The Real Cost of Labor in Manufacturing

The Real Cost of Labor in Manufacturing

When companies think of their labor costs, the emphasis is usually on employee salaries and benefits. While those are undeniably significant parts of the equation, there’s far more involved than just those associated figures. The real cost of labor in manufacturing includes a variety of direct and indirect expenses, and they add up with surprising speed.

Here’s a look at what the real cost of labor in industrial workplaces typically involves:

Direct Costs of Labor in Manufacturing

In most cases, direct costs of labor are the easiest to identify and track. This category includes standard personnel-related expenses, such as wages and employer-provided benefits. Various on-site perks – such as free coffee in the breakroom – is included as a direct cost, too.

There are also expenses beyond those above that fall into this category, such as costs related to workers’ compensation and unemployment insurance. Specific hiring-related expenses – like the cost of posting vacancy announcements on job boards – are also relatively direct in nature.

Many companies should also factor in the cost of employee management-related technologies in place at the organization. For example, an applicant tracking system (ATS) is an expense specifically related to acquiring labor. Similarly, specific human resources or financial platforms for tracking personnel records, administering benefits, and processing payroll can qualify.

Manufacturers also have direct costs related to employee training. For instance, the space, equipment, or training personnel needed for a training session is generally a direct expense.

Indirect Costs of Labor in Manufacturing

Overall, the indirect costs of labor in manufacturing aren’t as straightforward as the direct expenses, but that doesn’t mean they aren’t sizeable. Lost productivity due to training is an example of an indirect cost. Similarly, time spent reviewing resumes and conducting interviews (instead of handling other responsibilities) is a type of indirect expense.

Absences and turnover costs also fall into the indirect category. Absenteeism has a negative impact on productivity, which can lessen profitability. If production targets have to be met by a specific deadline, absences could also trigger the need for overtime, leading to higher-than-anticipated direct costs along with increased stress levels among staff that could lead to lower morale, higher rates of burnout, and lost productivity.

How Partnering with a Staffing Firm Can Optimize Labor Costs

By partnering with a staffing firm, manufacturing companies can optimize their labor costs. The recruiters will handle the bulk of the hiring process, including candidate sourcing and screening and all of the costs associated with those activities. Additionally, new hires can remain on the recruitment agency’s payroll to start, eliminating an administrative burden associated with salary and benefits administration, as well as costs related to unemployment and workers’ compensation.

Staffing firms can also provide guidance for workforce optimization, ensuring staffing levels are appropriate based on shifts in demand. Plus, they can provide access to temporary workers during peak seasons, reducing risk and keeping the associated costs as low as possible.

Contact the Advance Group Today!

If you’re ready to learn more about how partnering with a staffing company can reduce the real cost of labor in manufacturing, The Advance Group wants to hear from you. Contact us today at one of our convenient locations in Monroe, MI; Toledo, OH; or Southgate, OH!




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