bonuses, commissions, benefits, and payroll related taxes. For example: If your labor costs total $1M and gross sales equal $2M, the labor cost formula would look like this: $1M ÷ $2M x 100 = 50%.

What's a good labor cost %? It depends on your industry. The Bureau of Labor Statistics provides benchmark data. Service industries have a higher labor cost than manufacturing.

Know your numbers.

And if you're an employer who has been hiring new employees at higher pay rates than current employees, you may have a pay compression problem.

And with the pay equity and pay transparency laws being passed, you may be facing a noncompliance issue.

Send me a message if you want to talk about how my team and I can help.

Oh, and that employer client I mentioned earlier...they are a non-profit who is figuring out how to continue to pay competitively year-over-year. They are focusing more on grants, fundraising, and other development goals to cover their current and anticipated labor costs.

They know if they don't focus on the revenue side of the equation, they won't be a viable organization long-term.

And given the war for talent, they are considering targeting the 75th percentile of the market instead of the 50th percentile.

#HR #leaders #pay #laborcost