Overstaffing: Why It Happens and How To Avoid It in 5 Steps
After recruiting hundreds of employees to handle pandemic-driven demand, Amazon was faced with overstaffing issues. The company subsequently laid off 99,000 direct employees. This was Amazon’s most significant sequential drop after overstaffing its warehouses.
As an HR professional, you need to ensure workforce optimization. Too little staff can lead to heavy workloads and decreased productivity, while too much staff can create an environment of inefficiency and wasted resources.
But what causes overstaffing in the first place? In this blog post, we’ll look at how it happens and provide tips on how to avoid it so your organization enjoys maximum efficiency.
Contents
What is overstaffing?
Overstaffing vs. understaffing
Why does overstaffing happen?
6 dangers of overstaffing
How HR can avoid overstaffing in 5 steps
FAQ
What is overstaffing?
Overstaffing occurs when there are more people employed than necessary to run the business. It is the opposite of understaffing when the company needs more people to carry out operations. Overstaffing usually occurs when a business faces a quick boom and a sudden decline due to industry trends or conditions.
Overstaffing vs. understaffing
To understand overstaffing better, let’s compare overstaffing and understaffing:
Overstaffing Understaffing When there are more employees than necessary performing the job When a task or job requires more employees Results in inefficiency or decreased productivity Employees feel overwhelmed because they are overworked, leading to reduced productivity and work quality Employers are paying unnecessary wages and benefits, resulting in higher labor expenses Employers spend on overtime pay for their staff’s overtime work. It could also lower employee morale, and overworking could potentially result in costs associated with errors or rework Employees may feel their talents are wasted due to lack of work, resulting in lowered job satisfaction and engagement Employees are overwhelmed with the high workloads and stress, leading to burnout and turnover It can strain organization finances and could escalate to layoffs or downsizing to optimize the workforce Employee burnout results in high turnover and additional recruitment expenses to replace resigned staff. HR could hire more people to redistribute workload or hire a temp agency to outsource a task Inefficient allocation of resources, which could be better spent on other important projects Business decisions are postponed or abolished due to insufficient staffing
Why does overstaffing happen?
Identifying the root cause of overstaffing is critical for understanding why it occurs in the first place and what measures to implement to address it.
- Poor forecasting: When an organization miscalculates the number of people needed to run a new project, more employees may be hired than actually required. For example, you might recruit a full-time employee when a part-time position would be better.
- Unpredictable economic conditions: In times of economic uncertainty, such as market downturns, companies often face the challenge of balancing their workforce to align with business needs. While the instinct may be to avoid layoffs, this can result in a retention of excess staff, creating a delicate situation that requires careful navigation.
- Employees are not cross-trained: Inadequate cross-training inhibits employees from performing tasks beyond their job descriptions. Training fosters employee development and saves time and money spent on hiring additional staff. For instance, upskilling software engineers can eliminate the need for recruiting when adopting new technologies.
- Employees are not agile or flexible: Rigidity in employees can impede the organization’s adaptability to changing conditions, resulting in overstaffing when specific jobs become redundant.
- Emergence of new technologies: Technological advancements, such as automation, can sometimes lead to overstaffing by making certain job roles obsolete.
- Poor communication: Effective communication between employees and employees is essential to identify and address overstaffing. Transparent communication helps employees understand the changing needs and allows them to be trained for other key roles.
- Manager awareness of team skills: Managers should have comprehensive knowledge of their team members’ skills and experiences. This information enables managers to collaborate with HR and make informed decisions about recruitment, fostering a more agile and responsive workforce.
6 dangers of overstaffing
Overstaffing can negatively impact the business:
1. Increased labor costs
The most immediate danger of overstaffing is the surge in costs. Workforce constitutes a significant chunk of organizational expenditures, encompassing salaries, benefits, and other compensation-related expenses. Maintaining surplus staff without proportional workloads can tilt the financial scales, potentially leading to bankruptcy.
2. Competitive disadvantage
Overstaffing diverts crucial resources that could otherwise enhance products and services. Companies burdened with excess employees risk losing market share to leaner competitors, as high labor costs impede strategic initiatives like expanding product lines or entering new markets.
Additionally, a surplus of employees often results in unnecessary hierarchies, slowing down decision-making processes. This hampers adaptability, leaving companies trailing behind more agile competitors in responding to market shifts.
3. Difficulty coordinating
Having an excess number of team members can create coordination challenges. Managers are then tasked with providing clear direction or may even find difficulty in supporting staff when there are too many direct reports to handle. This can lead to miscommunication and role confusion, ultimately impacting output or even customer service.
For example, conflicting instructions from multiple customer service representatives may give the impression of a disorganized company, resulting in unpleasant customer experiences.
4. Poor employee morale
Employees may feel less valued when too many workers compete for responsibilities. It could lead to hostile workplace relationships when employees think their roles are at risk, fueling stress and pressure.
Overstaffing can also lead to boredom and dissatisfaction because employees may have too much time on their hands. This could result in employee disengagement.
5. Lower productivity
Having too many employees can result in decreased productivity due to inefficiencies. Overstaffed departments or teams may hinder collaboration, while underutilized employees might find themselves without meaningful tasks. This can lead to less effective projects and processes, ultimately diminishing overall productivity.
6. Layoffs
Sustaining high labor costs amid lower productivity often forces companies to make tough decisions, including layoffs, to save costs and avert financial crises.
For instance, Meta had more than 80,000 staff in September 2022. Two months, the company was forced to lay off 11,000 employees or about 13 percent of its workforce.
How HR can avoid overstaffing in 5 steps
HR should continuously monitor their employee numbers to prevent overstaffing. Here are the recommended strategies:
Step 1: Conduct thorough workforce analytics
Start by conducting a comprehensive audit to identify overstaffed areas and understand the reasons behind it. Collect and analyze employee data, including productivity, turnover rates, and project timelines.
Use this information to make informed decisions about strategic hiring, training, and resource allocation. Additionally, to stay prepared, forecast future workforce needs based on historical data and market trends.
Step 2: Foster transparency
Keep employees informed about overstaffing concerns and the actions being taken. Encourage open communication between HR, managers, and department heads. Collect feedback through surveys and meetings to gain insights into workload and identify instances of overstaffing or understaffing.
Step 3: Build a solid staffing plan
Develop a detailed staffing plan that clearly outlines the required employees and their specific proficiencies for each department. This will help ensure the right number of skilled employees to meet current and future demands. Regularly update the plan to optimize staffing levels.
Step 4: Invest in cross-training and upskilling
Equip your workforce with versatile skills that allow them to perform various tasks. This not only aids in employee development and engagement but also eliminates the need for additional hiring during peak periods. Align training programs with changing roles or project demands.
Step 5: Enhance hiring and staffing practices
Implement effective workforce planning and hiring criteria to avoid future overstaffing. Understand your company’s long-term goals and align recruitment strategies accordingly. Maintain accurate job descriptions to attract candidates with suitable skills.
Consider temporary or seasonal hiring to handle increased customer demands, and make use of contracting agencies for part-time or project-based work to reduce costs.
HR tip
Encourage employees to explore career opportunities between departments to distribute expertise across the organization and reduce the likelihood of having too many employees in one area.
Key takeaway
The negative impact of overstaffing on a company’s financial performance cannot be overstated. It can occur due to various factors, such as unexpected market changes, insufficient workforce planning, lack of training and development opportunities, or ineffective hiring practices. However, there are effective ways to tackle this issue head-on.
Employing workforce analytics, open communication channels, and developing a solid staffing plan are crucial steps in addressing overstaffing. Additionally, implementing learning and development programs and enhancing recruitment strategies can significantly contribute to resolving the problem. By identifying the signs of overstaffing and implementing appropriate measures, HR can mitigate the negative consequences and, ultimately, help the organization to remain profitable.
FAQ
Overstaffing is when a company has more employees than it needs to fulfill its current workload. It can lead to negative consequences like higher labor costs, reduced productivity and employee morale, and increased turnover if not addressed.
Here are tell-tale signs to confirm if your organization is overstaffed:
• Low employee productivity
• Staff members need more tasks to occupy their time
• Some roles have similar responsibilities. Or employees are performing functions that are duplicated across different departments or teams
• It is challenging to allocate tasks or projects to employees due to a lack of demand
• Duplication of skills
• Stagnation or lack of creativity/innovation
• Company financial strain.
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