Putting a Number on In-House Staff

My company has always hired freelancers to handle temporary high demand. To me, this seems expensive, but would it be a mistake to try something different?

02/10/16

Introduction

Let’s look at the aspects of the question:

Essentially you’re looking at saving some money for your company and perhaps trying to avoid laying off people when there’s a lag in the workload.

There are a few elements to your question that we have to consider. These will be discussed at length below with references and resources that you can follow up with to help you further. Once you know what the playing field looks like you can make informed decisions based on your cost analysis and your workforce audit / performance management system.

There are several websites discussing staffing and issues related to staffing. We will take a look at some of those to find answers. We will also look at HR cost analysis models for a variety of industries to show how one’s "expensive" is another’s "save".

Then we will look at your situation and apply all the data that we’ve accumulated and see what is most applicable to you. In this area we will make tentative recommendations and also provide wiggle room for innovative alternatives. We will summarise the process and leave the question with answers and alternatives with resources to back up the research.

Defining Temporary

The word temporary is defined in the Online Oxford Dictionary as: "Lasting for only a limited period of time; not permanent" or by the Merriam Webster online dictionary: "continuing for a limited amount of time : not permanent : intended to be used for a limited amount of time"

Temporary therefore infers a short (possibly indefinite) time. If it were permanent there would be a definite element to the (in this case) employment. When you do you cost benefit analysis (see below) you need to know how long the temporary employment that you envision will be. It could be anything from 1 day to several weeks or even a year. However, the longer the temporary employment stretches, the more permanent it is bound to become. You therefore need to be very clear when the employment will start and when it will end. This is also for the sake of the contract that you will draw up for the temporary employee / freelancer. (See references below).

Performance Management

Another issue that you need to consider before hiring any more staff, be it temporary or permanent, is how your current staff is performing. This is called a performance management process and there are many tools available on the internet to assist you with this process. There are also many companies that you can hire to do a performance management evaluation for you, but your HR manager should be able to do it.

Performance management is defined as: "The process through which supervisors and those they lead gain a shared understanding of work expectations and goals, exchange performance feedback, identify learning and development opportunities, and evaluate performance results."

A good performance management system will tell you whether it is even necessary to employ other staff to pick up the extra work. You may find that employees are perhaps tired and demotivated and are therefore not working as hard as they would otherwise. You can do something about that. If, however, you find that they are already carrying a heavy load, this could indicate that you need more personnel. How long-term that heavy load or extra work is, will determine whether you need freelancers / contract workers or whether you should consider more permanent staff.

All this will be determined by your definition of the length of temporary extra work. It will also be determined by the industry that you’re working in and the culture of that industry. Some industries only need freelancers at certain times of the year e.g. seasonal workers. Other industries will only employ people on a permanent basis. Usually these employees are also with that particular company for many years. Take a look at your industry and see what the norm is and then make your decision.

I’ve listed more resources for you on performance management at the end of this article.

Supply & Demand

The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.

Supply and demand is the foundation on which your company is built. If there is no demand for your product or service, you will find yourself bankrupt within a short space of time. However, if there is a high demand for your product or service, you need to be able to deliver and provide good after-sales service in order to retain clients and build up a good reputation in the industry. A good reputation will lead to more business and so you will grow.

The original question refers to periods of time when there is extra work to be done. Is this due to an increase in demand for your product or service? Or is it that you need to increase the supply of your product / service for that particular time? If this is the case, you need to look at managing your supply and demand chain on a constant basis so that you don’t go through crises where you need to employ freelancers without proper planning and analyses.

I have provided more resources on supply and demand for you under the Resources section of this article.

Cost-Benefit Analysis

Once you’ve determined the performance levels of your staff, you need to do a cost-benefit analysis to see if employing extra staff is going to be worth your while. It could turn out that by employing freelancers you’re just spending more money than you’re getting in. This links in with your supply and demand analysis.

A cost analysis (also called cost-benefit analysis, or CBA) is a detailed outline of the potential risks and gains of a projected venture. Many factors are involved, including some abstract considerations, making the creation of a CBA more of an art than a science, though a quantitative mindset is still a must-have. A CBA is useful for making many types of business and personal decisions, especially ones with a potential for profit (though this need not be the case)

Usually a cost-benefit analysis is applied to actions that the company will take involving amounts of money, but it can also help you to:

  • Decide whether to undertake a project or decide which of several projects to undertake.
  • Frame appropriate project objectives.
  • Develop appropriate before and after measures of project success.
  • Prepare estimates of the resources required to perform the project work.

Since you want to save your company some money, I strongly advise that you do a cost-benefit analysis based on your supply and demand of your product / service, as well as the cost of your human resources. See below for a description of how to do a cost-benefit analysis and how to apply it to your Human Resources.

By using a cost-benefit analysis, HR can quantitatively compare potential returns against associated costs of investing in projects such as employee training, a program to reduce absenteeism and automating HR processes. In reality, a cost-benefit analysis is useful whenever HR has a question that starts with "what if" or "should we."

Hiring Freelancers Rather Than Employing Staff

Deciding to hire a freelancer vs a permanent employee will be determined by the following factors as discussed above:

  • The nature of your business
  • Your supply and demand analysis
  • Your cost-benefit analysis
  • Find agencies and websites where you can hire freelancers at competitive prices. The article “Top tips for hiring freelancers” is full of ideas on how to get the most for your money when working with freelancers.

Conclusion

Depending on your industry you will perhaps find that freelancers are the way to go – as you have done in the past. An alternative is to hire a sub-contractor to pick up the slack for you or go through an agency to hire temps for short periods of time.

In the resources below, I have also included some reading on legal implications of hiring freelancers as well as permanent staff, as well as giving you some extra information on the topics that I touched on in the discussion above. There are pros and cons to each scenario and you need to know exactly how you’re going to deal with each one.

My recommendation though, is to first make sure that your existing staff are top performers, that they are really doing as much work as they possibly can. Incentivise them to work longer hours for an increase in their wages (within legal limits of course). Incentivise faster and better results etc. and only once you’ve exhausted all your options for using your existing staff to full capacity, consider hiring a freelancer or a sub-contractor.

Resources

Performance Management and Appraisal
http://www.sagepub.com/sites/default/files/upm-binaries/45674_8.pdf
Dr. Herman Aguinis: Performance Management
https://www.ebsglobal.net/documents/course-tasters/english/pdf/h17pe-bk-taster.pdf
University of California, Berkeley: Performance Management Toolkit
http://hrweb.berkeley.edu/files/attachments/Performance-Management-Toolkit.pdf
Trina Gray: Developing Exceptional Teams
http://www.ideafit.com/fitness-library/developing-exceptional-teams
Kathy Gurchiek: Staffing Issues Critical to Business Strategies, SHRM Report finds
http://www.shrm.org/publications/hrnews/pages/staffingissuescritical.aspx
Tara Duggan (Demand Media): HR Staffing Issues
http://smallbusiness.chron.com/hr-staffing-issues-58357.html
Jeff Clark: The impact of supply and demand on the Celtics’ trade deadline plans
http://www.celticsblog.com/2016/2/2/10893278/the-impact-of-supply-and-demand-on-the-celtics-trade-deadline-plans
Economics Basics: Supply and Demand
http://www.investopedia.com/university/economics/economics3.asp
Cost-Benefit Analysis: Deciding, Quantitatively, whether to go ahead
https://www.mindtools.com/pages/article/newTED_08.htm
Nicoleta Valentina PhD: Cost/Benefit Analysis – A Tool to Improve Recruitment, Selection and Employment in Organizations
http://www.mnmk.ro/documents/PDF_MNMK_2_2013/7-5-2-13.pdf
John W. Boudreau: Cost-Benefit Analysis Applied to Personnel / Human Resource Management Decisions
http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1382&context=cahrswp
Cost-benefit analysis
https://en.wikipedia.org/wiki/Cost%E2%80%93benefit_analysis
Contract types and employer responsibilities
https://www.gov.uk/contract-types-and-employer-responsibilities/overview
OPM’s Workforce Planning Model
https://www.opm.gov/policy-data-oversight/human-capital-management/reference-materials/strategic-alignment/workforceplanning.pdf
Workforce Data and Planning
http://hr.wa.gov/WorkforceDataAndPlanning/WorkforcePlanning/Pages/IntroductiontoWorkforcePlanning.aspx
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James Bradley

Founder & CEO of Repixl. I love finding answers to your hardest questions!


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