Labor hoarding: How to avoid layoffs + retain talent

The labor market is challenging for small businesses to navigate, especially with the costs of hiring and labor shortages. It can be difficult to determine the best way to manage and retain employees. 

One approach more businesses are considering is known as labor hoarding. A recent Skynova survey found that around 90% of small businesses are already practicing labor hoarding—and they plan to continue hoarding in 2023. In this article, we'll explore the idea of labor hoarding and discuss the pros and cons of this strategy for small business employee retention.

How labor hoarding works

Labor hoarding is the complete opposite of layoffs. Businesses hold onto employees to combat talent shortages and rising recruitment costs. While laying off employees may seem like an easy way to cut costs, companies must consider the time it takes to find, hire, and train new workers.

Labor hoarding helps small businesses limit hiring costs and maintain a steady level of employees. However, this can lead to higher labor costs and decreased productivity if managers don't assign tasks efficiently.

While labor hoarding and the word hoard can sound negative, there is nothing negative about this strategy if it is a mutually beneficial relationship between employees and their employers.

Why small businesses labor hoard

Small businesses may choose to labor hoard for a variety of reasons. One of the primary motivations is to minimize recruiting costs and ensure job security for existing employees. 

By keeping workers on hand, employers can quickly access skilled labor when they need it. This allows them to avoid the recruitment process. Here’s a deeper look at why small businesses are hoarding labor today. 

Keep employee morale up

One of the top reasons small businesses choose to labor hoard is to avoid hurting employee morale. Almost 50% of business owners in the Skynova survey list that as the main reason they labor hoard. With higher morale comes greater loyalty, employee retention, and higher-quality work. 

Circumvent labor shortages

The other reason businesses look to hoard talent is to ensure they have the labor when it’s needed. A workforce shortage can make it hard to find and hire employees. 

In fact, 43% of small businesses in the Skynova survey say they are labor hoarding because they had difficulty hiring employees in the past. Instead of figuring out how to hire new employees, companies are opting to keep their current ones. 

High hiring costs

Businesses often hoard labor to avoid paying the higher hiring and training costs of replacing employees. Over 40% of business owners in the Skynova survey are labor hoarding to avoid these costs. 

Ways to make labor hoarding worthwhile

If a business decides to labor hoard during tough economic times, it usually has to find other ways to cut costs. Otherwise, labor hoarding puts you in an even worse position and can lead to productivity issues, as well as lower job satisfaction and morale. Instead, businesses can take these labor-related actions to make labor hoarding more advantageous:

• Embrace remote work 
• Transition to a four-day workweek
• Cut underutilized employee benefits 
• Use freelancers and contractors less

Each business is different, and staffing needs vary by industry. While labor hoarding may have long-term benefits, sometimes laying off employees to survive the short term is the only option.

Pros and cons of labor hoarding

Deciding whether to labor hoard is about balancing the costs versus the benefits of the strategy. 

Pros

Hoarding, or holding onto, talent does send strong signals to your current workforce. The pros of talent hoarding are that it: 

• Creates employee loyalty: Employees may feel valued and appreciated when the company invests in their skill development and job security. This leads to greater employee loyalty and retention.
• Improves quality: Experienced employees can provide high-quality work that may not be possible with new hires who lack experience and training.
• Builds morale: By retaining workers, companies can show their commitment to their employees and help boost morale.
• Increases flexibility: By keeping workers with specialized skills, companies can ensure that they have the necessary expertise when they need it. This also allows them to take advantage of new opportunities quickly. 

At the same time, there are disadvantages to labor hoarding. 

Cons

Labor hoarding can increase costs and lower productivity for businesses. For example, labor hoarding: 

• Increases costs: Retaining employees during low-demand periods or downturns may lead to higher payroll and labor costs, negatively impacting the company's profitability.
• Reduces productivity: Having too many employees while demand or work is low creates productivity issues. 
• Hinders innovation: Companies that focus on retaining their current workforce may miss out on opportunities to bring in new talent and fresh perspectives, which can be essential for innovation and growth.
• Creates inefficiencies: Keeping employees who are not productive or who are no longer a good fit for the company may lead to inefficiencies and lower overall performance.

For employers looking to avoid labor hoarding, there are other options. 

Alternatives to labor hoarding

There are long-term benefits to keeping employees aboard, but they might not be worthwhile if they strain your business too much in the short term. Thus, there are alternatives to labor hoarding. 

If you do decide to lay off some of your staff, you can still succeed by: 

• Using freelancers and contractors: Use them to fill the gaps or replace employees on an as-needed basis. 
• Hiring retirees and former employees: When looking to rehire, you may have success with retirees and business alumni, as the cost and time to train and hire could be lower. 
• Looking at other industries: You may find employees in struggling industries that have the skill sets you need or can offer a unique perspective—but at a lower overall cost. 

Tips for labor hoarding

Deciding whether to hoard talent will depend on the right staffing solution for your business. Start by figuring out your current and future staffing requirements. If you do decide to labor hoard, there are ways to ensure you get the most out of it. 

Here are some ways to ensure labor hoarding is successful: 

• Reskill employees: Use them in other areas of your business instead of letting them go or cutting their hours. Transition them to more profitable projects and invest in helping them acquire new skills. 
• Cut costs in other ways: Avoid cutting costs in areas that will harm employee morale. Instead, cut wasteful spending on excessive travel, events, and unused perks. 
• Tap into new customer segments: Find ways to get new customers or sell new products or services to your current customers. This may involve finding new niches, segments, or sales channels. 
• Communicate clearly: From budget cuts to new initiatives, communicate with your employees to keep morale high. This can help foster trust and shows you’re investing in company culture. 

Run your business with confidence 

Labor hoarding is a strategy that can help businesses with employee retention, but it can also have some drawbacks. It may lead to an overcrowded workplace where employee utilization and morale are low, which reduces productivity. 

With QuickBooks accounting software, managing your company finances is one less thing to worry about. That way, you can focus on more important things—like employee morale.

Labor hoarding FAQ

Here are the top questions small business owners have about labor hoarding: 

What is talent hoarding?

Talent hoarding can be a synonym for labor hoarding, but it can also refer to a manager keeping an employee on their team when it’s harmful to the employee’s growth prospects. Talent hoarding can be avoided by crosstraining and upskilling employees. Talent hoarding can also be prevented by supporting and rewarding current managers. 

What is hoarding in economics?

Economic hoarding is buying a large amount of a product to create scarcity. The buyer then benefits from higher prices in the future.

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