CPA: Tight labor markets will force workforce optimization

At the CPA Annual meeting held in Tampa last month, Tom Landry, president of Allegiance Staffing, delivered the bad news first: the labor market is tight and getting tighter with a national, seasonally adjusted unemployment rate of 3.9%.

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“Unless you’re in West Virginia or Alaska, things are pretty tight,” Landry says. “And that isn’t going to change anytime soon.”

And the 2018 elections seem to be shifting some of the balance of power toward labor.

“The 2018 Congressional elections dramatically altered the political landscape—which guarantees big changes in the upcoming legislative agenda,” Landry says. “A clear signal has already been sent by Rep. Bobby Scott [D-VA], the new chairman of the House Education and Labor Committee. In a recent press release, Chairman Scott identified the Committee’s priorities in its ‘Putting Workers First’ agenda, which focuses on enhancing workers’ rights, including higher wages and benefits and rebuilding America’s unions. Already on the table is legislation promoting predictive scheduling, paid sick leave, enhanced joint liability, and prohibiting employee arbitration agreements.

“There isn’t anything being introduced that is going to make your labor more efficient. It leads to more regulation and higher costs. And labor is your variable. If you can control it, you’re profitable, and if you can’t control it, you’re not profitable,” he says. “It’s a pretty simple calculation.”

Landry illustrated some compensation tactics that contract packagers and brand owners have used over recent years to navigate the waters of a small labor force.

• Drive down the mark-up (with temporary employees): Theoretically reduce cost by driving points out of a mark-up.

• Headcount creep: Add more people to make up the production: “I still need to get these cases out, so we need to add people to do so.”

• Unscheduled overtime: Work more hours to meet your numbers.

But these compensation tactics have precipitated a paradigm shift. Instead of trying to do more with less, packagers are settling for doing the same with more—and to deleterious effects, he says.

“Engineered labor standards say it’s supposed to take X number of people to generate Y amount of product or throughput, but we’ve learned to accept less than that, and to compensate for it,” Landry says. “That means there are opportunities there that we’re missing, and if we go back to square one, we can realize those gains again.”

The good news, he says, is there are ways to combat this slippage. In the case of added personnel and overtime, consider a situation where a packager adds an extra person, and adds two hours of overtime per week. While this doesn’t sound drastic—11 employees instead of 10, and two hours of overtime. But the budget reflects 10 people on a 40-hour work week. The effective costs then grow from $13/hour/person to $15.37/hour/person.

“Instead of hiring more people or adding overtime, identify the people out of the original 10 who are the most critical, guys that the line can’t function without. And identify the less efficient people, the ones who are likely to be turnover anyhow,” Landry says. “Let’s take care of the people who are critical and deal with mitigating the effects of those that aren’t critical. Promote two of your critical people and pay more for them, pay less for your non-critical people, and avoid overtime and extra employees.”

Landry also suggested looking for talent among convicted felons on work-release programs, saying they can turn out to be remarkably reliable in part because they’re legally bound to be at work reliably.

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