P: 0220 759 629

The Labour Cost Challenges NZ Businesses Face

The increasing cost of labour is putting a strain on NZ businesses. Learn more about the challenges and how to manage them in your organisation right here.

cost of labour

cost of labour

As if a pandemic wasn’t difficult enough, now many NZ businesses are struggling under the ever-increasing burden of an increasing cost of labour. In the last three years, the minimum wage has risen by 25%. Sick day quotas have been doubled this year, and many employers are struggling to accommodate these extra expenses.

Businesses in a range of industries have already cut costs as much as possible to avoid redundancies, and there is very little wiggle room left for further belt-tightening.

So, where do these extra costs go? How much can a business be reasonably expected to absorb and not pass onto the consumer?

Let’s look at the challenges caused by cost of labour increases and go over some practical ways for employers to accommodate them.

The Increasing Cost Of Labour In NZ

According to Retail NZ, wages take up a quarter or a third of operating costs for retail businesses.

Wages are inflating rapidly in Aotearoa, increasingly in the last few years. Statistics reveal that New Zealand’s annual wage inflation rose by 1.6% in the first quarter of 2021 and a further 2.1% in the second quarter.

“Public sector wages advanced 1.9%, up from a 1.8% gain in the previous quarter while private sector wages rose 2.2%, quickening from 1.6% last quarter.” [source]

And it’s not just the minimum wage that has increased – paid sick days for employees have been doubled, and a new public holiday has been introduced this year.

When wages increase across the board, businesses aren’t just facing increased cost of labour. They also need to plan for likely price hikes from suppliers who are also trying to manage similar challenges within their business.

How To Manage Labour Costs In Your Business

To ensure they remain operational, businesses need to find ways to handle the increasing cost of labour. Every business is unique, so there’s no standard answer. You will need to review your budgets and determine the right course of action for you and your team.

Here are some potential options:

Absorb the costs

The first option is essentially the “do nothing” response. Simply take the extra labour costs on the chin and make it work by taking a cut out of your profit margins. While this may work short term (if your business is profitable), this isn’t a sustainable option for a lot of businesses. For most small businesses, the strain will be too great and eventually will lead to harder decisions needing the be made.

Increase your prices

The most obvious solution would be to increase your income by raising the prices of your goods and services. However, this isn’t a straightforward proposition. Potentially, you could price yourself above competitors and lose customers. If you are considering this tactic, make sure you have confidence that your offerings will remain competitive and you are positioned right in the market.

Increase productivity

Rather than cutting the hours of your team, find ways to boost their productivity and efficiency instead. Investing in extra training for your employees can help them work faster and deliver higher quality work for the same cost.

Alternatively, technology may provide more innovative, faster ways to take over certain aspects of a role, allowing your employees to focus on other responsibilities.

Reduce staff numbers

Often as a last resort, many businesses may be forced to cut staff numbers. This route should be a last resort and undertaken with great care. Before taking any action, seek professional advice on the best path forward. Employers must be sure to follow the correct processes.

Hire the right people

Hiring the right talent for the right position can make all the difference in your bottom line. On-the-job efficiency impacts labour costs, resulting in added hours (or even overtime) to accomplish a task.

One high-performing employee is worth five unsuitable workers, so it’s well worth investing in recruitment to find the ideal candidates for your business. Reach out to us at LD Recruit today to see how we can help you find the perfect team member.