Every business wants to save money. Mismanaging this goal can lead to costly outcomes for your workforce management teams.

Cost savings are near and dear to all procurement teams, and human resource departments also want to help line managers free up their budgets.  Yet, without thoughtful cost savings strategies that consider current market conditions, past efforts, and existing workforce management trends, some practitioners get overly enthusiastic in their applications of implementing initiatives that prove to be unsuccessful. As a managed service provider (MSP), Broadleaf helps organizations understand more innovative ways to save money. 

How Managed Services Companies Create Valuable Cost Savings

Whether you are looking for short-term or long-term solutions for your management services, MSP companies can improve operations by managing daily tasks so organizations can focus on improving services without interruptions. Even though these solutions are available to businesses, many decide to make costly mistakes.  

Discover how to avoid excessive spending while acquiring talent. 

1. Hiring with Competitive Rates vs. Lower Wages

The reasoning here is simple.  Reduce incremental costs; boost long-term savings.  However, this approach often leads to reduced talent quality, lower productivity, negative worker morale, and high attrition.  All of these “soft” losses have real consequences. 

On the markup rate side, if a company reduces a markup by 2%, they may view immediate hard savings but ultimately lose contractor support. Savvy service providers will focus on companies that pay them fairly for their services. 

Expert Tip: It is important to remember that variables should be considered such as training costs, onboarding expenses, losses in production, and increased overtime costs. Brand recognition components such as employee morale drops and local competition should also be considered.  

Though there might be front-end expenses with MSP providers, the savings will be seen in the long run.  

2. Prioritizing Worker Safety Measures 

Never should cost-cutting increase the risks of workplace injuries or create an unsafe environment. A quality MSP provider will advise against an initiative that could haunt a company financially, especially if an injured worker files a worker compensation claim and safety conditions are found to be inadequate.  

Safety concerns and employee training often overlap. Resist the urge to cut back on training, which can affect both safety concerns and employee retention. When employees feel prepared and valued, they enter a “psychological contract” with their employer instead of solely an economic one.  

Did You Know? Identify cost-effective options such as online training or mentor/peer training. There are creative ways to retain safety and training procedures while still maintaining a budget-friendly attitude. 

3. Marketing Budget Strategy for Talent Acquisition 

Economic conditions often drive widespread cost-cutting decisions. During an unstable economy, a company may decide to maintain its status quo, neglecting candidate attraction.  

This “coasting” approach is never wise. While one company coasts, its competitor may be working steadily to unveil a new strategy. Nowadays, companies with strong brands and high employee retention are now faced with finding creative ways to retain their employees as the work landscape changes. Many organizations are exploring the value of hybrid and remote work to accommodate their employees’ need for flexibility. 

Expert Tip: A thoughtful talent acquisition strategy should map processes for attraction during both economic downtimes and booms.  MSP providers help to manage expectations and position customers for ongoing success.  After all, contingent and direct workforces continue to evolve.  Remember, economic downturns often compel companies to seek out new ways to reduce costs enterprise-wide.  This heightens pressure to reduce competitive wages (mistake #1). 

4. Not Anticipating Talent Shortages

While experiencing solid flows of quality candidates, companies often utilize the cheapest possible rates. During shortages, there is a decrease in employee retention. Although these changes may appear to be slow, cutting costs is indeed affected as the need to increase recruiting, training, and onboarding efforts becomes more significant.  

Did You Know? Having the lowest markup or bill rate in the area often forces agencies to prioritize workloads, meaning the lowest profit positions get worked last. The lowest quality candidates are submitted to these clients, as they are all that remain in the talent pool. 

By keeping clients informed of industry trends and compensation changes, an effective MSP service should share strong retention and pipelining practices. 

5. Mistakenly Classifying Hired Talent as 1099 Contractors

Some companies misclassify W2 employees as 1099 contractors. This strategy is appealing to businesses because it avoids taxes and benefits employees. However, strict IRS rules apply to 1099 relationships.   

Expert Tip: True contracted hires take on their own responsibilities (business insurance, taxes, client list, wage rate, work hour flexibility, etc.) If the company is providing human resource benefits to a talent with a 1099 status, costly penalties are imposed by the IRS.  This exponentially removes any cost savings upside. 

Not sure where to start with your managing contingent workforce? Broadleaf can help with hiring and talent acquisition needs. Speaking with an expert consultation on cost savings strategies can be invaluable! To learn more about MSP staffing solutions, visit the Managed Service Programs page or get in touch with a recruiter. 

This blog was originally published April 10, 2018.