How to Handle Overstaffing (Before It's Too Late)

When you have too many people and not enough work coming in - you've got a case of overstaffing! Here's what to do if you suspect overstaffing might be causing your business problems.
Mae Angeline
July 15, 2022

Do you believe that increasing your workforce equals more power and influence? Most managers do, but it's not always true. For your business to be productive and cost-efficient, you need the right number of people for the job – but finding the right balance between overstaffing and understaffing can be a challenge.

In this article, we will be looking at how overstaffing arises, and what you can do to prevent it.

What is overstaffing?

Overstaffing is when more people are on the job than needed. It can happen when company experiences a major boom, followed by a decline. When you pay your employees for doing nothing, it eats into your bottom line and could lead to serious financial problems.

The opposite situation is understaffing, where there aren't enough employees to get the work done. When it comes to overstaffing and understaffing, it's not about the actual numbers of employees in the company, but about whether they are right for the amount of work that is to be done.

What causes overstaffing?

Overstaffing can occur when hiring takes place without sufficient long-term planning. This could be due to the belief that you can solve every performance hurdle by employing more staff. In this case, hiring becomes more reactive rather than strategic.

Insufficient training and a lack of experience are other causes of overstaffing. Training helps companies retain their top employees while improving profitability. However, when businesses don't invest in training and development, they'll need to hire new talent every time they need a new skill.

Overstaffing can also occur when market changes happen that affect the growth of the business. If there are fewer customers or clients using your services, you may find that your previously perfect staff base is now underworked.

As an example, the pandemic altered our shopping habits to such a degree that the retail trade sector in the U.S. is now overstaffed.

What happens when a company is overstaffed?

Overstaffing has a lot of negative impacts on the company and on the employees involved.

Increased overhead costs

The biggest drawback of overstaffing is the strain on a company's finances because more wages are being paid than necessary. Plus, you need to continue paying employees even when you are not making any sales. If you continue retaining more workers than you need, your business may not make any profit at all, and head towards bankruptcy.

Underutilized staff

When your business is overstaffed, there is an underutilization of employees' unique skills. This makes it impossible to maintain a good utilization rate and negatively impacts revenue and business goals. In addition, when employees feel underutilized, they feel demotivated.

Decrease in Productivity

Overstaffing can lead to decreased productivity as there are often too many people working on the same project, leading to inefficient use of resources.

Reduced morale

When you are overstaffed, your staff won't have much work to do, and this can leave them feeling disengaged. If you have to cut hours, your employees will feel like you have short-changed them, which can lead to reduced morale. The problem with this is that your employees will not feel motivated to work harder later when there is more demand.

Overstaffing can also create a hostile work environment, as employees may feel their jobs are at risk, leading to high-stress levels.

Layoffs

To save money, a company may have to lay off some employees, either permanently or temporarily. Although this will help your company save money and save the company from bankruptcy, it will cause financial strain on the affected employees. It can also negatively impact the company's reputation.

Increased Turnover Rate

Employees feel happier when they accomplish something at the end of the day and frustrated when they have nothing to do. You may find your best employees will quit if they don't feel like they are being adequately challenged by their work.

Slow Communication Process

Some organizations have a long and tedious step-by-step process in securing a project approval or milestone. It may be because every department wants to be involved or, it can also be a sign that your company is overstaffed.

When an organization has multiple layers involved with every decision, it means that people have enough time on their hands to pass the ball back on forth. Organizations that are optimally staffed usually don't want to get involved with everything because they are busy productively doing their designated tasks.

Dissatisfied clients

If a company has more employees than it needs to function effectively, customers may perceive the company as disorganized or inefficient.

This is particularly the case if clients finds themselves having to deal with multiple different people every time they interact with the company. Clients like building a relationship with a designated point of contact who, over time, gets to know the clients specific needs. But if you have several people managing each account, this can be frustrating for clients.

Tell-tale signs that you have an overstaffing problem

If you're a business owner or manager, you must be aware of the signs that you may have an overstaffing problem. This can be costly for businesses of all sizes, so it's crucial to catch it early and take steps to fix the problem.

Here are some tell-tale signs that you may have an overstaffing problem:

  • You're constantly over budget
  • You have a low profit margin
  • You're not meeting your productivity goals
  • You're not seeing the results you want
  • Your staff seem bored and unmotivated
  • Employees are frequently absent
  • Metrics show employees are underutilized
  • You're hiring more than your competitors

Some of these signs, particularly those related to staff motivation, might not be obvious to management. Listen closely to your employees, and create a safe space for talking about issues related to work. This will allow them to open up about whether they feel overworked or underworked. Alternatively, you can ask them to leave anonymous feedback on their experiences at work.

If you have any of the above signs in your business, it's time to take a closer look at your staffing levels and make some changes.

How to handle overstaffing

If you find yourself with too many employees, you can take a few steps to reduce overstaffing.

Assess your current utilization rates

The first thing you need to do is work out which of your resources are over- and under-utilized. While you may have an overstaffing problem overall, there might be employees with specific skills who are overworked, or particular shifts that are notoriously busy. By gathering data and identifying the current situation, you are better able to look for solutions.

In some cases, there may be quick fixes you can apply. For example, if there are specific days that are short-staffed, you could adjust the schedule of your underutilized staff to redress the balance. However, your company's staffing health needs a more sustainable solution.

Create a staffing plan

The best way to handle or avoid overstaffing problems is to create a staffing plan. This is a document that details the number of employees the company needs to have for its current and future projects. It also includes the skillsets or qualifications required for each position.

Human resource professionals rely on staffing plans to ensure they have the right talent for successful business operations. The staffing plan breaks down the number of employees and skills you need in order to create an optimal workforce for your business to succeed. It will give you a better idea of your staffing needs and help you retain and attract the best employees for your company.

As a business owner, a staffing plan will help you review how effective your employees are. You will see if their skills align with your business goals and see where you need to make any changes.

Cross-train employees

If your office is already overstaffed, but your staffing plan identifies skill gaps in your workforce, see if you can cross-train your existing staff before opening recruitment for a new role. This will help to even out the workload and make better use of everyone's time.

Usually, when you offer additional training to your employees, they will become actively interested in and dedicated to their jobs. Not only does this expand your staff's skillset, but it also helps to boost team morale.

Know when to let go

Let's face the facts: nobody wants to make layoffs. It's a stressful process for everyone involved, and the impact it can have on the wellbeing of employees is truly devastating. It is certainly not a decision to make lightly.

But if you are facing serious financial problems, sometimes layoffs are the only way to make the savings needed to keep the company afloat. Ultimately, if it's a question between a few people being laid off, or the whole company eventually going under and everyone losing their jobs - only one of those decisions is the responsible choice.

Build relationships with contractors & freelancers

Working in a project-based business can feel like "feast or famine" at times. Some months the work may feel never ending; at other times it might be worryingly quiet. If your resourcing needs fluctuate significantly, drawing on temporary capacity by hiring freelancers can be a better solution than hiring new permanent, full time staff.

A great way to make this process easier to manage is to build a network of freelancers who you work with on a regular basis. If you are in regular communication with them, you will get to know their upcoming availability. This way, you will know if they have space to jump onto a project or not.

Implement strategic recruitment

When recruiting, try not to focus on hiring a certain quantity of new employees, but rather on hiring quality employees who will add value to your organization and support your business growth.

Identify the exact positions you need to fill and the skills and experience required for each role.

Use a resource management tool

Whether you're dealing with full time staff, part-time employees, or contractors, staffing problems can be difficult to navigate without the right tools.

A resource management solution will help you manage your team, projects, and schedule, so that you can plan resources and workload accordingly. Resource management tools help automate scheduling so you know you which staff are working on any particular day and what they will be working on.

When you have an overview of what each employee is doing, you will be able to see at a glance where you are overstaffed and where your resources are stretched. With Runn, you can also organize your resources according to their skills, so it's easy to work out where your business's skill gaps are.

By helping you understand project staffing requirements, and recognize your people’s workload, availability and capacity, Runn helps you to strike the perfect balance and find the optimal staffing level for your organization.

If you still need to hire new talent to support an upcoming project, Runn’s "placeholder" allocations can guide your hiring decisions. By adding a placeholder to a project, you can play around and see what the project will look like with additional resources.

You can customize the placeholder's skillset and hourly rate, so you get a full view of the impact that this potential new hire would have on project timelines and cost.

This can assist you in making an informed decision: whether you are better off contracting a freelancer on an as needed basis, or whether is time to grow your team with a new permanent employee.

Bottom line

Fluctuations are inevitable in any business, but finding the right balance when it comes to staffing is crucial. If you are a business owner, you must ensure you are not overstaffing your company. Overstaffing can cause losses and even bankruptcy if you do not take action early enough.

Make sure to assess your business needs before hiring new employees. Maintaining the perfect balance can be tricky, but when you use the right resource management tool, you will have the correct number of staff to steer your business to new growth and expansion.

Manage your resources with Runn to optimize your staff utilization and put overstaffing to rest. Contact us for a demonstration today!

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