How exactly do staffing shortages hurt businesses? From cost to quality of labor, staff burnout, and more, staffing shortages can be detrimental. In this article, we look at shortages from the employer’s perspective.
Why does understaffing happen?
Under normal circumstances, understaffing can happen for a variety of reasons, including cost cutting initiatives or poor planning by management. It’s a very common problem for companies that do not prioritize employee retention.
However, as we all know, the last few years have not been normal circumstances. Despite businesses’ best efforts, staffing shortages are still rampant. Why?
By summer 2022, the United States alone was facing a national shortage of 5.5 million workers. Meaning, there are currently more open jobs than there are workers to fill them. Experts believe there are several compounding issues behind this shortage:
- Supply chain issues
- Ongoing COVID-19 concerns
- Lower-than-ever population growth
- Poor infrastructure impeding accessibility
- Lack of affordable childcare
- Political/cultural conflicts alienating workers from potential employees
While the consequences of staffing shortages are consistent, the causes differ depending on the context of the times. Right now, businesses might not have a lot of control over their access to qualified workers.
Understaffing doesn’t save money in the long run.
Staffing represents, on average, between 15 and 30% of a business’ operational costs. That’s no small expense.
From a budgeting perspective, fewer staff may not seem so bad. Fewer people to pay, more revenue to keep, right? Not exactly.
Simply put, too few employees can seriously limit a business’ ability to serve customers and grow the business. Part of a successful business strategy is forecasting staffing needs accurately.
There are several consequences of understaffing that will end up hurting your business’ bottom line.
It goes without saying that having fewer staff than your business needs increases your likelihood of paying overtime wages.
Overtime costs more than standard wages, but also has other, indirect consequences:
- Employee burnout
- Increased mistakes
- Decreased quality of service and productivity
- Lower team morale
High turnover rates.
Working overtime and not having enough hands on deck will inevitably stress out your employees. Beyond the fact that good leaders care about their employees’ wellbeing, the truth is that stressed employees are bad for business.
Not only will your employees’ mood and productivity become worse, but they’re more likely to take sick days or need to go on extended sick leave. Likewise, it reduces their overall satisfaction in their role, making them more likely to leave. During labor shortages, the last thing your business needs is a high employee turnover rate.
On average, turnover costs companies $15,000 USD per worker.
Your entire business can suffer from poor performance during staff shortages.
Shortages often lead to missed deadlines, because staff do not have enough time to do their allotted amount of work – even with overtime hours. Or they must rush to finish their work, reducing its overall quality.
Missed deadlines and sub-par work can lead to consequences like unfavorable reviews, lost clients, and overall reduced customer retention. All this spells a drop in revenue.
More workplace accidents.
More work, less help, and increased staff fatigue and stress all lead to a higher rate of workplace accidents. Not only do these accidents put yourself and others on your team at risk, but they stand to further the existing understaffing issue, and drive up your compensation expenses and potentially insurance premiums.
Do you know if your business is understaffed?
You might think your business’ staffing numbers are in balance, but do your employees agree?
Research shows that as many as 40% of employees feel their company is understaffed. If your employees are feeling the side effects of understaffing, even without your awareness, it could be costing you.
It’s worth talking to managers, staff, and HR to make sure this isn’t an issue your business is facing.
Right now, a region’s staffing capacity will determine its opportunities.
Understaffing on a wider scale, like what we are experiencing right now, can have serious long-term impacts on a region’s economy.
Take, for example, a recently built Intel semiconductor facility outside Columbus, Ohio. Both JobsOhio and Intel itself accredit the selection of the location, just 20 miles from Ohio State University, to the state’s workforce.
This was a logical choice for Intel. Ohio’s pitch was successful because the country’s worker shortage isn’t as acute there, which will bring more economic success through this opportunity in the future.
Understaffing costs your business far more than it saves. If you’re looking to cut costs amid economic challenges, looking at employees is not necessarily the wisest first choice.
In fact, employers should be renewing their commitment to employee retention. For more on employee retention in the wake of the Great Resignation, read here.