What Is Labor Hoarding and Could It Be the Right Strategy for Your Company?

The current labor situation in the United States may best be classified as “confusing.” Large companies making layoff decisions are featured in the news virtually every day. At the same time, other companies are still searching for talent. Some recruiters are even claiming to be busier than ever. 

In this rollercoaster of a labor market, “labor hoarding” is becoming a common strategy among organizations. Labor hoarding is when an employer looks to keep employees even if they are currently seen as nonessential in their current role, hence delaying any sort of layoff. 

And we aren’t only seeing this practice happen in large businesses. In fact, the majority of small businesses – 91 percent – are doing it right now and 89 percent intend to continue to do so through 2023, according to a recent study from Skynova. The study found the top positions these businesses are holding onto are mid-level management positions such as HR, finance and marketing managers. Business owners have claimed to be saving more than $4,500 per hire, on average, by keeping their employees on staff.

Why Do Companies Practice Labor Hoarding?

In the current environment, your talented teams can help keep your organization moving forward and by keeping them on you could also help avoid them being recruited by your competitors. When an even tighter labor market could be around the corner, laying off workers could send the wrong signals if you are trying to avoid the perception of financial difficulties, too. Labor hoarding could help lessen the impact to your internal culture and external brand. 

Here are a few other reasons employers are labor hoarding recently: 

• Recruiting and rehiring particular positions within different industries can be extremely difficult right now. 

• With specialized talent and niche roles being difficult to hire for already, rehiring can be even more difficult given that the current pool of potential qualified employees may be small. 

• They don’t want to negatively impact the culture within their organization or disrupt good performance of current teams and team members. 

• The costs of recruiting and onboarding new employees in the future could be less cost effective in the long run.

• Employers are preparing and staffing up for the next roller coaster of demand, economic shakeups, and labor shortages. 

• In the face of potential job posting and hiring freezes, employers may be less inclined to risk separating employees without the approval to backfill the role. 

The Pros and Cons of Labor Hoarding

While labor hoarding can sound negative, reactive, and even initially evoke images of piles of old magazines and figurines as far as the eye can see, it can also be strategic and prudent depending on your business and rationale. As you begin to examine if labor hoarding may be right for your business, allow us to take out our yellow legal pad and start the list of pros and cons. 

PROS

• Helps maintain a more consistent workforce regardless of the economic and labor climate. 

• Minimizes future recruiting, hiring, and training costs. 

  • The cost of replacing an employee can be up to two times their annual salary, and voluntary turnover costs U.S. businesses an estimated $1 trillion per year, according to Gallup. 

• You can help minimize workplace and company disruption. 

• It may provide a boost to your company culture by showing employees you are willing to go the distance to help keep them at your organization.  

CONS

• Continuing to employ non-critical employees can stretch, and even break budgets, to the detriment of other areas of the company or even the company as a whole. 

• Underutilizing workers and making other cuts to hours, salaries, or benefits simply to keep them employed could hinder their career development and even cause them to quit.

• Labor hoarding on a large scale can create an even tighter labor market and drive up wages. 

Determining if Labor Hoarding Could Be a Viable Strategy for Your Company

Labor hoarding is not something you do on a whim. Before diving in head first to the practice, you should take in a full view of your labor force and projected future finances. Start by doing a comprehensive and meticulous analysis of your entire workforce to fully understand who is doing what and where. Next, your finance team should do a deep dive into your long- and short-term financial considerations and potential performance. Finally, make educated projections of current and potential longer-term staffing needs. With this data in hand, you can have a fuller picture of the environment and you should have more of the information you need to help determine if hoarding employees as a hedge for future demand is a prudent business decision. 

While an uncertain economy and a focus on the bottom line can have you focusing on the immediate needs of a business, it’s vital to keep an eye on the future and the full employee experience. So, instead of simply hanging onto employees now so you can avoid additional recruiting in the future, start by listening to your current employees, work to keep them engaged in their current positions, be creative with them to utilize all of their skills, and provide them with the vision and opportunities for future growth. An employee experience strategy that goes beyond cost savings could lead to a more productive and engaged workforce that could add value beyond just minimizing losses. 

To help you and your HR colleagues stay on top of tips and trends in the world of recruiting, onboarding, and employee retention, we have created the free report “Top 2023 HR Trends: Financial Wellness, Employee Morale, and Know-How”. Discover how a renewed spotlight on the employee experience can help you improve employee engagement, retain talent, and more. 

The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel.  Equifax Workforce Solutions provides services that can help employers reduce their compliance risks. Details on our provision of these services and related support will be contained in your services agreement. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.