What’s Your COVID-Overhead? Understanding the Pandemic’s Labor Cost

by | Aug 28, 2020

Do you know what your organization’s “COVID overhead” is? In other words, what costs have the pandemic added to your organization? The Wall Street Journal reported that T-Mobile spent more than $50 million on extra cleaning and safety gear while a food distributor spent $20 million on plexiglass and testing alone. These stories are not unique.  Organizations of all sizes have seen costs rise sharply because of the pandemic, those increases are not limited to cleaning supplies and personal protective equipment (PPE). Labor costs have increased dramatically, too.

Those cleaning supplies, for example, need to be used by workers. Whether they are used for deep cleaning by janitorial staff or to sanitize shared equipment, cleaning takes time and employees’ time is literally money. And, cleaning is just one example of how COVID-19 has changed or added work to employees’ jobs; temperature checks, health questionnaires, and counting heads at the door are just some of the new health and safety-related tasks that have been added to employees’ to-do lists.

Many employees are finding their core job is changing, too. Retail workers are being asked to pick, pack and prepare online orders for delivery or curbside pickup. Manufacturers have changed lines to produce medical equipment or PPE. When work changes, productivity goes down and costs go up as employees learn the new way of working.

On top of that, these new and modified tasks employees need to do were implemented quickly – and, partly because of that, are very inefficient. This is because they were often poorly designed in a hurry, not automated and often performed inconsistently from location to location. This adds to your COVID overhead as well.

And, none of this accounts for higher wages driven by COVID-related pay premiums or to attract new employees. It does not account for the cost of increased absences as employees need to self-quarantine due to potential coronavirus exposure or infection. Nor does it account for the administrative costs of implementing and managing all these changes.

I have spoken with several executives who are alarmed at their payroll costs relative to revenue. For organizations that saw revenue decline, it can be hard to fathom why payroll has not shrunk at a similar pace. For those that saw their revenue increase, it stings to see higher labor costs cut into profitability. Regardless, your executives will expect you – an operator or human resource professional – to get labor costs under control.

You cannot take a big knife to labor costs to solve this problem. In many cases, the pandemic has not created redundancies in your workforce, but rather increased the volume of work to be done while simultaneously decreasing productivity and increasing absences. Unless your organization has closed facilities, laying off or furloughing employees will only exacerbate the problem. The challenge, for most organizations, is to do more work with less. A more surgical approach is required.

When the pandemic started, many organizations added time codes and absence reasons to their workforce management systems to create a coronavirus data trail for government assistance programs. While these changes were adequate to meet government reporting requirements, they did not provide enough information to really understand what has contributed to COVID overhead.

Deeper forensic analysis is required to truly understand COVID overhead, where it comes from, and how to manage it. Organizations will need to dig into the data from their workforce management and production systems to uncover the problem’s roots. They will need to work across the organization to find labor efficiencies – improving wasteful processes or automating manual tasks – to offset the impact of coronavirus on labor costs.

Fully understanding COVID overhead will not be easy, but it will be rewarding. It will save jobs and make your company stronger coming out of the pandemic.

Reach out to me at bclements@axsiumgroup.com to learn how Axsium can assist your organization as you tackle these challenges, now and in the months ahead.

This blog post, written by Axsium’s President Bob Clements, was originally published by the Workforce Institute.

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