The Material Cost Benefits of Full Workforce Visibility

Between the new technologies available and the tidal wave of talented individuals with people analytics experience, companies can now see their entire workforce in new and exciting ways. But while most organizations recognize the benefits of full workforce visibility, their efforts stall when those that need it can’t clearly articulate the benefits to company leaders and decision-makers.

While there are a number of ancillary benefits of full workforce visibility (e.g. worker quality improvements, access to talent, vendor performance comparisons) this article focuses on the different ways an organization can leverage new levels of visibility to drive cost savings.

Let’s face it: hiring talented individuals can be costly and there are hidden costs associated with each hire. The difference in these costs for permanent employees versus contingent labor is probably far more than most people realize. Contingent labor usually comes with very few embedded costs because there are no sick time, holidays, or benefits to pay for. Typically, the organization pays for the labor (salary) and a markup to their Managed Service Provider (MSP) or staffing agency. A savvy company can leverage their own brand power to self-source contractors at very low markups (usually high-teens or low 20s) or engage with a staffing agency for a recruited markup between 30 and 50 percent. Even project-based work can be negotiated with markups between 40-60 percent (although some consultants may charge in excess of 100% markup).

Permanent hires are burdened with significantly more embedded costs, including benefits, training, vacation time, 401k contributions, bonuses, and sometimes housing, relocation, or other costs. A recent Houston Chronicle article suggests that an employee making $75,000 per year incurs almost $40,000 annually in hard costs. This increases the cost of a full-time employee by more than 50% of their annual salary to $115,000 per year.

Some organizations attempt to do more with less by establishing a hiring freeze and asking their existing staff to pick up the additional work. This can lead to employee burnout, material increases to overtime utilization, and lower quality of work.

Some costs associated with permanent hiring are tougher to quantify, and include recruiting, lower productivity, and the time to separate, re-hire, and re-train new hires. A 2012 study by the Center for American Progress reviewed 30 case studies on the cost of employee turnover. The results showed that the cost of replacing an employee making $75,000 per year or less adds up to approximately 20 percent of their annual salary. This doesn’t include the ‘costs’ associated with lower morale from time spent training the wrong hire.

Savvy organizations that can compare ‘all-in’ costs by all types of workers are at a distinct advantage when it comes to workforce planning. If there is flexibility in how a worker is engaged, which type of engagement makes the most sense from a cost perspective? Which location is the most cost-competitive for that type of skill?

When users have full workforce visibility, they are able to quickly and easily access their skills inventory. This allows hiring managers to understand if there are workers already engaged that possess the skills they are looking for and gain access to decision-making factors such as worker quality score, current pay/bill rate, average hours worked (potential capacity to take on additional work), current market rates for the position, time to hire, and when potential resources may come available (for contingent workers), etc. This information can drastically reduce cycle times and eliminate vacancy costs or disruptions to the business.

Vacancy costs are a hot topic in contingent workforce management right now, with many companies attempting to quantify exactly how much an empty seat costs the organization. Vacancy costs include external and internal recruiting costs, training costs, indirect costs associated with the work not getting done or the additional workload placed on the existing team members, etc. It is usually scaled based on the level of the role, but can be anywhere from a few hundred dollars to several thousand dollars per day. If a role remains open from 5-20 days, it is easy to do the math on how much money it is costing the company.

Organizations that proactively plan and reduce costs through workforce visibility can also experience increased efficiency via overtime reduction. When users can see which departments, managers, and workers are incurring premium costs, they can reduce them. Many businesses experience seasonal swings in activity and have to be nimble to adjust according to this need. Proactive workforce planning can help anticipate these swings and provide guidance on the most cost-effective ways to staff up or down as hiring demands change.

Having access to workforce data allows increased visibility into one of the costliest line items a company will incur…their people. It can help them understand how different managers and departments are leveraging their workforce, what hiring practices are in place, and which areas are in need of optimization. In many cases, the most significant benefit is manager identification, education, and more cost-effective decisions.

As organizations embrace people analytics and total talent management, the competitive advantage between the haves and the have nots will continue to widen. Company leaders and innovative decision-makers within human resources, talent acquisition, and procurement experience can take ownership of the full range of associated benefits.