How To Reduce Staffing Costs

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Fred Monnier
By
Fred Monnier
|
Chief Staffing Operations Officer
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Table of Contents

Whether you're running a small business, large startup or a stable company, everyone is looking to reduce staffing costs. Here are some great ideas to try to start with.
Published on
February 1, 2023
Updated on
April 11, 2024

Small businesses may find themselves experiencing financial difficulties due to the current developer shortage in the tech industry. Limited brand recognition, resources, and connections are also to blame. Luckily, there's a tried-and-true way for small business owners to increase revenue — by minimizing staffing expenses whilst maximizing team efficiencies.

Read this guide to learn how to reduce business costs while maximizing team efficiencies. Along the way, we'll cover how to cut labor costs without downsizing, how employers can control labor costs, employee cost reduction strategies, and more. We'll also outline how and why you should go remote.

How To Reduce Staffing Costs Without Downsizing

Many business owners believe that they must downsize to reduce staffing costs. However, it's possible to cut staff costs without downsizing. Here's how:

Add Technology To Boost Employee Efficiency

One of the best ways to lower staffing costs is to bolster your tech stack. Cutting-edge software and hardware can reduce costs and increase efficiency by automating time-consuming tasks. This gives your employees more time to innovate and collaborate on new projects.

If your business has already adopted tech solutions, consider new ways to reduce costs and increase efficiency. For instance, if you currently rent and maintain server space, consider using browser-based and cloud products instead.

Identify Excess Costs That Aren't Benefiting Your Team

Look at your budget and make a list of monthly and yearly expenses. Then, ask yourself the following:

  • Is there any unnecessary spending? Are all your hiring expenses true costs? Or are you spending thousands of dollars on unnecessary labor costs? To find out, benchmark your labor expenses against your industry, and establish metrics that fit your company. If you're spending too much in certain categories, pinpoint why you've been spending so much. Then, ask yourself whether your spending habits are justified.
  • What can you do to reduce or remove these excess costs without disrupting your staff? If your spending habits aren't justified, think of ways to reduce extraneous costs to industry norms.

Reduce Overtime Hours by Staffing Workers Strategically

Overtime can cost a lot. Under the Fair Labor Standards Act (FLSA), employees covered by the FLSA must receive overtime pay for every hour they work over 40 in a workweek. This payment must be at least one and a half times over their regular pay rates.

Accordingly, you should reduce overtime hours by staffing workers strategically. Don't worry — your productivity won't drop. Study after study has shown that overtime doesn't lead to productivity — one even found that a 10% increase in overtime cuts productivity by 2.4%.

Here are some tips for staffing workers strategically:

  1. Implementing job sharing: Job sharing is a flexible work model where two people work part-time schedules to complete one person's full-time workload. Many companies use job sharing to reduce overtime hours and retain experienced workers who want greater work-life balance.
  2. Allowing flexible work schedules: To cut costs, give employees the option to work more flexible hours. You can do this by implementing cloud-based tools, which empower users to log in from anywhere to access work information.
  3. Observing your team's utilization rates: Analyze whether your team is working efficiently. If they're working overtime, why is that the case? Are they wasting a lot of time during normal work hours? You can find out by using software to measure staff utilization rates. This will show you:
  1. What each team member is working on
  2. How effectively their time is spent
  3. How much work each person has
  4. Whether each person has the resources needed to perform effectively and efficiently
  1. Cut back on meetings: Team meetings can be helpful, but they may not always be the best use of workers' time. To cut down on unproductive meetings, use all-in-one task management and project-tracking tools. These platforms often come with all of the features you need to stay in control of your teams, projects, tasks, and communications.

Use the Hiring Process To Find Skill-Diverse Candidates

Another way to reduce the staffing budget is to hire candidates with multiple skill sets.

For instance, instead of hiring a programmer and a quality assurance (QA) tester, you can hire a programmer with ample QA experience. Similarly, instead of hiring a Python programmer and a Java coder, you can hire a software engineer who is familiar with both languages.

There are many tools for finding skill-diverse candidates, including:

  • LinkedIn Recruiter: An all-encompassing hiring platform for hiring and managing talent, LinkedIn Recruiter provides many tools for building pipelines of job-ready talent. Its main features include:
  • Industry insights on over 740 million LinkedIn members
  • Recommended matches
  • Advanced search filters
  • The ability to reach out to candidates with personalized messages
  • The ability to send bulk messages and use creates to create messages
  • The ability to track the performance of your InMails
  • Indeed for Employers: Indeed offers a broad range of recruiting solutions for employers, including:
  • The ability to post jobs for free. You can post jobs directly on Indeed via the Indeed platform, through your applicant tracking system (ATS), or through your company career site.
  • The ability to automate screening, communications, and scheduling so that you can start interviews faster
  • Company Pages for attracting and retaining talent
  • Expert-designed assessment tests for evaluating candidates' soft and hard skills

If you don't want to hire new blood, you can partner with a boot camp or university to provide cross-training, upskilling, and reskilling opportunities for existing staff.

Invest in a Top Notch Service for Sourcing Talent

You can also reduce labor costs by investing in a first-rate service for sourcing developers and engineering talent. These services have everything you need to recruit the right people. Some of the most popular talent-sourcing services include:

  • Employment agencies: Also known as a placement agency or a temp agency, an employment agency matches you with workers. Many agencies focus on placing workers in specific industries, such as software development.
  • Offshoring agencies: Hiring local workers through employment agencies can be expensive. This is especially true in the U.S., where tech salaries tend to be high. That's why a growing number of U.S. companies have decided to partner with offshoring agencies. These agencies can help U.S. companies hire, pay, and manage foreign workers to do the same work for less money. Popular offshoring locations include Latin American countries like Mexico, Peru, and Argentina and Eastern European countries like Poland and Romania. Note, however, that offshored service providers are usually contracted to deliver a particular number of hours or deliverables. Additionally, your offshoring agency typically manages your relationship with your hires. There are two main types of remote staffing services:
  1. Professional employment organizations (PEOs): These organizations co-employ foreign staff with you. You can pick and choose from various HR functions, including consulting, payroll costs, health benefits, safety and risk mitigation services, regulatory compliance assistance, and training and development.
  2. Global employment organizations (GEOs): GEOs provide international hiring solutions for multinational corporations. Unlike PEOs, they hire foreign staff on your behalf and assume all risks. GEOs assume all of your HR functions.

Consistently Evaluate Current Business Processes

Overly complicated and outdated processes can significantly increase labor costs. Think about it: the more complex your workflows are, the more people you will have to hire and the more hours each person will have to put in.

As such, you must consistently evaluate your business practices and workflows. Once you have a clear understanding of where you fall short, you can remove steps and processes that slow you down.

How Maintaining a Talented Team Reduces Costs

Another surefire way to reduce hiring costs is to recruit and maintain a talented team. That's because talented teams decrease training costs and lower overtime costs from people covering empty positions. Skilled employees can also keep staff happy and improve morale.

Decreases Training Costs

Talented teams already have all the skills you need to build, test, and deploy quality products. As a result, you don't need to spend as much on training. Meanwhile, less talented teams require ample training.

Lowers Overtime Costs From People Covering Empty Positions

Talented team members boast a wider range of skills and experiences. For instance, a talented programmer may have a deep understanding of Python, artificial intelligence (AI), and technical writing, while an average programmer may only know Python. Because they have more skills, they can cover more positions, reducing the need for overtime.

Keeps Staff Happy and Improves Morale

Lastly, a talented team makes the rest of your staff less stressed. Due to their ample skills and experience, they're more likely to be confident and efficient. They can also mentor and coach junior staff, increasing employee satisfaction and morale.

You Don't Need Full-Time Employees for Every Role

Full-time employees are more expensive to hire than ever. This is especially true for U.S.-based tech companies. According to Glassdoor, the average U.S.-based computer programmer earns a total of $85,988 yearly, with an average annual salary of $74,844 and additional pay averaging $11,144 per year. This is a lot, especially if you want to hire a full team of developers.

Fortunately, there are cost-effective ways to hire a development team without incurring sky-high costs — by utilizing contractor services and temporary workers instead of full-time equivalents.

Utilize Contractor Services

If you have a fluctuating workload, consider hiring contractors to reduce labor costs.

Unlike traditional employees, contractors only earn hourly wages for projects they're working on. Meanwhile, you must pay traditional employees monthly or yearly salaries regardless of how much work they actually do. You must also pay them benefits, including health insurance, paid vacations, professional development, and more.

If hiring contractors is the right choice for you, follow these steps to utilize contractor services:

1. Create a Compelling Job Ad

Write a clear and comprehensive job ad about your position. Be sure to include the following:

  1. A short company bio outlining your goals
  2. A list of must-have skills and experience
  3. What the contractor will be responsible
  4. Compensation
  5. Project or job length

Here's a sample job description:

Revelo — Contract Python Developer

Company Bio: Revelo is Latin America's premier tech talent solution. Our mission is to match startups around the world with Latin America's top 1% of developers.

Duties:

  • Writing, testing, and debugging code
  • Integrating applications with third-party web services
  • Integrating front-end elements into applications
  • Creating and implementing back-end components to improve overall performance and responsiveness
  • Collaborating with a multi-disciplinary development team to understand user requirements and solve problems

Required Skills:

  • At least two years working with core Python
  • Sound knowledge of Python frameworks and libraries
  • Some AI and machine learning skills
  • Deep knowledge of object-relational mapping (ORM)

Length of contract: 90 days

Compensation: You can expect up to $30 per hour.

Benefits: None. This is a contract position.

2. Use an ATS to scan resumes for relevant keywords

To accelerate the recruiting process, use an ATS to scan resumes for relevant keywords, such as "five years of experience," "Python programming skills," and "AI algorithms." You can then assemble a list of top picks.

3. Conduct in-person interviews

Next, interview the candidates on your list. Take notes so you can compare answers and narrow your pool. Be sure to ask questions that reveal candidates' experiences and abilities.

Here are some sample questions to get you started:

  1. What made you choose this profession?
  2. How long have you been working in similar positions?
  3. What is your greatest strength?
  4. What is your greatest weakness?
  5. What do you enjoy the most about your line of work?
  6. What kind of clients have you worked for? Have you ever worked for clients like me?
  7. What industries have you worked for before?

Hire Temps That Route To Full-Time

You can also hire temps that route to full-time.

Unlike employees who are full-time from the start, these workers allow you to try before you buy. In other words, you can observe their experiences, skills, and personalities before hiring them. This reduces the negative impact of employee turnover on revenue and ensures you hire the best people for your team.

Go Remote and Reduce In-Office Costs

Finally, you can reduce labor costs by going remote and reducing in-office costs.

Also called "work from home" or "telework," remote work is a work model where employees don't commute to a central workplace, such as an office, retail store, or warehouse. Unlike traditional workers, remote workers use their own equipment, reducing in-office costs for rent and equipment. Other advantages of remote work include:

  • Higher productivity: Remote workers are often more productive than their on-site counterparts. A study by Harvard Business School measured employee productivity of U.S. Patent Office employees who were allowed to work and live anywhere. Staff who were allowed to work anywhere were 4.4% more productive than their in-office counterparts. Similarly, a Stanford study revealed that work-from-home employees are more productive by nearly a full workday.
  • Improved employee health: Remote workers also tend to be healthier than their in-house cousins. Since they don't have to commute, they have more time to exercise and stay in shape. Meanwhile, someone who commutes to work every day is more likely to be depressed and have higher levels of cholesterol, stress, and anxiety.
  • A small ecological footprint: Remote work doesn't require you to rent an office. Meanwhile, offices require you to spend money on electricity and office supplies like ink and paper cartridges. Additionally, employee commuting is the largest source of greenhouse gas emissions according to the Environmental Protection Agency (EPA).

Three main ways to hire remote staff:

  1. Job and freelance sites: You can hire remote staff by writing and posting job descriptions on job and freelance sites like Indeed, LinkedIn, Freelancer.com, Fiverr, and Upwork. However, you'll have to vet, test, onboard, and pay hires yourself.
  2. Remote staffing services: If you don't have the time or energy to vet, test, onboard, pay, and manage hires yourself, consider partnering with a remote staffing service. Remote staffing services empower you to hire a team of dedicated remote employees who only work for you. Unlike offshoring agencies, remote staffing services typically allow you to manage your hires. That means you can set their schedules, offer them training and learning opportunities, and much more.
  3. Talent marketplaces: You can also hire remote staff through talent marketplaces — technology-enabled platforms that connect companies with employees. To get started, tell the marketplace about your needs. In a few days, the marketplace staff will send you a list of the best candidates. You can then interview and hire the ones you want.

Hire Developers Through Revelo

Thanks to rising labor costs, running a business is harder than ever. That's why you should reduce staffing costs while maximizing team efficiencies. You can do this by:

  • Maintaining a talented team
  • Utilizing contractor services
  • Hiring temporary workers that route to full-time
  • Going remote

One of the best ways to hire quality remote workers is through a reliable talent marketplace like Revelo. Well-connected, efficient, and thorough, we will analyze your job requirements and match you with the best people for the job. All of our talent has been rigorously pre-vetted for their soft and technical skills.

Interested in hiring MAMAA-caliber remote workers today? Fill in this form to get started.

Further Resources:
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