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When it comes to running any business effectively, one of the biggest challenges facing managers is effectively staffing the business. Having the right number of employees in the business throughout the year is important to ensuring both service quality and profitability. With too few staff on shift, both the customer and employee experiences suffer. Too many staff and the payroll costs eat away at profits, leaving less to invest in other areas of the business.

However, it’s not just the total number of employees that matter when working out how to staff the business. The types of contracts those staff are employed on, whether they’re permanent full time, part-time or temporary, can have a dramatic impact on the ability of the business to adapt to periods of peak or seasonal demand. 

In order to balance profit and performance, managers look to hire the right ratio of permanent to temporary staff, one that provides the flexibility and the stability that the business needs year-round. Finding this optimal mix of contacts, known as the optimal staffing ratio is complex, influenced by a multitude of factors. In this article we’ll be exploring the benefits and challenges of permanent vs temporary staff, what to consider when calculating the optimum staffing ratio and how to overcome the challenges you will face along the way. 

Pros & Cons of Permanent vs Temporary Recruitment

Before diving into calculating and recruiting your optimal staffing ratio, let’s explore the pros and cons of both types of contracts. You can find a summary of these in the table below.

Temporary Hire Pros

Temporary Hire Cons

Permanent Hire Pros

Permanent Hire Cons

Short term and reactive to peaks & troughs of demand
ROI on training may be less as employees stay in the business for less time
Greater job security. Possibly enhancing long term productivity and performance
Greater benefits that need to be managed such as holiday leave. Overtime costs are more expensive.
Potentially faster to source candidates and place into roles
Temporary employees may have shorter notice periods and may be less reliable
Potentially lower per-hour cost for ordinary hours worked
Hiring and firing process is more expensive. Recruitment fees are larger.
Less risk, allowing the business the potential to trial employees before offering permanent contracts
May have other positions and responsibilities, limiting their rota flexibility
Develop long term, consistent teams to deliver your service most effectively and build company culture
Greater expectation of consistent working hours possibly impeding flexibility.

When it comes to deciding whether to hire more or less of each type of contract, you can measure the decision by how they impact two factors; flexibility vs stability. Temporary staffing can increase the flexibility of your workforce by their ability to be sourced quickly, hired on partial or fixed-term contracts while attracting fewer liabilities. For this reason, businesses often look to temporary staffing for periods of peak or seasonal demand.

Permanent staffing however increases the stability of your workforce, where long term investments in training and culture result in high performing, highly productive teams. It is this productivity that drives business profits and creates a platform for the business to succeed. Permanent staff provide the well of skills and expertise that make your business able to perform day to day.

Taking into account the benefits of both permanent and temporary staffing, you can begin to consider how to balance flexibility vs stability to promote an optimal mix of contracts in your team. 

What to Consider When Calculating your Optimal Staffing Mix

Now that you understand the pros and cons of permanent vs temporary staffing, the question becomes what factors should you look for to consider whether to hire more or less of each type of contract. 

The Predicted Demand Curve

As you undertake your long term sales forecasting for the coming months and years, what do the numbers look like when plotted on a graph? Are there peaks and troughs or is it mostly flat? Peak periods of sales demand can stretch your team and require more flexibility, periods of more predictable sales can benefit from a more stable workforce.

Workforce Capacity Curve

Similar to the demand curve, workforce capacity evolves over time. As staff take leave, attend mandatory training or take promotions or secondments, these create gaps in workforce capacity. When plotted on a graph, does your workforce capacity have peaks and troughs as well? If short-lived, these capacity gaps could be best filled by temporary contacts.

Demand vs Supply graph
Contract Conditions

The types of contracts you offer and the conditions on them such as contracted hours, contract duration, salary and benefits determine how well you can fit the supply of labour to demand. If you’re finding you’re struggling to do this with the contract types on offer, it may be time to consider introducing new types.

Workforce Regulations

Whether they are imposed by the government or simply internal policy, regulations impact what you can and can’t do with your recruitment strategy. Some businesses require minimum staffing, mandatory staff certifications or impose other restrictions. These can influence your decision to invest more in flexibility or stability.

Challenges to Achieving the Optimal Staffing Ratio

Understanding the factors to consider when calculating the optimal staffing ratio is important to ensure businesses achieve both the flexibility and the stability they need to delight customers while trading profitably. However, there are a number of challenges that make achieving this optimal mix of permanent vs temporary staff difficult. A few of the most common challenges are as follows;

The Optimal Staffing Ratio is a Moving Target

The optimal staffing ratio for your business changes over time, depending on the shape of your demand and capacity curves over the coming weeks, months and years. The ratio may look dramatically different during periods of peak demand vs the low season or even business as usual. The optimal staffing ratio is therefore a moving target, one you will need to track recruit for over time.

There are many “Good” Answers for Optimal Staffing

Depending on the number of different types of contracts you offer, there may be many good answers for what the optimal staffing ratio looks like. In this case, the most optimal solution is the one that creates the best fit between labour supply and demand at the lowest overall cost. Picking the best solution can be equal parts art and science without advanced techniques.

Handling New Vs Replacement Recruitment

When it comes to recruiting to achieve your optimal staffing ratio it isn’t just about the new contracts you hire for but also how you replace departing members of the team. When a team member leaves the business you have an opportunity to replace like for like or rebalance the staffing ratio using a different contract. Making this decision requires you to recalculate your optimal staffing ratio and can be time-intensive.

Factoring in Time to Hire and Recruitment Costs

When trying to find the optimal staffing ratio, it’s important to consider all the factors involved to make an informed decision. The time it takes to source candidates and the costs involved can quickly add up. Benchmarking these and factoring them into your decision making can prove a challenge.

Difficulty Calculating Workload from Demand

Ultimately the optimal staffing ratio is designed to ensure you have not just the right mix of staff, but the right total number of staff as well in order to service the demand. If there are errors in your calculations you can find yourself hiring too many or too few staff, even if the ratio itself is optimised.

Putting the Optimal Contact Ratio to Work in Your Business

Calculating the optimal contact ratio is complex and takes into account many factors including your predicted demand and capacity curves, HR metrics and decisions you make around replacing staff who leave. Hitting this moving target over the coming months and years will rely on you having the tools necessary to quickly and accurately calculate this ratio on the fly.

This is where a Strategic Workforce Planning tool like Quorbit comes in. Using AI, Quorbit’s solution can help you calculate and explore your optimal staffing ratio on demand, taking into account key HR metrics, contract types as well as ensuring your workload and headcount calculations are accurate.
Want to calculate your optimal staffing ratio today and improve the profitability and performance of your business? Get in touch with our team today for a free demo.

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