Controlling labour costs


By Sharon Lowry

Every year local governments around Australia take a magnifying glass to their budgets as they try to stretch their funds to enable them to provide local services such as housing and community amenities, transport and communications, recreational and cultural facilities, plus contribute to social security and welfare measures. 

Each year seems harder than the last to finance all the necessary projects. Headline issues such as Australia's ageing infrastructure, the global financial crisis, climate change and concerns over water security have all had an impact on expenditure priorities. Then there is the issue of population change.  For some councils, a net population decline has resulted in a decrease in the ratepayer base and a corresponding shortfall in income.  For others – notably coastal towns or villages within commutable areas of large cities – rapid population increases are stretching facilities to the limit.

The strain on budgets is unlikely to go away any time in the near future and this means that every area of expenditure must be managed and accounted for more carefully than ever.

One cost that almost every council can gain greater control over is that of labour. With a total of around 178,000 employees (or ten per cent of Australia's total public sector workforce), local government is one of this country's significant employer groups.

The typical council is made up of a very broad skills base and employee hours, wages and conditions vary enormously across the workforce. 

For many local government managers determining the cost of labour on a single project can be almost impossible. Competing priorities creates an environment where labour is deployed and redeployed to respond to emerging needs makes it extremely difficult to track costs to projects with any degree of accuracy. 

The first step towards gaining control over labour costs is to establish data accuracy, reliability and integrity. Reliance on manual mechanisms to capture and maintain workforce related data fails to provide complete visibility into workforce related data and results in an inability to validate the fundamentals of workforce planning initiatives.  

Once you know that your data is accurate you can start to analyse any variances between forecast and actual hours and costs. Review budget versus actual figures across hours worked, costs and in relation to full time equivalent (FTE) status.  In today's workforce, where part time staff frequently supplement limited full time resources, it's not uncommon to find that employees are being used above their contracted FTE, resulting in the imposition of hidden costs.  FTE creep can have a huge impact on an organisation from both direct cost and leave liability perspectives.  Capturing this information has a direct bearing on future workforce planning and budgeting.

Another benefit of working with accurate data is that it reduces the potential for overpayments and errors. If staff hours are being recorded correctly, all you need is to find a way of consistently applying award interpretations and your payroll problems will largely be over. Ideally this requires the creation of a knowledge base that can automatically and objectively allocate the correct award to each shift. Industry analysis supports the belief that manual extension and interpretation of timesheet information results in an error in payment rate equivalent to around 1.2 per cent on annual salaries and wages bill. These errors are largely attributed to errors in calculation of entitlement, transaction and transcription errors when transferring information manually from one record to another, for example from timesheet to payroll system, lost records.

When creating rosters or project placements, look at the relative costs of each employee. Manual rosters or excel spreadsheets fail to provide the enterprise visibility often required to ensure you are using your workforce most efficiently and effectively. The cost of replacement staff can be significantly reduced if you can identify internal resources that can be redeployed from an area of less need rather than sourcing an external casual staff or paying for costly overtime.  Automated workforce planning system are designed to accommodate multi-level sorting will allow you to select employees based on user defined criteria ensuring you have the right person, with the right skills, for the right cost, to ensure quality and optimal outcome without incurring unnecessary spend.

Over the past decade cost-cutting has become an everyday business reality.  Managers are continually asked to do more with less. The situation within local government authorities is no different.  In fact, given constraints on any council's ability to find new revenue sources it's quite possible that local government managers and administrators are worse off than their private sector peers.

Optimising the workforce – through data validation, analysis, elimination of errors and awareness – will help to alleviate some of the pressures at the same time as maximising your organisation's performance.

Sharon Lowry is executive manager of Microster workforce management at ComOps.

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