Cutting down labour cost is the one of the most vital endeavors a company should look into when they really want to maintain their competitiveness and sustain their profitability. There are various ways a company can use to reduce its labour cost. Most of the remedies are discussed by Martin Best. According to Best, identifies cost and benefits of involving labour unions in deciding on the ways of dividing benefits and compensation of employees. Managements have to make a vital decision on whether to hire more workers, in case of increased production, or to just retain the workers and pay them overtime. The federal law requires that employees should be paid additional 50% on overtime wages (Egan 2007). It is therefore imperative that the management compares the other additional costs of retaining an employee versus the additional 50% for overtime payment.
Best believes that when the additional benefits such as insurance is below the 50%, then the management should consider employing more workers as opposed to maintaining the current ones and paying the part time. This can be just one consideration; there are more others which can be even more important. The cost of maintaining an employee is not just the payments and benefits. There are other things such as managing a large number of employees. By increasing the number of employees past the carrying capacity of the company may bring with itself serious management issues. Employment of more workers will call for more managerial costs and complexity. With a complex management system, more costs will be incurred (Peck, & Theodore, 2007). These costs can be more than more than the additional overtime cost hence hiring more employees will be more expensive and more risky. It is also true that medical cover can real determinant on whether to employ more workers or not. It is therefore important to compare the cost of employing more workers, retirement medical cover and the cost of managing more employees; with the additional 50% cost of paying for overtime. In many cases, it is rather you maintain a few employees and pa for more overtime that employing more employees which escalate the labour cost to unbearable levels.
References
Egan, M., Bambra, C., Thomas, S., Petticrew, M., Whitehead, M., & Thomson, H. (2007). The psychosocial and health effects of workplace reorganisation. 1. A systematic review of organisational-level interventions that aim to increase employee control. Journal of epidemiology and community health, 61(11), 945-954.
Peck, J., & Theodore, N. (2007). Flexible recession: the temporary staffing industry and mediated work in the United States. Cambridge Journal of Economics, 31(2), 171-192.
