How to Minimise Exposure to Employee Costs image

How to Minimise Exposure to Employee Costs

Staff Squared date icon28th July 2016

Tag iconSmall Business

Employee costs, from the moment that you plan to hire somebody new, slowly begin to mount up.

First, you must deal with the costs that are associated with hiring and recruitment. Then, there are ongoing expenses that continue for as long as the employee stays on your payroll, and potentially even beyond.

What are some of the potential employee costs?

  • The costs of recruiting including advert prices and recruitment agency fees
  • The employee’s salary, or wage
  • Employer National Insurance contributions
  • Pension contributions
  • Holiday pay
  • Sick pay and absence
  • Lateness
  • Training costs
  • Equipment
  • Maternity or paternity pay
  • Possible redundancy pay
  • Possible unfair dismissal case costs
  • Consumables and general overheads (the small costs like tea and coffee, electricity and paper)

In addition to all of the above costs, linked to one employee, be aware of extra costs such as employers’ liability insurance.

How can you minimise exposure to employee costs?


When you’re hiring someone new, consider avoiding recruitment fees by sourcing new employees through existing ones.

Advertise the vacancy on your company website, and ask existing members of staff if they can recommend anyone for the role. You’ll be surprised how far networking can take you!

As additional motivation, you may wish to offer a small reward to any employee that passes on the name of someone that you later employ. Even with the cost of a reward factored in, this should be cheaper than using a recruitment agency.

Sick pay, absence and lateness

As long as it is taken for a valid reason, sick pay is an unavoidable business expense. It is important to support your employees through both short-term and long-term illness.

That said, it is your responsibility (and in your interest) to keep track of employee sick leave.

Using high quality HR software from Staff Squared, you will be able to easily record employee sick days, and view reports that are based on these records. You may discover that someone is taking a very high amount of sick leave, when compared to everyone else in the company, or that they seem to continually be calling in sick on a certain day of the week.

Whilst it is important not to accuse an employee, without evidence that they might not be ill, you may find that it helps to address the issue privately. The employee may have a valid reason for requiring all of the sick days that they are taking, but it may be something that you can help with such as stress or family issues.

Think about whether you could decrease sick leave by providing more flexibility, for example. If employees are taking sick leave to deal with childcare emergencies, could you encourage them to work by offering the option to work from home?

By keeping clear and detailed reports of employee working times and dates, you may also detect patterns of lateness that may be having an impact on your business. If an employee is five minutes late, twice a week, then this adds up to 40 minutes per month or a full working day every year. It might not sound like a lot, but imagine if every single worker was doing this!

Possible redundancy costs

Before taking on a new employee, do your best to look ahead to the future.

Do you definitely have a role available? Can you afford to fill that role long term?

Some new employees are absolutely essential, whilst others are hired to do work that could probably be comfortably shared amongst existing workers if everyone sat down and discussed it.

The key to avoiding the redundancy process might lie with your existing employees, who can provide ongoing feedback about how realistic their workloads are. If employees are consistently struggling to stay on top of their job lists, someone new will need to be brought in. If they’re struggling for a short while, could you handle the extra work with temporary staff or freelance workers? Outsourcing can often remove the need to go through the entire employment process, when a new full time employee may not be absolutely necessary.

If employees might be able to take on a bigger workload, offer some incentives for doing so. Often, these incentives will be cheaper than the recruitment process and potential future redundancy costs. Could you pay some employees to work overtime, if they are happy to?

Possible unfair dismissal case costs

According to the Ministry of Justice, there were more than 61,000 unfair dismissal claims made in the year from April 2014 to March 2015.

Unfair dismissal is a big issue in the workplace, and can also be costly for employers. Most cases result in payouts of £1,000, but the largest from 2014-2015 was more than £235,000.

Regular performance reviews can reduce the risk of an unfair dismissal claim. Employees will be alerted quickly if they are seen to be underperforming at work.

Always have clear goals and targets in place for your employees. Make sure that your expectations are realistic. Objectives are important for individuals, and for the business as a whole.

Unfair dismissal cases can have a big impact on businesses of any size, but will be particularly tough on smaller businesses with limited funds available. It is far better to invest time and money in setting out clear workplace rules, reviewing staff performance regularly and making sure that each employee knows what responsibilities they have to manage.


Did you know that the average worker uses 10,000 pieces of paper every year? That’s paper to the value of roughly £40, most of which does not need to be used.

You can save your business a small fortune by keeping many of your documents online. A secure cloud based storage system, perhaps built into your HR software, can enable employees and their managers to collaborate and share documents with ease. You can also store all company policies online, where they can be easily accessed 24 hours a day.

Keeping track

The best way to minimise employee costs is to make sure that you are on top of them at all times. Record details about every employee, ideally using feature packed online HR software.

Don’t be one of the many employers that accidentally approves too much holiday, giving someone paid time off when they’ve already used up their allowance.

Some costs, like pension and National Insurance contributions, are completely unavoidable and should be given fairly. Other employee costs are often the result of poor management or poor record keeping.

Look to online software to help you to keep tabs on every worker within your business, and don’t forget to carefully consider the true cost of each employee.

Find out why most small businesses are successful and why many will fail.  See our small business tips guide can help optimize how manage your HR processes.

Written by Sue Crow

Office Manager - Staff Squared

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