indirect costs examples

While indirect labour costs may not be as easy to anticipate as direct expenses, it’s still important to track these expenses and recognise how they might impact your overall workforce spend. Here’s a look at some of the most common indirect costs related to workforce management.

absenteeism and turnover

A high rate of absenteeism places a substantial financial burden on a business. When people aren't available to do work that needs to be done, you face the choice of paying to bring in additional staff at short notice, asking your employees to work overtime or redeploying the workers you already have. While the first two options can take a direct hit on your labour cost, the latter can result in lost productivity as people are taken away from their regular work and might not have the right skills to do the job in question.

Ultimately, high levels of absenteeism can increase worker burnout, reduce workplace efficiencies and result in higher turnover rates.

There are similar costs and disadvantages associated with high staff turnover. If people are leaving in unsustainably high numbers, you'll find yourself spending a lot of time, money and energy on recruiting to plug workforce gaps. Aside from the obvious financial implications, this can cause disruption in the workplace and damage morale.

The costs associated with both absenteeism and turnover can be minimised by taking a proven, effective approach to recruitment. Following established processes to ensure you acquire the right people will increase the chances of new hires having a healthy, happy working relationship with your organisation. In turn, these can help your organisation reduce its absenteeism and turnover rates.

prolonged fill times

Too much time spent filling vacancies is another good example of an indirect workforce cost that can be easy to overlook. The more time you dedicate to hiring, the less time you're able to spend focusing on your core business, bringing in revenue and driving profitability.

One of the most important things you can do to optimise performance on this front is to establish relevant metrics and key performance indicators. Tracking the right data can help you identify inefficiencies in your recruitment process and develop strategies for improving hiring outcomes. For example, working with an HR solutions company can speed up the hiring process by providing direct access to a network of prescreened candidates.

Conducting a skills gap analysis can help you get ahead of your recruitment needs. This in-depth analysis lets you evaluate the current skills needs of the company and predict its potential future needs. With this information, you can develop a multifaceted strategy to identify candidates that best match your current and future needs and create an employee development programme to equip your current workers with the necessary skills.

training and induction

The recruitment process doesn't end when you've completed your assessments, selected your chosen candidates and they've accepted a job offer from you. To really get the best results out of your staff, you need to support them as they familiarise themselves with their new roles and settle into the organisation.

It's possible that this process might include some informal training or mentorship from other employees. While this could make a vital contribution to new hires getting up to speed and becoming productive, it might not be viewed as an obvious cost of recruitment, even though it's taking up time and affecting the productivity of other staff members.

Furthermore, you'll need to consider the additional costs involved in certifying people for particular skills and temporarily stepping up your quality control measures, as well as the potential for reduced productivity across the entire team.

Induction and onboarding are other areas where you can gain vital advantages from the latest tech and expert support. Modern tools can help you take an integrated approach to everything from advertising roles to onboarding. With the right HR solutions partner, you can find the most effective technologies and processes to get the best results in these areas.

productivity loss

As a business leader, there’s no doubt that maintaining peak productivity levels is a top priority. Unfortunately, there are several factors that can negatively impact output, such as equipment failures, high levels of absenteeism, frequent turnover and internal skills gaps. When these issues slow down productivity, it can be frustrating for your managers and supervisors as well as your workers.

It can also be quite costly. Every time your production line comes to a halt, you have to shut operations down early or you close a shift, it’s costing your company money. These costs may not be easy to track, but productivity loss can have a significant impact on your overall workforce spend.

For instance, if a manufacturing plant runs a shift without enough qualified forklift drivers, its workforce cannot operate at peak performance. While the organisation must still pay nearly the same direct labour costs to run the shift, the output will be less. In turn, this leads to an unanticipated loss of the company.

It’s important to account for these indirect costs and to create hiring, training and scheduling strategies that can minimise the impact of productivity loss on your company budget.

time loss on managing contingent workers

Today’s fluctuating market and seasonal demands are encouraging more employers to depend on contingent workers. Studies predict that by 2025 contingent workers will make up between 35% and 40% of the global workforce. The use of these temporary workers can let you scale up or down your organisation’s workforce needs to meet current production demands. This strategy can help you cut labour costs by only maintaining the labour force you need to meet production goals.

While labour costs related to contingent workers fall under your direct costs category, the time and resources you use to manage these workers don’t. Depending on the size and scope of your contingent workforce, administrative costs related to managing them can be substantial.

Just like your permanent employees, contingent staff must receive ample training to ensure compliance with safety and quality standards. Shift scheduling is another time-consuming task that can cut into your workforce spend. You need to make sure each shift is fully staffed, and you must have workers with the right skills and qualifications on duty. Otherwise, you risk limiting productivity rates, safety and quality.

With our Randstad Inhouse Services, our teams can handle the contingent workforce management process for you. We offer end-to-end solutions but allow your organisation to determine exactly what services they want our team to handle and what tasks you wish to keep in-house. This strategy can make it easier to track costs related to contingent or temporary workers.

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