Best Practices for Handling Increased Staffing Costs During the Holiday Season
The holiday season is one of the busiest times of the year for e-commerce businesses. If you own a Shopify store, you’re likely already preparing for the influx of orders. But while increased sales are exciting, they also come with challenges—especially when it comes to managing your payroll and contractor costs. The question is, how can you handle the seasonal staffing surge without derailing your budget?
In this blog, we’ll walk through actionable steps to manage your payroll efficiently, control labor costs, and keep your business running smoothly during the holiday rush.
1. Plan Your Payroll Budget Early
The key to managing holiday payroll starts with early preparation. You need to forecast how much extra help you’ll require based on your expected holiday sales. This means estimating how many additional workers you'll need for fulfillment, customer service, marketing, and other operations.
For example, if your store typically spends $10,000 a month on payroll and you expect sales to increase by 50%, you’ll need to budget an extra $5,000 per month for the holiday period. Setting this money aside in advance will ensure that you can pay your staff on time without causing cash flow problems.
Pro Tip: Start planning your holiday payroll at least two months in advance. This gives you time to adjust your budget as needed before the holiday rush hits.
2. Understand Your Legal Obligations
Hiring seasonal staff isn’t just about adding extra hands—you also need to understand the legal side of things. Whether you’re hiring employees or contractors, there are certain legal requirements to follow.
For example, if you hire an employee to work over 40 hours a week, you’re required to pay overtime. Let’s say you pay your staff $20 an hour. If they work 10 hours of overtime, you’re looking at paying $30 an hour for those extra hours. That’s an additional $300 per week, per employee. Failing to account for these legal obligations can lead to unexpected payroll spikes.
Pro Tip: Make sure you classify workers correctly as either employees or contractors to avoid legal issues and unexpected payroll costs.
3. Leverage Contractors for Flexibility
During the holiday season, contractors can be a lifesaver. Unlike full-time employees, contractors offer more flexibility. You can hire them for specific projects or periods without the need to provide benefits or commit to long-term employment.
Let’s say you need 200 additional hours of work over four weeks. If you hire a contractor at $25 per hour, you’ll spend $5,000. Compare this to hiring a full-time employee who requires benefits, overtime pay, and additional taxes, and you’ll see why contractors can help you control costs during fluctuating demand.
Pro Tip: Contractors are a great option for short-term projects like handling customer inquiries, managing holiday promotions, or packing and shipping orders.
4. Track Hours Accurately
Tracking work hours is essential for staying on top of your payroll. With both employees and contractors working during the holiday rush, it’s easy for hours to slip through the cracks, leading to inflated payroll costs. Time-tracking software, such as Gusto or Harvest, can help you ensure you’re paying for the actual hours worked.
For example, if you budget 120 hours for a contractor but they’ve logged 80 hours by the end of week two, you know it’s time to reassess their tasks and avoid overextending your budget. Regular monitoring helps you stay ahead of unnecessary expenses.
Pro Tip: Set up automatic time-tracking tools to ensure both employees and contractors are clocking in and out accurately.
5. Control Overtime Costs
Overtime pay can be a significant drain on your holiday payroll if you’re not careful. One way to reduce this cost is by scheduling strategically. For example, instead of allowing employees to work overtime, try filling additional hours with contractors or part-time employees.
Let’s break it down. If an employee earns $20 per hour and works 10 hours of overtime, you’ll pay them $300 for those extra hours. Multiply that by several employees, and overtime costs can quickly spiral. By managing schedules and limiting overtime, you can avoid unnecessary expenses.
Pro Tip: Offer productivity bonuses instead of overtime pay to encourage employees to work efficiently within their standard hours.
6. Automate Tasks to Reduce Labor Costs
Technology can be your best friend during the holiday season. By automating repetitive tasks, you can reduce your staffing needs and lower labor costs. For example, using Shopify apps to automate order tracking, inventory management, and customer communication means fewer hands are needed to handle those tasks manually.
If you typically have two employees handling 40 hours of customer support emails weekly, an automated system could cut that workload in half. That’s 40 hours of labor saved each week, which can translate into thousands of dollars in savings over the holiday season.
Pro Tip: Explore automation tools like Shopify’s built-in features or third-party apps to streamline your workflows.
7. Create a Payroll Cushion
The holiday season can be unpredictable, so it’s wise to set aside a payroll cushion to cover any unexpected staffing costs. Whether it’s additional overtime, contractor extensions, or emergency hires, having extra funds on hand can save you from a cash flow crunch.
For example, if your store makes $50,000 during Black Friday weekend, allocate 5% (or $2,500) to a payroll cushion. This will help you cover any unexpected labor costs that arise during the peak season.
Pro Tip: Reinvest a portion of your holiday profits into your payroll cushion to protect against any surprises.
8. Monitor and Adjust in Real-Time
To stay on budget, regularly monitor your payroll and make adjustments as needed. Review your payroll weekly, and if you see that expenses are climbing too quickly, make course corrections immediately.
For instance, if you’ve budgeted $15,000 for payroll in November but you’ve already spent $10,000 by mid-month, it’s time to review your staffing and make adjustments. By monitoring and making real-time changes, you can prevent overspending and maintain a healthy cash flow through the holidays.
Pro Tip: Set up weekly payroll reviews to catch any issues early and avoid a year-end budget crunch.
If you have any questions or need personalized help, don’t hesitate to reach out. Schedule a call with Jacob by going to https://www.jacobcurtiscpa.com/5-strategies-calendar. We're here to help you piece together financial freedom.
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