How Labor Costs Will Define 2024 For CFOs

CFOs will need to think beyond the spreadsheet.

CFOs know that a new year doesn’t mean a new you, more likely it’s “new year, same financial challenges.”

Unfortunately, that will ring true for labor costs. Not only will labor expenses not be letting up this year, they are likely to intensify.

Why? Well, between 2023’s workforce unrest and new wage laws, 2024 has been set up to test those labor budgets.

Workforce unrest

As CFOs learned from Kaiser Permanente last year, the workforce wants more from you.

It’s clear that labor challenges—and the cost of that labor—will continue to be a prominent concern for healthcare organizations. As a handful of various industries have participated in massive strikes in 2023, the trend in healthcare is likely to continue.

That being said, hospital CEOs and CFOs should anticipate—and prepare—for some heightened labor negotiations this year.

The Kaiser union’s disagreement over across-the-board raises in 2023 was a significant financial concern, however, not uncommon. Hospital leaders must carefully assess the impact of wage increases on their budgets, especially when facing demands for higher pay. Balancing fair compensation for healthcare workers with financial sustainability is going to have to be top priority.

Bringing down labor costs is an area of focus for many hospital CFOs, but not at the risk of creating staffing turnover. Cost savings can be undercut by the resources required to replace workers, including interviewing candidates and training new employees.

New workers are also less productive in their initial transition period than established staff, which leads to less revenue. These factors should be considered when hospital leaders weigh the threat of losing workers by not meeting wage demands.

Wage laws

Even if your staff is happy, that doesn’t mean you won’t be required by law to increase wages across the board.

Take California for example.

California Governor Gavin Newsom signed a new law that will gradually raise healthcare workers' hourly minimum wage to $25, a bill that has an estimated price tag of $4 billion for the 2024-25 fiscal year. 

But, that estimated $4 billion price tag is just at the state level and doesn't necessarily include the costs for private organizations or those in the non-profit healthcare world, so CFOs in California in particular really need to strategize for this unknown added cost. 

As for CFOs outside of California, while wage increases weren’t as high as California, many states saw a wage increase on January 1.

What more can CFOs do?

Organizations need to recruit and retain talent in house and on a budget.

Gone are the days when CFOs of smaller (and even large) organizations can throw money at the problem—i.e., salary increases and bonuses—to attract and keep talent, especially when a hospital 20 minutes down the road can pay their staff much more for the same job.

So, what can leaders do to bolster the workforce while keeping expenses low? Placing an emphasis on culture and scheduling flexibility is a great place to start.

Here are several budget-friendly strategies that I have complied from talks with CFOs across the country that other leaders can employ in 2024:

Asses your employee benefits and perks: Offer a comprehensive benefits package that includes health insurance, retirement plans, and additional perks such as flexible work schedules, wellness programs, or tuition reimbursement.

Prioritize training and staff development: Provide budget-neutral ongoing training and professional development programs. Staff value opportunities to enhance their skills and advance their careers, so offering educational support, workshops, or mentorship programs can demonstrate your commitment to their growth. Cross-training employees in various roles within the organization is also a great way to enhance schedule flexibility and help bridge staffing gaps.

Form recognition or reward programs: Implement a robust recognition and rewards program to acknowledge and celebrate employee achievements. Non-monetary rewards, like public recognition, awards, or personalized thank-you notes, can boost morale and motivation.

Emphasize work-life balance: Promote work-life balance by offering flexible scheduling, remote work options (where feasible), and paid time off. Emphasizing the importance of a healthy work-life balance can help attract and retain staff.

Implementing wellness initiatives to support employee health and reduce burnout can also help in this area too. These programs can include stress reduction workshops, access to fitness facilities, and mental health support.

Create career advancement opportunities: Create a clear career path within the organization. Staff are more likely to stay when they see opportunities for advancement. Encourage internal promotions and provide training for leadership roles.

Streamline existing technology: Be creative in ways to bolster the technology and tools you already have to streamline workflows and reduce administrative burdens. This can improve staff efficiency and allow them to focus more on patient care.

Prioritize community involvement: The attendees agreed that many healthcare professionals—especially those in more rural areas—are motivated by a sense of purpose and making a difference in the community, so highlight your hospital's role within the community and engage employees in community service or outreach programs.

Incorporating a combination of these strategies can help small and medium-sized hospitals strengthen their workforce, improve staff satisfaction, and remain competitive in the healthcare industry without solely relying on salary increases.