As businesses have rebuilt — and in many cases, expanded — after weathering the COVID-19 pandemic, they’ve been hit with yet another challenge: a nationwide labor shortage.
Data shows that consumer spending remains robust in 2022, which poses an urgent need for business owners to beef up their workforce. However, it’s proven difficult to fill job openings. In fact, a study found that 80% of surveyed industrial and manual services businesses (meaning non-office or professional organizations) are having either a very or somewhat difficult time hiring new employees.
The best way to ensure the issues in the job market don’t slow down your business is to rethink your hiring strategy and explore other ways to entice qualified candidates. That’s why, in this article, we’ll define what labor shortages are, explain what causes them, and suggest five solutions that can help you face a tough labor market as a small business owner.
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What is a labor shortage?
A labor shortage happens when the demand for qualified, skilled workers is higher than the supply. That means businesses of all sizes struggle to meet staffing needs, retain current employees, and keep their operations running smoothly.
This is particularly problematic for smaller and growing businesses because they operate on tighter profit margins than larger companies and corporations. They also often can’t afford comprehensive benefit packages, competitive wages, or sign-on bonuses that attract top talent.
What causes labor shortages, including the current one
There are many factors that can lead to difficult labor market conditions and worker shortages across occupations and industries. But in general, labor shortages stem from either too few applicants or a lack of qualified workers.
Here are some more specific examples of conditions that can result in labor shortages:
- The COVID-19 pandemic’s negative impact on workers’ mental and physical health, causing them to quit their jobs in large numbers.
- A rise in work-life balance expectations after the shift to remote work, more autonomy, and flexible schedules partially brought on by the pandemic.
- Worker dissatisfaction caused by low wages and inadequate compensation.
- An aging population and the baby boomer retirement crisis resulting in a decreased number of experienced workers.
- Rising gas prices that make it hard for employees to afford long-distance commutes.
- Record-breaking inflation that’s prompted workers to switch jobs, or even industries, in hopes of higher pay.
- Limited professional development opportunities, which decreases worker motivation and increases turnover.
- A lack of workplace and scheduling flexibility, prompting workers to quit their jobs in favor of companies that prioritize a hybrid or remote work model.
- Insufficient access to childcare services, forcing many working parents to exit the labor force completely to focus on caregiving duties.
- High levels of employee burnout due to employers placing extra pressure on their existing workers as they try to fill open positions.
5 solutions for facing a labor shortage
Your traditional method of hiring simply may not work in the face of today’s labor shortage. That’s why we’ve prepared a list of five solutions to help you streamline your recruitment process, tackle your hiring challenges, and attract new talent.
1. Hire interns
Students are always looking for ways to expand their skill sets and pad their resumes. And creating an internship program not only provides worthwhile opportunities for students, but can also act as a labor solution for your business. These programs are also great ways to get some temporary assistance during your industry’s peak times, like summer or the winter holidays.
The good news is that it’s not difficult to get started hiring interns during a labor shortage. You have several options as to what type of program you’d like to implement. For example, if you want to hire high school students from your community, you can try setting up a student-learner internship program. With this kind of initiative, you’d likely work with local high schools and trade associations to find candidates and align your program with students’ needs.
You could also create a college-credit program, which you can establish by connecting with local universities and colleges to find students in need of internships.
And if you want more information about launching your small business internship program, check out our guide that outlines everything you need to know about hiring interns.
2. Start an employee referral program
Your existing employees are one of the best resources at your disposal to find the right candidates to fill your open positions. That’s because they know the role inside and out and can likely identify who would be a nice fit for your company culture. And even during a labor shortage, you may be surprised by the results incentivized employee referrals can yield.
You can set up an effective referral program in five easy steps:
1. Identify and communicate your hiring priorities
For your referral program to succeed, your existing employees have to understand your hiring priorities perfectly. So start by defining and prioritizing the roles you need to fill the quickest and the positions that have been open for the longest. Then, communicate your findings with your employees, as getting your entire team on the same page can make a big impact on overall referral quality.
2. Write a referral policy
Lay out your expectations in terms of what type of employee you’re seeking for each role so your team can make smarter decisions about who to refer.
You’ll also need to detail how the referral process works, as well as what incentives you’ll be offering. You can start by viewing this referral policy template. And once you’ve got it squared away, remember to store it in your employee handbook.
3. Set the right rewards
When getting started with a referral program, most businesses use cash as an incentive. You can offer employees a smaller reward when they submit a referral, like a $5 coffee voucher, and a more substantial sum when you hire their referee, like a $100 gift card. You can also set up an official bonus payroll system and offer a heftier amount when new employees complete 90 days with the business. Other reward alternatives include additional paid time off (PTO) or a larger draw for a prize like a TV or weekend getaway.
You can also give a prize to the employee who gives the most referrals at the end of a month or a year if you’re on a tighter budget. Or, you could even offer a bonus to the employee whose referrals result in the most long-term hires over a certain period of time. The former method can bring in a higher number of candidates, while the latter can bring in fewer but more high-quality applications
4. Make the referral process easy
Your employees won’t use your referral program if they don’t understand how it works. So make sure it’s consistent and intuitive enough for people to understand with minimal instructions or training.
For instance, when hiring for multiple positions, send out separate emails that detail the job descriptions and share them with your team. That way, they’ll be able to forward them to potential referees more easily. So if you’re hiring for a shelf stocker and cashier, instead of including both job descriptions in one email, break them up into two.
You can also draft canned responses — or predefined answers to common questions — for employees to send to potential candidates. Some questions you can draft responses to include:
- “What’s the onboarding process like?”
- “When can I start work?”
- “What’s your benefits package like?”
- “Is this a remote or hybrid position?”
- “How many PTO days can I take?”
Finally, set up a communication process to remind your team about the referral program and the rewards they can receive.
5. Measure success
Track the following performance indicators to better understand how well your referral program is performing:
- Overall volume of employee referrals
- Number of referrals per employee
- Comparative costs highlighting what you paid out in rewards vs. what it could have cost you to recruit those candidates on your own
- Ratio of referrals to hires
- The retention rate of your new hires
3. Modernize your recruitment technology
Having the right technology on your side can help you broadcast your job openings on a larger scale, find the best employees quickly, and even simplify the hiring and onboarding process. That’s because great recruitment technology is designed to speed up hiring by:
- Making it easier to sift through applications using pre-interview screener questions or artificial intelligence (AI) tools that can shortlist your ideal candidates
- Simplifying communication by letting you message job seekers and set up interviews in the same place
- Automating processes so you can focus on running your business and retaining your current employees
For example, Homebase hiring jumpstarts your recruitment process by making it possible to create job postings in just a few clicks. You can start with our library of pre-written, customizable job descriptions. Then, we’ll post your advertisement to all the top online job sites — including Indeed, Glassdoor, Facebook, and ZipRecruiter — for free.
Once your job is out there, you can even boost it on platforms like Facebook and Craigslist. Then, you’ll be able to keep track of applicants, identify those with the most potential, and even schedule interviews — all from the Homebase dashboard.
4. Outsource or automate what you can
Assess your team’s workload by tracking the time they spend doing different things. You can start by reviewing everyone’s day-to-day responsibilities and identifying their core tasks to determine what, if anything, is slowing them down.
You’ll likely find that your staff members are wasting time on administrative tasks or maintenance duties that could be outsourced or automated, like cleaning, delivery, payroll, onboarding, and scheduling. Taking these kinds of responsibilities off your employees’ hands frees up their time and allows them to work on higher-importance tasks like future planning, marketing, strategizing, or sales.
“[We’ve] also spent a lot of time and money automating processes on the back end. This not only saves in employee labor but eliminates human error in many situations.” — Beth Herrild, Founder and CEO of Outside the Box Creation
Homebase makes running a small business easier by streamlining scheduling, optimizing labor costs to keep expenses low, and automating payroll processes so you can pay your team in a matter of clicks.
5. Offer better perks
Coming out on top during a labor shortage can be as simple as providing better perks and benefits than other businesses. Here are some ideas to get you started:
Take a look at your current compensation plan and reevaluate it. How does it compare to other companies in your industry and location? Do some research to learn what the financial new normal looks like. Use a cost of living calculator to determine what your employees should be making to live comfortably in your city.
Also, consider talking to your employees directly and gathering feedback about their compensation satisfaction levels. Homebase’s employee happiness software lets you collect feedback from workers at the end of every shift and gives you automated reports on employee sentiment trends over time. That way, you can keep track of how your employees feel about their wages and review them if workers are unsatisfied, which will help you retain your current workforce.
You might not have the budget to raise wages for all your open roles. But providing the right benefits to supplement your team’s pay can have a similar positive effect. Consider increasing your paid time off plan, adding a comprehensive healthcare package, offering training and career advancement opportunities, or implementing signing bonuses to attract top-tier candidates.
“Make sure you’re offering good training and benefits like health insurance, dental, and vision [along with] the chance to move up. People don’t want to be stagnant at their jobs. Give them opportunities to grow and they’ll be more likely to stay.” — Johnny Pallares, Owner of De La Rosa House Cleaning
For instance, Homebase’s cash out feature gives team members early access to up to $300 of their paychecks (at no expense to you!) so they can handle emergency expenses and have more financial flexibility. So if you think you can’t afford to offer employee benefits as a small business, think again.
The pandemic made many people realize that a healthy work-life balance isn’t only possible, but essential. So make sure your recruitment process and job descriptions reflect a willingness to be flexible with shift scheduling. Learn your candidates’ preferences and assure them that you’ll factor them into your schedule building every week.
It’s also important to make time off requests and shift-swapping processes as stress-free as possible. Homebase makes it easy for employees to chat about trading shifts and for employers to sign off on swaps or accept requests for leave. Curious about how exactly Homebase streamlines PTO policies and time off approvals? Check out the video below to learn more.
Weather the labor shortage storm with Homebase
A labor shortage happens when businesses can’t fill open positions because of a lack of applicants or skilled candidates. There are many factors that can contribute to this problem, including shifting worker expectations, inadequate compensation, an aging population, and inflation. Labor shortages put a lot of pressure on small businesses in particular since they need to keep operations running smoothly on much tighter profit margins than larger organizations.
However, with a revamped hiring strategy, an efficient outsourcing and automation plan, and added employee perks, you’ll be able to not only survive a labor shortage, but thrive.
If you need more help finding top talent for your team, get started with Homebase hiring. We’ll post your job description on leading sites, help you find the perfect candidate, and even streamline the onboarding process by sending your new hires digital welcome packets.
Homebase gives you modern tools and guidance to keep you compliant.
FAQs about labor shortage solutions
How do employers combat labor shortages?
Employers can combat labor shortages and increase employee retention by:
- Optimizing the onboarding experience
- Offering better and more meaningful perks and benefits
- Improving scheduling for hourly workers
- Increasing compensation
- Starting an employee referral program
- Provide more training and development opportunities
How can I hire employees quickly?
Here are five ways you can hire new employees quickly:
- Throw hiring parties or events
- Automate your recruitment process with hiring software like Homebase
- Promote your job postings online with paid boosts
- Advertise your job openings on social media platforms like Instagram and TikTok
- Ask for existing employees to provide referrals
How can Homebase help with hiring?
Homebase eases the hiring process for small businesses by:
- Providing a library of pre-written, customizable job descriptions to use for job postings
- Publishing your open positions to various top online job boards like Indeed, Glassdoor, and ZipRecruiter for free
- Promoting your job postings with paid boosts
- Streamlining the interview process by letting you review applications, message candidates, and schedule interviews all in one place
- Simplifying the onboarding process by integrating new employees straight into your team. We do this by automatically sharing employee handbooks and documents, adding new hires to your team’s communication app, and sending out welcome messages.