Hiring & Layoffs: How to overcome Overstaffing and Understaffing?

One of the biggest challenges companies face in their business is hiring and retaining the right employees, and maintaining the right size of the workforce. More workers than needed can increase your employee cost and overhead, whereas a less than needed count can constrain business growth and scale. 

For a business to remain efficient and productive, right-sizing your workforce is crucial. Both understaffing and overstaffing can impact the company’s current overall health and future outlook adversely. While a perfect right-sized workforce is difficult to achieve for some businesses – particularly the companies that face fluctuations in demand for resources  – you can try to reach closer to the ideal.

We will take a closer look at the impacts of overstaffing and understaffing, and how to overcome these bottlenecks. 

Tips for managing overstaffing and understaffing

The impacts of overstaffing

Take a look at this scenario where your business was enjoying high demand for your products and you went on a hiring spree to maintain the right size of your workforce to match the business need. Then, all of a sudden, the economy downturned leaving your company with a decrease in demand, but with excessive workers. You, then, realize you are overstaffed.

With overstaffing, you face financial troubles and a dip in employee morale. You have to pay wages for employees you are not utilizing, affecting your bottom line because of the mismatch between revenue and expenses. In addition, many of your employees remain idle leaving them bored and frustrated. Overstaffing leads to layoffs negatively affecting the morale across the company, even of those who could keep their jobs.

  • High employee costs 

When you have employees on board who are not contributing to the company, they become idle and the wages paid to idle employees is an avoidable expense that affects the profitability of your business negatively. Unless you manage this situation carefully, it can land your company in big financial troubles.

  • Lack of engagement 

Overstaffing means every staff does not have enough work to keep them engaged. This feeling of disengagement leads to employees losing their commitment to the company. The morale of staff gets low even among the engaged employees and affects the business. 

  • Layoffs

Laying off employees is the immediate option available for the company when it is overstaffed. Though this is the ideal situation, layoffs save money and the business from trouble. The other side of the coin is that when the business picks up and there arises the need for additional manpower, hiring gets difficult.

The impacts of Understaffing

Another scenario is when the economy picks up after the slump and the demand starts increasing. You will realize now find that you have an excess manpower count. Understaffing leads to excessive load on existing employees, falling productivity, missed deadlines, and poor customer experience, among others. This adversely affects the opportunities to grow business profitably.

  • Employee morale

When you don’t have sufficient resources on board to perform the tasks, the existing employees have to take the extra load on them. The burden and stress arising from this situation can affect employee morale. 

  • High turnover 

The low employee morale will prompt some employees to leave the company to join another company that has a better workforce size to manage the workload. 

  • Poor work quality 

The high workload can affect the quality of this work and impact the quality of product and service. The company is likely to suffer more loss than what it saves from having lesser employees than required. 

  • Lack of business growth 

Understaffing can restrict the company’s ability to expand. If the employee count does not grow in line with the expansion plan of the business, the execution of the expansion plan can be derailed. This can result in organizations missing out on new growth opportunities.

How do you solve the overstaffing and understaffing issues?

Reaching the balance between employing too many staff or not enough, is like solving a complex equation. You need to review the current state of your workforce, and then, look at data to evaluate the historical patterns to get an insight into the changes in demand, as well as the peak and the minimum count you have ever reached during different seasons. This can help you analyze and figure out the right size for different situations. Let us go over some key ways to solve the overstaffing and understaffing dilemma. 

Technology adoption

Adoption of technology, like in any other area, is crucial for workforce resource planning. The right tools and applications can help you with data and analytics to provide you with insights into the dynamics of staffing requirements and optimizing the workforce. 

Resource Planning

Meticulous planning is inevitable for the companies to get a view of the right size of the workforce today, tomorrow,  and the day after. Most professional companies have budgeting which includes manpower budget among others. Manpower budget has to factor in multiple business elements to reach the number that is perfect or near-perfect and the plan to mitigate the risks of overstaffing or understaffing due to the dynamic changes in the business.


Contracting is one of the ways to solve the problem of a staffing shortage. If you don’t have sufficient clarity on hiring full-time workers in volatile economic conditions, you may want to consider contracting. When you are busy serving the high demand, the contract employees can be of help by taking over a part of the burdens from the over-burdened workers.

On-demand talent and task sourcing platforms

Freelancing and the gig economy have been in existence for some time, but they have grown in prominence after the outset of pandemics. Some Talent/Task as a Service (TaaS) Platform have now become part and parcel of the economy that many companies tap to meet their resource requirements. The advantage here is that companies don’t have to maintain idle employees and at the sametime can source the required resources for whatever period you need easily at a lower cost to the company.

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