The economy has us all a little worried, right? We’re all trying to do the best we can with what we’ve got, especially when people aren’t spending money like they used to. There aren’t a whole lot of basic solutions. You either increase income or decrease expenses. Payroll costs can be significant. Can they be reduced without layoffs?

When a business owner or manager begins to look at cutting costs, the first thing that gets pulled is the income statement, also known as the profit and loss statement. In a typical product-based business, the biggest numbers are usually product, insurance, and payroll.

Product is usually out, unless you have serious inventory issues. You have to have something to sell, or you’re not in business at all. You know you can’t ditch your insurance expense. That leaves payroll and all the related costs that go along with having employees. You don’t want to lose anyone – the economy will pick up eventually. How do you cut payroll costs without firing anyone?

Some companies reduce the amount they pay for benefits. No, you shouldn’t cut out health insurance, but you can shop for a better policy. Company parties could be held on-site instead of in the local hotel’s banquet room. You may feel a need to temporarily reduce bonuses and perks – just let them know that it’s only temporary.

Other companies have issues with overtime. I heard about one company that cut lunches to half an hour to reduce afternoon tardiness. They paid the employees for the other half hour, which resulted in an 8.5-hour day for everyone, and called that extra half hour a company benefit.

Essentially, they had volunteered themselves to pay 2.5 hours per week in overtime for every employee just because a few people took more than an hour for lunch. When they cut out the overtime, they were amazed at the savings. Everyone was given one afternoon off per week, and it was a win-win solution for both management and staff.

One area that most people don’t consider is presenteeism – lost time while people are still on the clock. You may not have a productivity problem in your building, but what that usually means is you do have a problem and you just don’t know about it.

The statistics are pretty eye-opening. CCH conducted a recent study where they found that for “every 100 hours of paid productive time, companies are also paying for 2.3 hours for unproductive time due to an unscheduled absence.” That’s just their estimate. Others are higher.

Here is CCH’s breakdown of unscheduled absences, both physical and mental:

  • 34% personal illness (coming to work sick)
  • 22% family issues (on phone with troubled family member)
  • 18% personal needs (smoke breaks, “coworker therapy”)
  • 13% entitlement mentality (“I work hard – I deserve a break”)
  • 13% stress (high workload, difficult personal life)

The top three reasons for presenteeism were found to be:

  • 65% high workload
  • 56% lack of options for easing workload
  • 55% reluctance to use vacation time for illness

Also mentioned were the fear that the boss would question their commitment, guilt over asking coworkers to help, and fear of losing their job.

Disciplinary action is currently the single most used tool to control absenteeism and presenteeism. CCH offered some alternative, more employee-friendly suggestions for dealing with this, including:

  • Initiating paid leave banks (all paid time off lumped together so reason for absence becomes irrelevant)
  • Removing discipline for legitimate illness that goes beyond paid leave
  • Telecommuting
  • Wellness programs
  • Employee Assistance Programs (EAPs)

You won’t eliminate presenteeism, but most estimates say that you can reduce its costs by almost half by rethinking your motivation strategies, personal leave policies, and wellness education. How much are those costs? Depending on your employees and which study you read, estimates run from $300 to $2000 per year per employee.

There are a lot of creative ideas out there for reducing payroll costs, including hidden ones. Every business is different – you know your business best, so you’ll be the best one to evaluate which strategies are right for you. Your bottom line may not go through the roof over this, but at least you’ll buy yourself a little breathing room when you go to pay your bills every month.


by Steven Schlagel