Reducing risk and improving efficiency for maximum ROI
In the volatile post-pandemic economy, choosing the right path for staffing has become tougher than ever. At times, forecasts from economists have diverged so widely that anything from a deep recession to a sustained boom has seemed possible. With no easy way to predict demand, businesses are often left with too many workers or too few. Yet this needn’t be the case in the future.
That’s because the past few years, in addition to being an economic rollercoaster, were also one of the most innovative periods in the history of the labor market. Words like remote, hybrid, and flexible became part of the staffing lexicon, allowing people to work in ways they never had before. Businesses learned to tap new sources of labor via new tools, the most prominent being online platforms that connected them directly to workers. The question now is, how can businesses use these new tools to maximize efficiency?
The need for greater efficiency is clear in the data. In a survey for our 2023 State of Warehouse Labor report, 34% of businesses reported that they had to forgo revenue because of insufficient staff. Our 2023 State of Hospitality Staffing report found that 28% of businesses had to pass up at least 10% of revenue for the same reason. Yet some businesses – even behemoths like Walmart – also over hired in the past year, because their expectations for demand were too high. And others, especially further up the supply chain, held onto employees they didn’t need for fear of having to rehire them when demand returned.
This report, outlines a new approach to staffing that takes advantage of the broader menu of options in the labor market. With this approach, businesses can gain a variety of advantages – not just greater agility, but also wider access to talent, lower recruiting costs, improved risk reduction, and higher retention. Some businesses have already started to deploy this approach, and they’ve reaped the rewards.
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Today most businesses have payrolls that span two major categories of work:
on-and-off shifts for temporary workers who fill in when needed
fixed schedules for permanent employees who stay with the business indefinitely
The use of temporary workers depends mainly on demand for the businesses’ goods and services. So managers have to forecast what demand will be in order to calibrate the number of shifts available for both of them. On a monthly basis, the shifts a business uses, and the workers who complete them, could look something like the chart shown.
This business always has shifts for temporary workers – and there are numerous businesses across the country for which this is true. But by bringing in large numbers of temporary workers for finite stints, these businesses are losing out on a range of possible efficiencies. For one thing, they have to train lots of new workers who will probably have lower productivity while generating extra back-office work.
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To escape this inefficient situation, consider an alternative: the layered approach. This business could fill the same number of hours by splitting the shifts for temporary workers into two different categories, in addition to the shifts for its permanent employees.
Once again, the only volatility is in the layer at the top. But now each of the three layers has a distinct role:
Short-term workers come in on short notice when required by demand; they may work as little as one shift at a time; many will work as independent contractors without benefits.
Recurring workers have access to a group of shifts that doesn’t change much from month to month; these are experienced workers who work regularly but without a fixed schedule; they know the business and can fill in for permanent employees who may be ill or on vacation; their benefits depend on their working hours and terms of employment.
Permanent workers are the most experienced and occupy the most important roles; they set standards, carry institutional memory, and can train and manage others; their compensation includes the full benefits that correspond to their status.
In this new scenario, businesses may also have slightly fewer permanent employees. That’s because some of them might prefer to work without a fixed schedule and could transition into the recurring layer.
The three layers of shifts for the layered approach to staffing for hourly work
Table too large for mobile viewport. Please view on desktop to see the table.
Source: Instawork
A major difference here is that there are fewer workers who are marginally attached to the business. The workers who complete the recurring shifts are still part of the core payroll, but they work a flexible schedule and do not need to be permanent hires. This change can raise productivity, since the average hours per worker and the average level of experience both rise. And there are several other advantages.
The layered approach captures all of the advantages of traditional strategies for staffing and adds a few more:
With the layered approach, payrolls are still just as responsive to demand. They don’t need to wait weeks to hire new employees when an unexpected wave of new orders comes in. And with online platforms, businesses are able to post shifts any time, and workers often pick them up within hours – a phenomenon that comes close to “just-in-time” labor. For example, here are some of the average times to fill shifts on the Instawork platform.
When a permanent employee has to miss work, it’s too expensive to hire someone else, and bringing in an inexperienced temporary worker can create liability for the business. Having a stable set of shifts for recurring workers means that experienced people who know the business can fill in, reducing downtime and risk. These shifts can also replace costly overtime shifts for permanent employees, which may generate risk as well if permanent employees clock in for long hours and fatigue becomes an issue.
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Not all workers who might be valuable to a business want permanent employment. As Harvard Business School’s Joseph B. Fuller writes, part-time workers offer a valuable and largely untapped talent pool that is eager for more hours. Different kinds of workers can also bring new skills and ideas to a business, especially when they’ve worked in other industries. In a survey conducted for our 2022 State of the Flexible Workforce report, 38% of workers cited the opportunity to pick up new skills as a prime motivation for working flexibly. To bring in these versatile workers, businesses need to offer more options besides traditional permanent employment.
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Bringing in workers on a one-time basis can offer a business the first chance to “try before you buy” when recruiting, instead of hiring a worker in a permanent position without ever having worked alongside them. Using an online platform to staff these trial shifts also reduces the cost of recruiting, since there is no need to advertise; qualified workers are notified of new opportunities instantly. The time involved in recruiting can also be used for trial shifts rather than waiting for candidates to apply. And for a closer look, businesses can add workers to a roster for recurring shifts. Though many businesses just post one-time shifts on our platform, we’ve already seen workers moving through this new kind of recruiting process in real time.
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By following the journey from one-time shifts to recurring shifts, long-term assignments, and permanent hires, businesses can gradually build strong relationships with workers. A worker who has chosen to take each of these steps will be more likely to stay with a business than one who has started with a permanent hire on day one; in the first case, the goodness-of-fit has already been proven on both sides. In addition, offering workers the option of moving between layers can help to retain them even as circumstances in their lives change. A permanent worker could transition to recurring shifts on a flexible schedule while they had more responsibilities outside of work. Then they would have the chance to return to a permanent position when they could commit to fixed full-time hours.
Layers in staffing won’t work exactly the same way in every industry. But these differences can unlock extra benefits for businesses. Here are a few examples:
Restaurants, caterers, and other food service providers may have several roles that can be filled via recurring shifts – and they may want new workers to try them all out. This helps new workers to understand the business holistically and also prepares them to pitch in wherever needed. Using a stable set of shifts for recurring workers offers an easy way to do this, with workers picking up regularly posted shifts across a variety of roles. Workers can also progress to higher-skill positions where business are more likely to make permanent hires:
Transitions between roles on the Instawork platform since 2021
Source: Instawork transaction data
In manufacturing and logistics, productivity is paramount – and measurable. Creating a recurring layer of shifts for a handpicked roster of workers on flexible schedules, rather than relying on temp agencies, raises the average level of productivity. This is particularly important in the goods-based sector, where so many businesses had to forgo revenue in 2022.
To understand how the recurring shifts can help, consider a hypothetical example. A third-party logistics provider uses 100 full-time employees and between 20 and 30 temporary workers every week, with an annual average of 25. The temporary workers are only half as productive as the permanent workers, and they cost slightly more. So on average, the business’s production and labor costs for a 40-hour week look like this:
Two-layer staffing at a third-party logisitics provider
Source: Instawork
* including hourly pay plus any overtime, benefits, and recruiting costs
Table too large for mobile viewport. Please view on desktop to see the table.
If the business charges its customers $2 per unit, then its weekly revenue is $180,000. If its other weekly costs are $20,000, then its total costs are $175,000 and its margin is about 3%.
Now imagine that this business breaks its temporary shifts into short-term and recurring shifts, where the most trusted workers have access to the recurring shifts. These workers are more productive than the short-term workers but not yet as productive as the permanent employees:
Three-layer staffing at a third-party logistics provider
Table too large for mobile viewport. Please view on desktop to see the table.
Source: Instawork
Here production has already risen by 4,000 units, with no increase in labor costs, simply by bringing a consistent number of shifts for workers on flexible schedules into the core payroll. Revenue is up to $188,000, and the margin grows to 7%.
But let’s say this business has a chance to serve new customers worth an additional $48,000 per week if it hires more workers – a typical situation among the businesses surveyed for our State of Warehouse Labor report. The problem is that the business can only find half the permanent workers needed to take on the new customers. So it considers expanding the number of recurring shifts to cover the remaining production:
Three-layer staffing at a third-party logistics provider with higher revenue
Table too large for mobile viewport. Please view on desktop to see the table.
Source: Instawork
In this scenario, total revenue is $236,000 per week, and costs are $221,000. Profit is up to $15,000, with the margin still holding around 7%. The decision to use workers on flexible schedules as part of the business’s core payroll looks like it will pay off.
Hiring permanent employees can take several weeks and cost thousands of dollars. Undoubtedly, this can be a worthwhile investment for the long term. But when labor needs exceed the available supply of full-time workers, tapping an additional talent pool can help. That talent pool is growing on the Instawork platform, where there’s an ample supply of workers for recurring shifts:
Shares of shifts completed by repeat workers by industry group, 2023
Source: Instawork transaction data
These industries are very different, but they have one big thing in common: they have traditionally been among the industries most resistant to the economic cycle. People don’t stop eating or getting sick when the economy is in a slump. There’s also much less seasonality than in many other industries. So businesses in healthcare and grocery have less need for one-time workers responding to spikes in demand, but setting aside a consistent number of shifts for flexible workers is a natural. With foreseeable demand, the risk of planning for too many shifts is especially low.
Coefficients of variation in shifts per month for partners posting shifts every month, July 2022 to June 2023
Source: Instawork transaction data
The stereotype of non-permanent workers is that they receive a higher hourly rate for the same work that permanent employees do, which can sometimes cause friction between the two groups. But accounting for all of the components of compensation, the hourly costs for these two groups are not so different.
We matched up the roles on our platform with the occupations listed by the Bureau of Labor Statistics (BLS) in its May 2022 Occupational Employment and Wage Statistics. We took the median wage rates reported by the BLS and scaled them up by the increases in hourly earnings in each metropolitan area since May 2022. And then we added in the costs of benefits according to the BLS’s Employer Costs for Employee Compensation statistics. We compared these fully-loaded costs to the average rates that our partners paid via our platform in 2023. Here are some examples for eight-hour shifts:
Making recurring shifts available to replace overtime can save over $100 per shift
Comparison of fully-loaded rates for permanent employees to Instawork partner rates
Table too large for mobile viewport. Please view on desktop to see the table.
Source: Bureau of Labor Statistics and Instawork transaction data
These are big differences, and they don’t include the costs of recruiting or the downtime that can result when waiting for new permanent employees to start. And they add up. Consider a business with 100 workers in one of the categories above. Each of them works 50 weeks with an average of 25 overtime shifts over the year, for a total of 2,500 overtime shifts. The business could save $170,000 to $290,000 annually by moving those overtime shifts – roughly 48 shifts per week, or eight per day in a six-day working week – to a pool of about a dozen flexible workers.
The layered approach to payrolls offers a slew of advantages to businesses willing to think about staffing in a new way. The middle layer of recurring shifts for workers on flexible schedules is a cost-effective buffer between the foundation of permanent employees and the demand-sensitive usage of short-term workers. Fortunately, a large and growing group of workers is ready to pick up these shifts at businesses across a wide variety of industries.
Instawork has been partnering with forward-looking businesses who see the future of staffing in a similar way. They’re succeeding because of their ability to make staffing efficient even during a time of extreme economic uncertainty. With all the new options in the labor market, it’s an exciting time to take on the challenge.
