Recent employment figures suggest that the number of people on UK payrolls is continuing to fall.
That does not necessarily mean your business should reduce its workforce. However, it does provide a useful reminder to look at one of the largest costs faced by many businesses.
The important question is not whether other employers are recruiting or reducing staff. It is whether your current workforce is right for your business.
Look beyond the monthly payroll
Start by considering what has happened to employment costs over the past couple of years.
Pay rises are only part of the picture. Employer’s National Insurance, pension contributions, benefits, training and other employment costs all contribute to the real cost of employing someone.
Compare this with what is happening to turnover, gross profit and productivity.
For example, if staffing costs have increased by 10%, but turnover has increased by only 3%, it is worth investigating why.
There may be a perfectly reasonable explanation, particularly if you have recruited ahead of anticipated growth. But it is better to understand the figures than simply allow costs to increase unnoticed.
Should every vacancy be replaced?
When someone leaves, there can be an automatic assumption that a replacement is needed.
Before recruiting, consider whether the job still needs to exist in exactly the same form.
Could responsibilities be reorganised? Could repetitive administrative work be automated? Has technology changed the amount or type of work required?
Conversely, be careful about delaying recruitment purely to save money. Existing employees working excessive hours can lead to falling productivity, poor customer service and eventually the loss of good staff.
Model the cost before deciding
Recruitment decisions should form part of your financial planning.
If you are considering employing an additional person, calculate the full annual cost and estimate the additional sales, capacity or efficiency that the appointment needs to generate.
The same principle applies if you are considering reducing staffing levels. A reduction in payroll costs may look attractive, but not if it prevents the business from delivering work or growing sales.
Use your figures to make the decision
Your accounting records contain much of the information needed to undertake this review.
Comparing staffing costs with turnover and gross profit over time can reveal trends that are difficult to spot when looking only at the bank balance or monthly payroll.
If your staffing requirements are changing, talk to us before making significant decisions. We can help you examine the numbers, model alternative scenarios and understand the financial implications before you commit.