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Labor Trends That Are Driving up Employer Expenses

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By Phil Cohen

Labor is one of the largest expenses facing the average American company. Labor costs are defined as the sum of employee wages, benefits, and payroll taxes covered by an employer. These costs can fluctuate depending on the type of labor needed and the market for that labor. 

In fast-paced, competitive fields like healthcare, out-of-control labor expenses can eat into profits and prevent growth. While some degree of labor cost is essential, businesses and staffing agencies of all types can benefit from managing these expenses and tracking the factors that affect them. 

Labor Shortages   

One of the primary economic factors that can impact a given labor market is the demand for that labor relative to the supply of qualified applicants. When there is a shortage of specialized labor, the businesses that rely on it often see reduced profits and rising expenses.  

For example, the current nursing shortage plaguing the United States has made it more difficult for care providers and staffing agencies to find qualified labor. While the demand for nurses has grown steadily, the labor pool has shrunk, as fewer people are pursuing nursing careers. 

Labor supply issues in healthcare don’t just mean longer wait times and lower quality care for patients. For companies like staffing agencies, not having enough labor can make recruiting costlier and more difficult, and add to payroll costs by forcing existing employees to work more overtime. 

Higher Turnover   

In addition to a general lack of qualified labor, many fast-paced fields like healthcare also have difficulty retaining staff members. Factors such as long hours and high-stress work can contribute to high turnover in fields like nursing. When turnover for a job is consistently high, it can lead to trouble for employers and recruiting agencies. 

One of the main costs associated with high turnover is the labor needed to regularly train and onboard new staff. In high-turnover fields like healthcare, where labor is already scarce, the constant need for training can take seasoned employees away from their regular duties and create the need for more overtime. Additionally, frequent turnover forces care providers and staffing agencies to invest more money and manpower into recruiting, straining profit margins even further. 

Staffing Costs   

Another labor market pattern that’s impacting employers and staffing agencies is the general increase in the cost of employment. These costs are typically comprised of the actual wages and benefits paid to staff, as well as percentages of the federal and state taxes that must be shared by employers.   

Payroll taxes such as FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act) help fund important programs like Social Security and unemployment, but can also cost employers big.  

These tax rates reflect the state of the economy in several ways. For example, recent surges in inflation have caused the wage cap for FICA Social Security taxes to increase by 20% over the last five years. For employers, this increases total staffing costs by making a larger percentage of their payroll subject to taxation. 

Increasing Wages 

Another negative side effect of inflation is that it increases the cost of living for all Americans. For employers, this means that wages must be steadily adjusted for employees to have the same purchasing power. Cost-of-living adjustments based on inflation are important for employee retention, but they also contribute to higher staffing expenses. 

While inflation has increased employment costs across the board, supply and demand have led to even higher pay for certain skilled laborers. When a type of skilled labor is harder to come by, employers must take additional steps to attract qualified recruits, such as raising salaries and benefits. One such example is nursing, where the demand for labor has been steadily outgrowing the supply in recent years. As a result of this disparity, average salaries for nurses have been steadily increasing at a higher rate than many other professions. 

Higher Health Insurance Premiums 

Another major expense for employers is the cost of health insurance benefits for their staff. These costs are typically shared, with the employer footing the majority of the bill. Good health insurance can attract new employees to a workplace and help retain existing ones, but it is also expensive and its cost can fluctuate depending on many factors.  

For employers, the cost of a group plan varies depending on the number of people being covered, the total amount of coverage, the add-ons selected, and the trade of the employees being covered (higher risk trades typically cost more to insure). Additionally, rising inflation and claims costs have made group health plans more expensive for employers across the board. 

How Can Employers Combat Rising Expenses?   

While rising expenses are difficult to avoid altogether, employers can use several strategies to manage waste and mitigate the costs associated with doing business. 

Limit Overtime  

Overtime costs are a common problem, especially for employers facing staff shortages. While it may seem like a cheaper alternative to hiring more staff, having employees work frequent overtime can cost employers money in the long run. 

An employee who has already met their full-time hours for the week must be paid 1.5 times their regular salary for every extra hour they work. As a result of frequent overtime, employers end up paying more in wages for the same total number of hours worked. Limiting overtime hours for staff, either by re-organizing the schedule or hiring more employees (if possible) can reduce total labor costs without compromising productivity. 

Utilize Mobile Recruiting   

Another common issue for employers is the cost of finding and attracting talent. In high-turnover fields like nursing, labor is already hard to come by, and finding new employees quickly and efficiently is a constant struggle.  

One way that companies and recruiting agencies can minimize the cost of talent acquisition is by using mobile recruiting. Mobile recruiting makes it easier for hiring teams to analyze more applications in less time, reduces time-to-hire by instantly sharing new openings with recruiters, and speeds up the onboarding process by making candidate information immediately accessible to different departments. 

Accounts Receivable Factoring  

When unpaid expenses begin piling up, accounts receivable factoring can free up cash quickly and help agencies cover their costs without sacrificing growth. There are several types of factoring services designed to meet the varying needs of different business models: 

  • Factoring for medical staffing agencies: This type of factoring is designed for the specific needs and challenges of temporary medical staffing agencies, such as irregular cash flow and delayed invoices from providers.    
  • Factoring for nursing staffing agencies: Similar to medical staffing factoring, nurse staffing factoring is designed specifically for agencies that deal with finding nurses for hospitals, clinics, and other medical offices. 
  • Factoring for home health care agencies: Home health care factoring was created specifically to help home care providers meet caregiver payroll while dealing with delayed payments from Medicare, Medicaid, and third-party insurers. 
  • Factoring for medical billing services: Medical billing factoring helps billing services get cash from their invoices immediately, allowing them to continue paying their vendors and staff. 
  • Factoring for medical supply companies: This service is made for companies who sell medical supplies to healthcare providers. It is tailored to the specific challenges of selling goods to doctors. 

Factoring for medical transcription services: Medical transcription factoring is made to help medical transcription service owners (MTSOs) cover costs and make payroll when cashflow gets delayed by extended invoices.

How to reduce turnover

To effectively reduce turnover, it is crucial to implement a range of strategies aimed at retaining employees. High employee turnover can lead to substantial expenses related to hiring, training, and onboarding new staff, while also resulting in the loss of valuable skills and knowledge. To address this issue, consider the following approaches:

Competitive Compensation: Provide employees with competitive salaries and benefits within the industry. Offering attractive financial packages can incentivize them to stay with the company and minimize the likelihood of seeking employment opportunities elsewhere.

Feedback and Recognition: Establish a culture of regular feedback and recognition, wherein employees feel valued and appreciated for their contributions. Regularly acknowledging their efforts and providing constructive feedback enhances job satisfaction and creates a sense of belonging within the organization.

Positive Work Culture: Foster a positive work environment by promoting open communication, teamwork, and work-life balance. Encouraging a supportive culture helps employees feel comfortable and engaged, leading to higher job satisfaction.

Career Development Opportunities: Offer opportunities for growth and advancement within the organization. Providing training, mentoring programs, and clear career paths not only enhances employees’ skills but also demonstrates investment in their professional development, making it less likely for them to seek opportunities elsewhere.

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Phil Cohen

About the author

Philip Cohen is the founder and President of PRN Funding, LLC. PRN Funding is an extraordinarily focused niche player in healthcare funding. With years of…... Read More

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