How To Cut Labor Costs Without Cutting Workers

In the current economic downturn, many employers who are looking for ways to increase efficiency will look to reduce their labor costs. Labor is an expensive part of any business or organization, and many are seeking ways to make it a smaller part of their 2009 budgets. Below is a quick guide for how employers often go about cutting labor costs:

Pay Cuts
Some companies and organizations are docking the pay of their workers, though the practice appears rare so far in this recession. Some, not yet ready to make pay cuts mandatory, are asking their employees to take a voluntary cut in pay. William Flesch, the chairman of the senate at Brandeis University, suggested that the school’s 300 teachers take a 1% cut in pay. With at least 90 members having agreed to the cut, several jobs could be saved.

Flexible Work Schedules
Allowing employees to set their own schedules can lead to increases in productivity among employees, which indirectly leads to lower labor costs. The theory is that when people are allowed to work when their minds are sharpest, they will be more productive than they would be if they were forced into the 9-5 schedule.

Furloughs and Unpaid Vacations
A temporary absence from work, or a furlough can also be a tool to use to limit labor costs. Voluntary or enforced furloughs mean that workers take unpaid time off of work. Since they are not paid during that time, a business can keep what they normally would have spent on that labor.

Governor Arnold Schwarzeneggar of California ordered mandatory furloughs Friday for 238,000 state employees, forcing them to take off two unpaid days per month through June 30, 2010. The furloughs are approximately equivalent to a 9% pay cut for the affected workers and could save the state more than $1.2 billion.

Wage Freezes
Many companies and organizations have pay schedules in place that allow for workers to receive wages after a certain amount of time on the job. By enacting a wage freeze, an employer can essentially block these wage increases from happening as a way to cut labor costs.

Pension Cuts
Reducing or eliminating pension contributions can be an effective way to cut labor costs, though it can cause serious ire with employees. Pensions and insurance coverage for employees is quite expensive, and cutting these benefits can be a quick way to reduce costs. Before cutting all pension money, employees can take a half-step ending a pension matching fund if it is in place. Some companies have recently taken this step. Other options should be explored first, as cutting retirement benefits is likely to create some angry workers.

There are several ways to cut labor costs in this economic downturn
There are several ways to cut labor costs in this economic downturn

Tax Tip: 2009 Inflation Adjustments Widen Tax Brackets and Expand Tax Benefits

Internal Revenue Service Tax Tips on Shoeboxed Blog

For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced today by the Internal Revenue Service.

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:

  • The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
  • The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
  • The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
  • The annual gift exclusion rises to $13,000, up from $12,000 in 2008.

Information about the pension and retirement plan-related changes can be found in
IR-2008-118. Other inflation adjustments are described in Revenue Procedure 2008-66.