How an LMS Can Help Reduce Labor Costs in Your Warehouse

It’s 9:30 a.m. and you’re already short-handed. Yesterday’s target slipped, today’s receiving is heavier than forecast, and the only lever left is overtime. Finance wants costs down; ops wants more people. You’re not necessarily shopping for software, but understanding how an LMS can help reduce labor costs might provide the control you need.

Here’s the good news: in today’s economic climate—tight labor, unpredictable volumes, and budgets under pressure—labor management software (LMS) is one of the fastest paths to ROI. Compared to big-box automation or major WMS overhauls, an LMS layers onto your current processes, equips supervisors in real time, and starts paying back in weeks instead of quarters.

So if the question in your head is, “Will this actually move the needle for us (and how much)?” let’s answer it step by step.

Below we’ll look at how to calculate your current labor cost baseline and then some methods and estimates on how you can start to save money with a Labor Management System.

Where an LMS typically helps reduce labor costs (and why waiting costs more) 

Before we touch a single formula, it helps to see how the savings show up on the floor. A modern LMS gives supervisors live visibility, goal times, alerts, and coaching tools so they can fix issues during the shift instead of after. Here’s 
 

Productivity lift on direct work 

• What you get: Live performance vs. goal, bottleneck visibility, and coaching prompts to keep rates on track. 

• Why not wait: A 3–6% lift across your direct hours compounds every week; time you delay is time you can’t recover. 

Overtime reduction 

• What you get: Better labor forecasting and mid-shift control reduce last-minute overstaffing and the OT premium. 

• Why not wait: OT is a 50% surcharge. Every pay period without control burns dollars you won’t get back. 

Indirect time reduction (travel, wait, housekeeping, meetings, rework) 

• What you get: Reason codes and exception flags so you see where non-value-add time is creeping—and correct it. 

• Why not wait: Indirect time behaves like a leak; left alone, it spreads. 

Schedule/shift alignment 

• What you get: Crews matched to the actual work by hour/wave to cut idle time and dock congestion. 

• Why not wait: Misalignment creates hidden churn: idle minutes, frustrated teams, and higher attrition. 

Standardization that sticks 

• What you get: Consistent goal times (engineered or relative), fatigue factors, and repeatable supervisor practices. 

• Why not wait: Without a system, improvements fade and “rate drift” returns, especially after peak. 

If you’re thinking, “Okay, that’s the why. How do I turn this into numbers?” you’re ready for the math. 

Step 1: Figuring your true labor cost baseline 

Before you can measure savings, you need to know what you’re really spending today. Most teams underestimate their true labor cost baseline. Let’s start by building a clean baseline so your savings math is grounded in reality and you can see how an LMS will reduce your labor costs. 

Start with: 

• Headcount by role/site (FTE + temp %) 

• Average hourly wage (or blended) 

• Overhead % (taxes, benefits, admin) 

• Paid hours per FTE (usually 2,080) 

• Overtime % (share of hours at OT) 

• Indirect time % (travel, wait, housekeeping, meetings, rework) 

Quick formulas 

• Loaded wage = Hourly wage × (1 + overhead %) 

• Total annual hours = FTE × 2,080 

• Baseline payroll = Total annual hours × Loaded wage 

Tip: If your mix varies by site, build the baseline per facility and roll it up. This makes pilots and ROI checks much cleaner. 

If you’re wondering, “Once I have the baseline, how do I estimate the impact of those LMS levers to my labor costs?” here’s the simple way. 

Want to skip the manual math? The calculator builds your baseline for you.

Step 2: Convert improvements into a rough annual savings estimate 

Pick conservative assumptions for each lever and apply them to your baseline. Use these back-of-the-napkin formulas: 

1. Productivity lift on direct work 
   Savings = (Direct hours × % productivity lift) × Loaded wage 

2. Overtime reduction 
   Savings = (OT hours reduced) × Loaded wage × 0.5 
   (You avoid the 50% premium when OT is replaced with straight time.) 

3. Indirect time reduction 
   Savings = (Indirect hours × % reduction) × Loaded wage 

Optionally add: temp mix optimization, attrition/training time reduction, rework reduction. 

Conservative first-pass assumptions 

• Productivity: +3–6% on direct hours 

• Overtime: 25–50% fewer OT hours 

• Indirect: 10–20% fewer indirect hours 

Still thinking, “That’s abstract. What does it look like with real numbers?” Let’s make it concrete. 

Step 3: Worked example for how an LMS will help reduce labor costs 

Now that you’ve got your true labor cost baseline, let’s walk through a realistic scenario so you can see how the math plays out. 

Scenario: 250 associates, $21/hr average wage, 28% overhead, 7% OT, 16% indirect. 

• Loaded wage = $21 × 1.28 = $26.88 

• Total hours = 250 × 2,080 = 520,000 

• Baseline payroll = 520,000 × $26.88 = $13,977,600 

Apply conservative improvements:

• Productivity +4% on direct hours (84% of total) 
  Direct hours = 520,000 × 0.84 = 436,800 
  Savings = 436,800 × 0.04 × $26.88 = $469,647

• Overtime −40% (from 7% of hours) 
  OT hours reduced = 520,000 × 0.07 × 0.40 = 14,560 
  Savings = 14,560 × $26.88 × 0.5 = $195,686 

• Indirect −15% (from 16% of hours) 
  Savings = (520,000 × 0.16 × 0.15) × $26.88 = $335,462 

Estimated annual savings: $1,000,796 (≈ 7.2% of payroll) 

Why this works: you’re converting small, believable changes—caught and corrected during each shift—into year-round dollars. 

If you’d like something you can share with leadership, the calculator builds it for you in seconds.

Want a done-for-you version? 

Want a simple, done-for-you approach? Input your numbers into our Labor Savings Calculator. Built from helping hundreds of warehouses with labor management, this calculator applies proven assumptions to your headcount, wage, and overhead to estimate savings and generate an ROI snapshot based on a formula based on the average savings Rebus customers have seen with Rebus Labor Management & Analytics. 

And if you’re asking, “After I see the number, what should I actually do next?” here’s the next step. 

How to turn your rough estimate into real LMS savings (a short rollout playbook)

• Pick the biggest lever first. If OT is your outlier, start there; if indirect time is high, target that.

• Pilot in one facility for 6–8 weeks. Lock assumptions, coach supervisors weekly, and watch exceptions shrink.

• Instrument the floor. Real-time dashboards, goal times, alerts, and reason codes are what make the math become reality.

• Scale what works. Standardize the playbook and roll it to the next site.

Prefer to walk through the numbers together? Book a session with our team and we can walk you through your estimate together.