Operations Management

Managing Temporary Labor

Written by Andrew Goldman for Gaebler Ventures

Depending upon your particular business, you probably use a combination of full-time, part-time or temporary labor. Finding the right balance can mean the difference between losing money and turning a profit.

Depending upon the nature of your demand cycle, you may use full-time, part-time or temporary employees.

Companies with volatile demand typically use full-time employees with temporary labor brought in during peak demand periods. Businesses that experience seasonal demand typically hire part-time or seasonal employees to handle the busy months of the year.

Companies that experience steady or level demand have the benefit of using full-time employees exclusively. The nature of your demand and type of industry you operate in should determine how you balance your workforce.

In general, a level or balanced schedule is the easiest to plan for. Some seasonal businesses stretch their work out so they can maintain a level schedule. This is not a bad strategy, as it allows employees to work full time and it avoids the issue of hiring temporary or part-time labor.

If this is your strategy, you're probably building high levels of inventory to prepare for anticipated demand. Be careful using this strategy and understand the costs and implications of carrying large levels of inventory.

Seasonal businesses that cannot build anticipation inventories rely on part-time or temporary labor to help during peak months. The decision between part-time employees and temporary employees can be critical.

Depending upon the difficulty of the work, a good deal of training may be required before an employee can begin working. If you require a lot of training, part-time labor may be a better decision than temporary labor. The costs of both alternatives should be calculated and compared. These numbers should include training costs and turnovers costs.

Temporary labor can be a great tool for companies looking to have flexibility in their workforce.

Temporary labor can be brought in on short notice and in many cases calls can be made the night before busy days. The problem with temporary labor is that training can be difficult, in that you may not get the same employees each day.

If you are using a temp service, try and find one that can send you the same people if requested. This will greatly reduce your training costs. With temporary labor, your company can avoid some of the overhead and paperwork associated with pay-rolled employees. Usually you pay a premium for this, as temporary hourly wages often cost more than your internal rates.

If training and lay-off costs are expensive, you may be able to hire extra full-time employees to reduce these costs. Even though you may be overstaffed during slow months, you'll experience cost-savings during peak demand periods.

During slow months, time can be spent training and educating employees to improve your workforce. The cost of having someone full-time versus the cost of hiring/training/laying off an employee should be calculated and analyzed internally. If you come across an exceptional employee who is a Temp or working part-time, you may want to offer them a full-time position. If this is the case, make sure you've done your calculations first.

The balance between full-time, part-time and temporary labor can mean the difference between turning a profit and losing money. Make sure you complete comparative analysis of the costs for your various options. This will help make the decision easier. Intangibles including worker reliability, knowledge and skill-level should be considered as well.

Andrew Goldman is an Isenberg School of Management MBA student at the University of Massachusetts Amherst. He has extensive experience working with small businesses on a consulting basis.

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