Deloitte analysis: Hidden labor expenses and ineffective labor utilization costing companies tens of millions of dollars
LaborWise solution can pinpoint overages in labor spending, leading to significant and sustainable savings
NEW YORK, June 16, 2016—Labor is one of the largest costs for companies, yet many organizations are unaware they are absorbing unnecessary hard-dollar costs and lost productivity that are hidden in complex systems and processes. Responding to this issue, Deloitte Consulting LLP developed LaborWise™, an advanced workforce analytics and labor cost optimization solution that enables organizations to identify and recover sources of labor overspend. The LaborWise software is a cloud-enabled diagnostic tool that accelerates the extraction, analysis, visualization and monitoring of previously-hidden labor issues.
Labor-related losses—referred to in the industry as “payroll leakage”—are a result of inadequate oversite, undermanaged timekeeping and schedule practices, improperly configured technology, lack of coordinated governance, and gaming of pay policies and schedules. According to Deloitte analysis, payroll leakage can account for up to .05 to 2.5 percent of total annual payroll and labor expenses.
“From technology and measurement to policies and design, many organizations are managing timekeeping, labor utilization, and compensation in a way that is fundamentally outdated,” said Lisa Disselkamp, managing director in Deloitte Consulting LLP’s Workforce Strategy & Insights practice. “As the makeup of the workforce transforms and new regulations come into play, measuring and monitoring how much is spent on labor can no longer be left as a periodic budget exercise. Today, the right analytics can give an organization insight into the front-line causes of labor challenges, saving money that can be redirected into strategic initiatives and sustainable objectives.”
Today’s workforce is made up of employee labor, as well as part-time or contingent workers. Increasing numbers of workers work remotely and capturing actual hours of productivity is difficult. These labor challenges are increasing the potential for missteps in labor spending and utilization. In fact, according to Deloitte’s Global Human Capital Trends 2016 report, only 19 percent of executives surveyed believe their companies fully understand the labor laws that govern contingent workers.
LaborWise is an advanced analytics engine that can provide greater visibility into labor activity and cost by analyzing workforce data—such as paid worked and non-worked time, shift and overtime pay, employment tenure, and attendance—within the context of the business strategy and industry. It exposes the root causes of workplace situations that create labor challenges. These insights into the workday help organizations realize hard-dollar labor savings and help employers and workers alike realize ways they can operate more effectively.
Enabled by Deloitte’s deep workforce analytics capabilities, scenario modeling and data visualization, organizations can analyze their labor resources on several key factors—labor spending, resource utilization and missed revenue opportunity.
The workforce data analysis results in an actionable plan the business can use to achieve savings. These data-driven insights are focused on:
- Avoiding paid nonproductive time, improving staffing decisions
- Eliminating gaming that inflates payable time and the rate of pay
- Enhancing customer experience and product quality
- Designing scheduling practices with the employee in mind
- Building a case to support large-scale, overdue changes in the organization, such as updating outdated pay policies, optimizing underutilized systems, or consolidating labor decision making.
“Labor costs, timekeeping, and scheduling have emerged from the back-office world of purely transactional activities to become an invaluable source of financial and operational optimization,” said Erica Volini, principal, and leader of Deloitte Consulting LLP’s HR Transformation practice. “New techniques to crunch the data that is collected about HR, payroll, scheduling and employees, when combined with other details about operations and financial results, can give entirely new ways of looking at labor spending and workforce management. Armed with insightful analytics, workforce management becomes a crucial element in corporate strategy.”
Orlando Health, a leading provider of health care services in Central Florida, engaged Deloitte to use LaborWise to explore a long-term plan to improve patient and employee productivity outcomes.
“We needed to better understand the financial and employee impact of pay policy decisions before implementation. The LaborWise product provided depth and insights into our workforce that enabled us to make more cost-effective decisions and to better optimize our workforce strategies,” said Clarence Hester, corporate director of compensation, Orlando Health.
For more information about LaborWise, visit www.deloitte.com/laborwise.
About Deloitte's Human Capital practice
Deloitte helps organizations effectively manage their human capital to drive business growth. This is done by leveraging advanced analytics to develop talent management and business-driven HR strategies to deliver results. Deloitte is a leader in human capital consulting, bringing an effective combination of business, industry and HR knowledge, supported by the breadth of services and capabilities of a multidisciplinary professional services organization and global network. For more information, please visit www.deloitte.com/humancapital.
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