Organisations often conduct unplanned employee hiring process. They believe in reserving more than they need for unforeseen situations - such as when most of the staff is on leave or when a few employees resign together. However, they often end up overhire, which poses adverse effects on their budget and overall expenditure, which they fail to comprehend.
Keeping in mind the unprecedented joining and leaving patterns of employees today, managers want to stay ahead of the uncertainties of the workforce. Therefore, they prefer keeping an additional workforce and thus, they overhire. This, however, increases the overall expenditure of the organisation and utilises more time, effort and cost on part of the managers than what is required.
In this article, we will help you understand how preventing overstaffing can help save a large amount of your budget.
1. What does overhire mean?
Overhire is a tactic adopted by managers, where they hire 5-10% more candidates than what they require based on the company size. This helps them lessen the chances of facing uncertainties if the employees leave the organisation within the first year of their employment. With this strategy in place, organisations always have surplus talent, even if one or more employees resign suddenly.
Also Read: Guide on HRMS for business.
2. Why is overhire an Ineffective Strategy?
Overhire is just like a gamble, purely based on the estimates of the employers, backed with no substantial information or assessment. The employers hire interns or freshers to have extra personnel to handle the extra workload in cases of emergency. However, overhire is a bad strategy that can backfire as easily. Some reasons why overhire is a bad decision include the following-
a. Cuts Down Company Profits
Taking on additional interns or freshers adds up to the budgeted payroll. This money is either deducted from the operating costs or the profits of the organisation. Also, having more interns might mean that your company will have to shift further the full-time job offers to experienced personnel, or graduated and qualified individuals.
Let us take the case of “Fast”, which was an online checkout startup. In the case of this company, overhire diminished the company’s profits completely. It dedicated 60% of its operating budget to payroll. Instead of training and mentoring limited valuable candidates, it over-hired and left every employee strapped for cash.
b. Hurts Future Recruiting Efforts
If you over-hire, it might cause trouble and disturbances to your employees. Sometimes, you might hire interns or bad candidates, which might end up irritating your good and valuable employees with the desired skill set, who have to spend most of their time teaching and mentoring the interns. This spreads bad word-of-mouth regarding your organisation- amongst the interns and the employees. This hinders the future recruiting efforts of the recruiting team, as not many people are ready to come and work for you, considering your bad reputation for permanent overhire.
c. Impacts Team Morale
The team morale also faces a steep fall, when you force your recruiters to fill extra roles for no adequate reason. This eliminates their motivation to search for and employ quality candidates. This makes the organisation focus on quantity over quality, which leaves out a bad message. Thus, overhire evades the goodness of morality within the teams and creates a poor employment situation.
d. Short-Term Solution
Overhire can never be a good, long-term strategy. It increases the renege rate- the rate which describes the situation where a candidate accepts a job and then leaves it within a few weeks or months for a better opportunity. Instead, the companies must focus on building and strengthening relationships with their current employee base to ensure they stay for a long time. They must offer career guidance, mentorship and opportunities to the existing personnel to decrease the quality candidate turnover. This strategy will effectively help you reduce your renege rate, and save a lot of financial and time costs of hiring new candidates every now and then.
Also Read: Guide on Payroll Software.
3. The Cost of Hiring a New Employee
To understand what the organisation has to pay for every extra employee, we will make an assessment of the cost of the employee hiring process spent by the recruiting team every time you hire a new employee for the one that has resigned. This cost can be explained better with the help of the following subheadings-
a. Recruitment Cost
For the process of recruitment, the organisation has to conduct multiple activities, which leads to the great cost of recruiting and expenditures on the part of the organisation. These include advertisement costs, the time cost of the recruiting team, the time and cost of conducting interviews, screening and background checks and other employment assessment tests.
b. Training Cost
After finalising the employee, the business needs to offer them entry-level roles and adequate training so that they can produce benefits for the company. Training is one of the most expensive investments of a company, especially in regard to the expenses made on the workforce. Initial job training, orientation and onboarding take up a lot of time and cost on the part of the organisations.
c. Salary and Benefit Costs
Salary is an obvious and significant cost for a new employee. It is also accompanied by benefits, ranging from small amenities such as a coffee machine to large benefits such as life insurance and medical plans. Also, additional costs occur if an employee is injured on the job or faces an ailment for which they need paid leave.
d. Workplace Integration Cost
Workplace integration involves a whole set of tasks. These include assigning new hires a desk, placing them with their team members, providing them with appliances such as a computer or maybe even a phone, etc.
There is also the time cost and the cost of intangible things, such as software, travel, and any other job requirements. In lieu of the pandemic, safety measures are becoming considerate, and this has also raised the importance of some items and practices, which further add up to the cost of the new hires.
Therefore, apart from the salary, every extra employee adds up to extra costs and expenditures in the budget of the organisation. These include the payroll taxes they have to pay, expensive training materials and equipment needed by the employees to complete their job, etc. Therefore, the decision of hiring an employee must be taken considerably, and every extra employee puts a lot of burden on the budget and pocket of the organisation.
Also Read: Guide on attendance management system for business.
4. How to Prevent Overhire?
With a few practices and strategies in place, you can eliminate overhire and evade its negative effects on your organisation.
a. Conduct Hiring Based on the Current Business Requirements
While startups need to hire to scale their businesses, overhire can end up disintegrating their business for good due to a lack of funds. They often over-hire, as they are unable to figure out who they need to hire and how much they need to hire. Therefore, startups and other businesses must consider a few points before hiring-
- What are the current employee requirements?
- What is the plan for the next 3 to 5 years?
- What all work and productivity are being missed without hiring?
- Is the organisation ready financially to support this hire?
In this regard, while the company must think about the present needs, it must consider its requirements for the coming future, and factors such as its expansion strategy, new markets, funding in the coming years, speculations of the market going up or down, etc.
b. Talk to the Hires About the Future
Whenever someone new joins the team, you must have an upfront conversation with them regarding their future plans, especially regarding this company. Talk about your and their expectations about the company culture and their potential and abilities. This will help you hire a candidate who matches your required skill set, and is ready to work with the firm for a long time. Also, this will reduce the renege rate and bring stability to your firm, eliminating the need for overhire.
c. Hire a Specialist
Hiring a person in a generic role and bestowing them with multiple tasks is a wrong decision. Generally, businesses, especially startups, hire interns or freshers and make them work in multiple arenas. This makes them Jack of all trades, masters of none. This spoils their careers, as well as the productivity and results of the organisation.
Instead, you must focus on hiring specialists for specialised roles. If you hire a productive specialist, they might end up completing the task of 3-4 freshers, with higher levels of efficiency. Having unproductive freshers will pose nothing but a burden on your company, and add up to extra costs and expenditures with no results.
d. Let the Additional Staff Go
If you believe that you have a more unproductive current employee base in the organisation, you must let them go. There is no such thing as FOMO (fear of missing out) in any field, as there is a lot of talent, ready to work diligently for good employers. You need dedicated employees who love your company, and thus, you must remove the extra baggage, whenever required.
Also Read: Top 30 HR Software in India.
Therefore, preventing overhire can help you save a lot of expenditure and add more productivity to your organisation. Instead of spending costs on recruiting new employees, you must put in efforts to mentor, guide, and employee retention of the existing employees. Also, when you decide that it’s time to hire, your hiring process must be carefully drawn out and based on essential factors and metrics.
Finally, the goal of hiring is to enhance the productivity of the organisation and drive it toward its goals. However, in this case, the return on investment should also be considered. The ROI of overhire is not worth the time and money spent by organisations on hiring, training, and generating payrolls for interns or freshers. Thus, companies must avoid overstaffing to have a balanced budget and a steady flow of profits.
A. What is overhire?
Overhire is the situation when the companies hire employees more than the required workforce in the organisation.
B. Why do companies overhire?
Companies often overhire to meet situations such as a shortage of talent, or resignation of employees, so that the organisational flow does not stop.
C. How to prevent overhire?
To prevent overhiring, the companies must plan strategically and only hire the candidates required by the organisation.