Maximizing Profit and Morale

Optimizing the Balance between Core and Augmented Staff

By Joseph Salvucci

Every company confronts the essential question of how much core staff is needed.  Too few and you run the risk of diluting your core competency.  Too many and you wind up with bloated salaries and benefits you staffed up for during peaks. When the valleys occur, you sacrifice margins and/or deal with the demoralizing task of laying off excess staff.

So, what is the ideal balance between core and contracted staff?  While there are no one-size-fits-all answers, several questions help focus this analysis, including:

  • Which are the staff you know you’ll need virtually all of the time?
  • How volatile is your market?
  • How costly are your salaries and benefits in comparison to the value the work provides?
  • Are there certain types of specialists you know you need to always have on hand?
  • Are there specialists you know you’ll need for months at a time, but only on a project-by-project basis?
  • How hard are these specialists, and other talent, to find, when you need them?
  • What are you customers’ expectations for turnaround?

Figure 1 shows a staffing model that is non-idealized. The red line represents project or business cycles. These rise and fall based on various market conditions, including economic upturns and downswings, seasonal swings, competitive pressures and sales wins and losses.

Core Staffing Model - Lost Profit - Too Much Core Staff, Not Enough Contractors

Figure 1: Non-Idealized Core Staffing Model – Too Much Full-Time Staff

The gray area represents your core, full-time employees. The red shaded area represents cycles where you are carrying core staff salaries and benefits without commensurate revenues. The white peaks represent non-core, contracted staff, where there is an efficient correspondence between the labor to be performed and the available work.

Figure 2 shows the inverted core staffing model. Here the red shaded area represents contract labor which could have been replaced with full time labor. Depending on the price of labor and benefits, and the difficulty of hiring and firing, this may make sense for some organizations, while others may save money by having more fully occupied employees and fewer contractors.

Too many engineering contractors

Figure 2: Inverted Core Staffing Model – Significant Dependence on Contractors

Figure 3 shows the “idealized” core staffing model, where core staff are occupied 100% of the time, and 100% of the peak workloads are handled by contract labor.

Ideal balance of contracted engineers

Figure 3: Idealized Core Staffing Model

In reality, most businesses are somewhere in the continuum between the models shown in Figure 1 (the non idealized core staffing model) and Figure 3 (the idealized core staffing model), with a desire to trend to the idealized core staffing model.

Lacey Stenson, COO of reThink Consulting, Inc., consults on issues of employee management.  She says, “We recommend contract employees:

  • on a project by project basis;
  • when the job is predicted to be seasonal and/or project based;
  • to cover an temporary influx of work;
  • when you need someone quick, e.g., an employee quit spontaneously without notice;
  • if the work involved is confidential and cannot be delegated to an in-house employee;
  • when the hourly cost of a contract is less than the cost of a salaried employee plus taxes, benefits and HR management time;
  • for specific skill sets when it makes more sense to pay a contractor on an as needed basis vs. employing an expert full time on salary.”

Regarding finding the right balance, she adds, “Given the current state of the economy, many businesses are keeping a leaner staff of core employees to ensure they can make monthly payroll plus taxes and benefits without risking penalties from the IRS and to ensure their doors remain open. The best way to ensure you stay in balance is for the management staff to have an accurate and early pulse on the workflow of the current staff. This can be done by consistently engaging with department supervisors and getting an accurate reading of their department. By
creating and developing tracking and benchmark systems, management can monitor the influx in work against actual data.”

In summary, use contractors to keep your costs flexible so that when budgets are cut and projects are put on hold, you can remain profitable. During good times, the tendency is to staff up with contractors and then to convert them to direct employees. When the market dips, you either must carry them at great expense, or lay them off – dampening overall morale.

The benefits of optimizing your core staffing model include:

  • Your core staff has a higher degree of job security. For 75 percent of the U.S. workforce, job security is the #1 need. Done correctly, you could have a no-layoff policy.
  • You can better manage long-term profitability for your business enterprise.
  • You attract the best talent in the contracting marketplace by paying the contractors an above-market premium. You can afford to do this because they are fully billable when on board. No holiday or vacation pay, no training costs, no corporate seminar costs, no sick pay, no unemployment compensation premium, and no cash drain when your engineers are on the bench. Studies show that 25 percent of the U.S. Workforce prefers premium pay over job security; sometimes contracting is the best way to get the best people.

The challenge is making sure you have one or more suppliers of contractors who can provide the talent you need when you need them. If your staffing company doesn’t understand your needs, or takes too long to supply the people you need, find another.


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