How small and medium-sized businesses can cope with a job market out of whack, while avoiding the all too common pitfalls dogging companies looking to hire in this day and age.
Plenty of Work. Plenty of Workers. But No Match.
As the nation’s economy continues its painfully slow and rough recovery, the job market has been showing strong signs of life as of late. The private sector pushed out 176,000 new jobs even as the public sector cut some 11,000 federal positions in response to sequestration. Even so, the unemployment rate continues to be insufferably high. Yet, almost counter-intuitively, American employers, especially white collar employers, can’t seem to find enough people to fill a multitude of openings as the service industries start kicking back into gear. Or more precisely, they can’t seem to find the right people. This “jobs gap” would seem to suggest a massive mismatch happening between what employers need, and those job seekers who constitute the unemployment pool.
The Growing Jobs Gap Means Small Businesses Suffer The Most
That means that while there may be a glut of applicants, finding the perfect job candidate, the veritable purple squirrel, hasn’t gotten any easier. For small to medium-sized firms without the luxury of a dedicated HR department, where timely hiring of qualified individuals is absolutely critical, solutions have been few and far between. In fact, for many private U.S. companies, business is booming, but hiring remains weak.
Part of the reason? Regulation compliance. Without access to dedicated HR professionals, regulation compliance can become an exercise in taking needless, avoidable, and potentially costly, risks – risks that many small and medium-sized businesses cannot afford to take. Once other employee costs, including fixed costs such as employee health insurance and soft costs such as training are accounted for, employees can easily cost a business 40 percent more than just salary – and that is the hidden cost premium for good, upstanding employees. For a small business owner, making a bad hire, could be very, very damaging.
Ultimately, however, aversion to diving into the job market is not sustainable. Just for starters, leaving a position vacant too long results in lost opportunities, reduced employee morale, and less flexibility to deal with customers or take on additional work. Yet, making a bad hire can be equally damaging. Faced with this conundrum, feeble gains in small business confidence is understandable.
To get a ballpark estimate of what leaving a vacancy can cost an employer, the following two-step formula can be utilized:
R = Annual Company Revenue
E = Number of Employees
Step 1 – Calculate Revenue per Employee
R / E = Revenue per Employee
Step 2 – Calculate Daily Revenue per Employee
Revenue per Employee/365 = Daily Revenue per Employee
For example, let’s say that a small business’s revenue per employee is $300 and can accept a future lost revenue of $10,000. That would give the firm about one month to fill that position, including all the time that must be sunk into the interviewing process and navigating the necessary bureaucracy to bring an employee on board – a daunting task. Considering that many positions are left open for months on end, the total cost in lost future revenue could easily become unmanageable.
For entrepreneurial start-ups, small, and mid-sized businesses, this kind of loss is not acceptable. To avoid being caught between a rock and a hard place when it comes to hiring, there are a number of options employers can take to avoid getting stuck.
First, employers must make it a priority to retain talent. That means keeping employees motivated and engaged through whatever means necessary. Losing top talent to competitors can be a huge blow that will make staying competitive an exercise in futility.
Second, take advantage of temporary contractors to fill key roles when necessary. Employing contract consultants can be a very pragmatic stopgap that can reduce future revenue losses while providing breathing room to make the right hiring choices on a reasonable timetable.
A third option popular with small and mid-sized businesses has been the outsourcing of the hiring process entirely through a “Professional Employer Organization (PEO)”. Businesses can shift those specialist-intensive and highly bureaucratic processes to a PEO firm that specializes in those matters. The business doing the outsourcing can better focus on staying competitive, while the PEO produces professionally vetted, quality hires, that best fulfill the needed roles. They navigate the morass of laws and regulations that make hiring such a tedious process on behalf of a client firm. All parties benefit through a strategic, mutual partnership.
The Bottom Line: When it comes to meeting staffing needs, finding “Mr. or Mrs. Right” can be nigh impossible. Some companies opt to wait months on end in search of the ideal candidate, resulting in considerable future revenue loss, while others charge ahead and end up making regrettable hires. Planning ahead and doing due diligence can help prevent these costly errors. For small to mid-sized companies, partnering with Professional Employer Organizations can also be a cost-effective way to find the right talent, and save money in the process.