When penalty rates bite, is cutting staff a smart move?

Penalty rates are a hot topic in Australia right now. Retail and hospitality operators are feeling the pinch as rates for weekend staff keep climbing. So it’s easy to see why reducing staff can seem a good option for boosting profitability.

Fair Work Australia is reviewing awards as we speak, including what your staff should be paid for working on weekends. Weekend penalty rates may eventually change as a result of the review. Already, in South Australia, the award for retail workers has shifted: Saturday penalty rates abolished, and Sunday rates halved. But it’s still too early for employers to celebrate. For now, penalty rates — and the headaches associated with managing a staffing budget around them — aren’t going anywhere.

If your business is grappling with penalty rates, you’re not alone. Earlier this month, the Australian reported that more than 80% of businesses believed penalty rates were a major concern. Only a handful of retail and hospitality operators have reduced trading hours, but we have seen many businesses slash staff.

Let’s say you can’t afford to pay two senior waiters’ wages on a Saturday because of penalty rates. It makes sense to roster on a junior staff member in their place. After all, the business is saving money, right? Well, not exactly.

Short-term savings don’t mean long-term success

Cutting staff or reducing pay can bring short-term savings, but may actually undermine your long-term success. When staff are paid less, they may start to look for other work. With fewer staff to service customers, productivity drops. All of a sudden your business is losing sales. Regular customers are shopping with competitors, and you are losing more money than before.

Beware of hidden costs

Staff turnover doesn’t just hurt your productivity — it can be a direct cost to your business. You lose corporate knowledge. You lose time spent recruiting and training new staff. Recruiting and training a single employee can cost thousands of dollars. That’s a long-term expense you can’t afford to overlook.

Then there are the staff who keep turning up to work, but disengage. They just don’t put as much effort in. And when service staff have mentally checked out, your customers will notice.

The good news is that it is possible to save money without slashing staff. Workforce management software such as easyEMPLOYER introduces automation and intelligent reporting into the picture. That helps you find efficiencies without impacting long-term success. You may even find room to reward staff who are going the extra mile.

Next post, we’ll share some ideas on how you can give staff incentives to stay. Without breaking the bank.