How to Keep Your Payroll From Consuming All of Your Profit

Paying employees is about more than just setting salaries and picking pay dates. It’s one of your biggest expenses, and if you’re not paying attention, labor costs can quietly nibble away at your profits—until one day, they’ve taken a huge bite.

For many business owners, managing labor costs can generate a lot of stress. Overstaff, and you’re paying people to stand around with nothing to do. Understaff, and your team is scrambling, your customers are frustrated, and your bottom line takes a hit. Either way, it feels like you’re losing.

Getting a handle on your labor costs can mean less stress and more money to reinvest in your business. Whether you’re running a restaurant, a retail shop, or a small office, there are ways to bring those costs under control without sacrificing quality or customer satisfaction. Let’s look at some ways you can tame this budget item. 

1. Know Your Payroll Costs

Regardless of what type of business you have, payroll generally eats up the largest percentage of your revenue. You have to know exactly how much labor is costing you to make sure you're not overspending. 

First off, do you know how much of your revenue is going to payroll? 

The simplest way to calculate your labor costs is to take your total gross revenue and divide it by your total payroll, including benefits.

And no, there’s no magic number for what your labor costs “should” be. However, controlling labor costs starts with understanding exactly where each dollar is going. Tracking these expenses over time also helps you gauge your efficiency as these ratios evolve.

If you don't already have a payroll system in place, it’s time to get one. Automated systems will help you track hours worked, payroll taxes, and other important details in real-time, giving you full transparency on what’s going out the door each pay period.

Find out more about payroll that works Whirks. 

2. Schedule Smarter

Overstaffing and understaffing both cost you money, but scheduling isn’t a guessing game—it’s a data game. Time and attendance software can show you exactly how your schedules stack up against actual hours worked.

Armed with that data, you can make better scheduling decisions. Say goodbye to empty tables with too many servers or overwhelmed employees scrambling to keep up. It’s all about balance.

Overtime, while great to reward employees for their hard work, those extra hours add up fast. And if you’re not staying on top of it, your payroll costs could easily double without you even realizing it.

Instead of letting overtime get out of hand, start by looking at where it’s happening. Is it because of high turnover and training costs? Are your employees stretched too thin because you don’t have enough staff? Is your workflow inefficient? These are all questions to ask yourself to get a handle on overtime.

3. Revisit Your Salary Structure

When was the last time you reviewed your salary structure? If it’s been more than five years (or ever), it’s time. Maybe you’re overpaying compared to your industry. If you’re leading the market, ask yourself: Do I need to? Some industries demand top-dollar salaries to attract talent. Others? Not so much.

If your labor costs are out of control, this is one area where you can make big adjustments. Scale back to match the market if it makes sense. And if you’re not sure where to start, check out our guide on setting salaries. 

4. Be Flexible with Staffing

Does every open position really need to be filled? Sometimes the answer is no.
If you’ve got a high performer on your team, give them more responsibility (and a raise) instead of hiring someone new. Also, think about cross-training. The more versatile your team is, the easier it’ll be to shuffle people around when someone calls out or you hit a busy patch. Cross-training isn’t just a backup plan—it’s a money-saving strategy.

5. Retain Your Talent

Recruiting is expensive. Replacing good employees is even more expensive. So, don’t let your best talent walk out the door.

Invest in proper onboarding so new hires actually stick around. Keep your team engaged with regular check-ins, clear growth opportunities, and maybe even a little appreciation now and then. Treat people well, and they’ll treat your business well.

6. Consider Outsourcing

Some tasks just aren’t worth doing in-house. Payroll, for example. As your business grows, payroll becomes more complex and time-consuming. From calculating taxes and managing benefits to staying compliant with labor laws, the burden of payroll can quickly take your team’s focus away from the core activities that actually drive your business forward.

Outsourcing payroll takes the stress off your team and lets them focus on keeping your business running and your customers happy.

Whether it’s payroll, accounting, or IT, outsourcing the time-consuming stuff is an investment in efficiency and peace of mind.

Get Smarter About Payroll—And Your Profits

Labor costs can drain your profits if you’re not paying attention. Start by calculating your labor cost percentage to see exactly where your money is going. Then, identify one immediate change—like smarter scheduling, reviewing salaries, or cross-training employees—that can help you cut costs without sacrificing quality.

If managing payroll has started to feel like wrestling a bear, you might be thinking about outsourcing. Before you jump into the arms of a big-box provider, take a minute to read our Whirks vs. Big-Box Payroll Providers article. It’ll help you figure out what kind of payroll partner actually makes sense for your business.

Getting control of your payroll doesn’t have to be complicated—sometimes, it just takes the right fit.