5 ways you’re hiking up the cost of an employee.

No matter your industry or company size, your workforce is probably the biggest expense in your operational budget. Larger companies especially feel this strain. Top talent is critical to running a successful business, but many companies spend time and resources on hiring and managing employees without much thought. Let’s look at a few ways you might be driving up the cost of an employee — and explore how to trim your workforce budget while boosting productivity.

1. you let turnover and absenteeism get out of control

High turnover rates and absenteeism can have a catastrophic effect on your business and its bottom line.

If your HR team is always recruiting to fill roles left vacant by other employees, your business can easily get stuck in a recruitment loop. This not only fails to cut costs but actually drives them up.

The cycle of hiring, training and then losing employees hurts morale and damages your company culture, making things worse. Understaffing puts a lot of pressure on your current team. If they’re stressed and unhappy, they’re more likely to leave, continuing the cycle.

To cut turnover, put a solid retention plan in place. Focus on building a strong employer brand, offer professional growth opportunities and encourage a healthy work-life balance. Make sure you also have clear attendance policies and apply them consistently.

2. you’re hiring too many short-term workers

If your business is understaffed, you might end up relying heavily on short-term or temporary workers to meet your production or business needs.

While temporary staff can be great for flexibility and quick scaling, relying too much on them can be more expensive than hiring full-time employees. Finding the right balance between permanent and temporary staff is key to cutting your workforce costs. Partnering with a company like Randstad can help take the admin burden off your shoulders by managing tasks like onboarding and shift scheduling. With specialized talent acquisition solutions, you’ll also get a better handle on managing employee costs.

3. you haven’t got your compensation packages right

The right compensation packages play an essential role in attracting and retaining the right talent for your business. If the packages are set too low, you might struggle to find skilled individuals, and your existing talent may quickly leave for better-paying jobs elsewhere.

One effective way to save money is by creating an optimized compensation package using a simple formula. This means understanding base compensation and knowing which benefits are necessary and which are optional. While there might be some initial spending, it can lower your overall costs. Offering competitive packages helps cut down on the big expenses that come with recruiting, managing talent and training new hires. Just make sure to find the right balance—packages that are too high and above market standards can quickly become unsustainable.

4. you’re hiring too many people

The tendency to overhire often comes up during times of growth or when there’s a sudden spike in business activity. However, downsizing during slower periods can face resistance from within the company.

Unfortunately, keeping an inflated workforce isn’t good for future business prospects. Carefully managing your workforce size and keeping it lean helps you control costs by only paying for the labour you actually need. Having just the right number of staff keeps productivity high and ensures your resources are used efficiently.

How? Analyzing your workforce utilization will help you understand how effectively your resources are being allocated. Work out when, why and how you experience a surplus of workers so you can plan better and achieve a strong return on investment.

5. you’re spending too much on new hires

If your business is in an industry with frequent seasonal fluctuations, there are better ways to manage talent than constantly sourcing and recruiting new workers.

One way to cut costs is to build a pool of workers you can call on during busy times. This saves you from always having to search for and train new employees. Recruiting, onboarding and training new hires—especially those unfamiliar with your industry—takes up a lot of time and resources, leading to unnecessary expenses.

By adopting these strategies, you can create a more efficient and cost-effective approach to managing your workforce. Not only will this save money, but it’ll also boost your productivity and competitiveness. For more solutions on managing employee costs, check out our comprehensive guide.