How to manage labor costs in the cleaning industry

Labor costs are one of the biggest expenses for cleaning companies, and managing them effectively is essential for long-term success. From wages and benefits to scheduling and productivity, there are many factors that can impact labor costs in the cleaning industry.

In this article, we will discuss various strategies and best practices for managing labor costs in the cleaning industry, helping cleaning companies optimize their operations and increase profitability. Whether you are a small janitorial service or a large commercial cleaning company, these tips will help you control labor costs and improve your bottom line.

Steps for calculating labor costs

The cost of labor is typically the most significant expense for a cleaning company and business owners since that sum includes wages, benefits, payroll tax, training, and operating a human resources team. Because labor costs are some of the biggest expenses for a business, they’re often targeted for reductions.

The US Bureau of Labor Statistics reports that the hourly wage of janitorial workers is currently $16.84 an hour. Researchers estimate that the share of revenue spent on wages will decline as janitorial service providers automate their processes and increase efficiency. To manage labor costs without reducing staff wages, start by calculating direct labor costs:

• Step 1: Calculate how much you’re paying your staff in wages (Direct costs like salary or hourly)
• Step 2: If you’re paying workers by the hour, determine how many hours will be worked per week and how many overtime hours are necessary
• Step 3: Calculate other labor costs (Indirect costs include benefits, insurance, and payroll taxes per employee)
• Step 4: Take those costs and add them to the paid wages amount calculated in Step 1
• Step 5: The previous number is the total cost you’ll be responsible for during that calculated period
• Step 6: To determine the labor cost per hour, divide that total labor cost number by the total number of hours your staff will work

Indirect labor costs are generally more complex, as they include accounting, human resources, and other operational expenses. To gain the most accurate information for indirect and direct labor costs, perform job costing to maintain a clear picture of your profitability at all times.

How to reduce labor costs

After calculating labor expenses and costs, manage and reduce that number by performing the following steps:

Offer benefits to engage employees and reduce employee turnover

The ability to identify how each job is performing, so that it’s not pulling down the net profitability of the company involves understanding how much is being spent on benefits. Tracking benefits shows that your company is in compliance with governmental regulations while remaining in tune with the needs of your workforce.

Knowing the real costs of benefits is important for current employee morale and attracting future employees who may ask questions about holidays, time off, health insurance, and retirement plans. Other benefits could include meals or, in some cases, equipment and supplies.

Employee benefits account for 29.5% of the average cost per private industry employee, while the remaining 70.5% goes toward wages, according to the US Bureau of Labor Statistics.

It’s common knowledge that a robust benefit package can increase employee engagement, thereby increasing employee retention. But it’s not as widely known that offering benefits while remaining profitable requires a transparent understanding of their costs.

Prevent wage creeping

Wage creeping is a popular industry term that refers to when an employee’s salary increases over time, resulting in higher-than-normal pay for a particular position. Cleaning professionals experience a form of wage creeping on job sites when a worker is pulled from one account, where that worker was making more an hour, onto another job site where the rate is lower.

In this situation, an employee may receive an additional dollar per labor hour compared to the agreed rate in the new contract because the previous contract paid them a higher wage. Software solutions that provide job costing and reporting analysis for labor budgets prevent wage creeping and any other indirect costs.

Encourage improved productivity

Incentivizing performance is a great way to manage labor costs in the cleaning industry. By offering bonuses, rewards, or other incentives based on individual or team performance, employees are motivated to work more efficiently and effectively. This can lead to increased productivity and, ultimately, lower labor costs.

One way to incentivize performance is through a bonus program based on meeting specific goals, such as completing a certain number of jobs in a week or achieving a certain level of customer satisfaction. Another option is to offer rewards for outstanding performance, such as gift cards or extra paid time off.

Additionally, implementing performance evaluations and feedback systems can help identify areas where employees may need additional training or support, ultimately improving their efficiency and reducing labor costs.

Minimize overtime pay

Managing labor costs through budgeting and diligent employee scheduling efforts also prevents distributing too much overtime pay. For instance, imagine a cleaning company where the average direct and indirect labor costs are roughly 70%. That means 70 cents on every dollar go toward wages, benefits, payroll tax, cross-training, and operating a human resources team.

Also, assume that the same company is operating at a gross profit of roughly 20%. Then there are only 10 cents left on each dollar to cover corporate operations, administration costs, and office expenses. So, a few extra cents per hour spent on preventable overtime costs add up very quickly and can take away from your overall profitability.

Scheduling software offers support in terms of reviewing issues with overtime before they occur. More specifically, it gives managers the resources to quickly acknowledge where overtime is being distributed unnecessarily. Alerts or notifications can be sent to professionals who can proactively make scheduling adjustments before profits are lost.

Compliance

Cleaning certain sites may require specific skills. For instance, janitors who work in hospitals may need specific training. Also, during COVID-19, it was common for companies to ask for vaccination records for staffers cleaning their sites.

Clients may still want your workers to provide COVID-19 records, or customers may want your staffers to perform cleaning standards set by OSHA, even after the pandemic. A compliance tracking system can keep track of certifications, licenses, experience, and other requirements. You can assign those compliance standards to certain jobs or tasks.

In the future, you might need to show proof that your employees have certain certifications. Being able to handle those types of requests is an indirect way to manage labor costs, as it could help win bids, which could lead to more repeat business.

Reduce Labor Costs with Cleaning Management Software

Cleaning management software can be a valuable tool in reducing labor costs in the cleaning industry. This software solution offers various features that can help streamline operations, improve efficiency, and ultimately save money on labor expenses.

Cleaning management software can reduce labor costs by optimizing scheduling. By using the software to create efficient schedules based on workload and employee availability, managers can ensure that the right number of staff is assigned to each job, minimizing overtime and reducing labor costs.

Save Time and Money with TEAM by WorkWave

Partnering with TEAM by WorkWave can significantly benefit your commercial cleaning business. This software is designed to streamline operations, improve efficiency, and ultimately help you grow your client list. Here are some key benefits of using TEAM by WorkWave:

1. Efficient Employee Management: You can easily schedule shifts, assign tasks, and track employee performance, ensuring that your team is working effectively and efficiently.

2. Real-Time Communication: The software allows for real-time communication between you and your team, enabling quick responses to client requests or changes in scheduling.

3. Automated Invoicing and Billing: Fully automates the invoicing and billing process, making it easy to keep track of payments and ensure timely billing for your clients.

4. Reporting and Analytics: Offers robust reporting and analytics tools that give you valuable insights into your business performance, allowing you to make data-driven decisions to optimize operations and grow your client list.

In Closing

Managing labor costs in the cleaning industry is essential for maintaining profitability and growing your business. By implementing scheduling software to prevent unnecessary overtime, tracking compliance requirements, and utilizing cleaning management software like TEAM by WorkWave, you can streamline operations, improve efficiency, and ultimately save money on labor expenses.

Using TEAM by WorkWave for your cleaning business offers numerous benefits that can help you effectively manage labor costs. From efficient employee management and real-time communication to automated invoicing and billing, this software can help you optimize operations and grow your client list. By taking advantage of these tools, you can ensure that your business remains competitive in the cleaning industry while also maximizing profitability. Schedule a demo to learn more about our job-costing and budgeting software.