How to Build a Remote-First Workforce Planning Model: Best Practices for Planning a Cost-Effective Hybrid Workforce

We’re nearly two years into Covid, and like many companies, you might be looking at the cost of your office space and considering the business case of moving at least part of your staff into permanent work-from-home or remote status.

Being the good employer you are—and recognizing the war for talent you’re in—you also want to ensure that your current team and future hires have benefits that allow them to work from home effectively and feel connected to the organization.

Is closing your offices and giving people compensating benefits a good financial move for your bottom line? (Of course there are many non-financial considerations, but for this blog we’re focusing on adding up the costs.) 

How do you weigh and plan for the costs of such a change? In this post, we’ll walk you step-by-step through how to think about this, and use our free headcount planning template to run the numbers for a fictional company, NoMoreOffice Inc. That should help you consider all the moving parts as you plan your strategy.

Let’s start by laying out the base case.

Base case: Workforce planning template for keeping the office open

• NoMoreOffice has a 80-person team scattered around the country; 60 are already remote, and 20 work in one of three offices: a 5-person marketing team in Utah; 10-person customer service team in Arkansas; and 5 sales reps in Florida (see screenshot below).
• Every year, NoMoreOffice expects to hire 10 additional staff: 2 in marketing, 2 in customer services, 2 in sales (in each case, they hire into the current offices they occupy) and 4 in other departments (see screenshot).
• NoMoreOffice currently doesn’t have any special benefits for remote employees.

Let’s look closer at the headcount math.

First, you can see we’ve spread out the actual hiring over the course of the year.

Second, let’s look at cashflow related to compensation (salary and bonuses only). You can see a significant spike every Q4, when bonuses are paid out. Engineering and product are particularly top heavy with higher bonus percentages, which explains the larger Q4 bumps. You can also see increases in Q1 due to salary adjustments that take effect in January. And underneath both of these is growth over time with hiring.

Third, looking at taxes and benefits expense we see a similar steady increase mirroring headcount growth.

Now that we understand the current trajectory NoMoreOffice Inc is on, let’s consider the financial impact of taking a different approach.

Alternate scenario: Workforce planning template for moving to a remote-first workforce

NoMoreOffice’s CFO would like to calculate the impact of the following changes:

• Terminate the leases on the three offices.
• The rent savings will be offset by new benefits:
  • $80 per month to order lunch (applies to every employee)
  • $100 per month toward phone and internet (applies to every employee)
  • 1-time stipend of $500 to set up their home office (applies only to new hires and those moving from office to working from home).
• The rent savings will also be offset by a change in where employees live. Assume existing hires stay in their current states when the offices are closed, but new positions will be open to candidates nationwide. Let’s assume over the 4 year forecast window that 50% join in the same state as each office; 20% join in California; 20% in New York; and 10% elsewhere. Because the local job markets in CA and NY have higher salaries, it’s reasonable to assume those hired in each state will negotiate a 20% higher salary. Unemployment tax rates vary by state, of course, and we’ll have more to say on that below.

So how can NoMoreOffice’s CFO factor these changes into their headcount cost model?

By closing three offices, NoMoreOffice will save on rent.

The details are outside the scope of a headcount model, but we can do a simple estimate that gets us to $120,000 in rent avoidance in 2022. (The cost of office space ranges from roughly $5,000-$15,000 per employee per year depending on the market. Assume NoMoreOffice’s leases run $6,000 per employee, employ 20 people, and shut-down costs are negligible.) Factoring in the 6 person in-office headcount growth expected in the base case, rent avoided goes up by $36,000 each year.

Compensation expense

Turning to compensation, we see the same overall shape as before, but the total level is slightly higher (about 2% at the end of the forecast period) because some of the newly hired staff are working from higher-wage states.

Taxes and benefits

Looking at taxes and benefits, you’d expect to see a difference: bringing on employees in higher-wage states that also have higher payroll and employee-paid taxes should be a double whammy.

Surprisingly, the effect is actually negligible. Although higher pay increases FICA taxes for some higher earners (Social Security taxes cap out near $150,000 and Medicare at $200,000), it’s offset by state unemployment taxes.

In our example, the three states with the most employees today are Utah, Arkansas, and Florida. Our template includes standard rates for State Unemployment Tax (usually called SUTA (A for Act) or State Unemployment Insurance)—see the USA_Payroll_taxes_Benefits sheet and the table excerpted below.

Casual observers would consider Florida, Arkansas, and Utah low-tax states, but as the table below shows, it’s not so simple. Arkansas’ SUTA tax rate is almost double New York’s and almost triple Florida’s! And in Utah, though the rate is similar to several other states, the tax is applied up to a much higher wage level.

2022 SUTA Tax rates and thresholds for select states

If we take a few specific employees as examples (the calculations are in the Calcs_USA Hires sheet in the template), the difference in SUTA tax expense is really stark: Utah is nearly double Arkansas, which is itself 50% more than the third place state, New York. And California is lower than Texas. Not where most people’s intuition would lead them! 

SUTA for select employees

Work from home benefits

The least surprising difference is the cost of the new benefits, of course. But the details still offer insights. Particularly notable is the cash impact right up front, when NoMoreOffice provides a substantial benefit for office set-up to a large fraction of employees and a new monthly benefit to all employees. After the initial hit, the benefits largely mirror staffing growth with small bumps visible at the department level when new employees join.

What’s worse, it’s not a smooth monthly expense: seeing this visually makes it obvious just how much of the cash hit happens in Q1 due to the home office setup benefit that hits all office-based employees at once. Finance has to factor in short term cash impacts in addition to yearly overall impacts of changes to headcount. These insights powerfully demonstrate the value of a good financial model. Closing offices might not be the financial panacea it looked like at first glance!

Variance analysis: Comparing the two paths to make a decisions

Now that we’ve looked at each option in detail, let’s compare them. To do this, we’ve created a third spreadsheet to calculate the variances between both scenarios. That is summarized in the chart below.

The results are striking. Four major findings stand out:

First, about 60% of the new costs that NoMoreOffice will face under this plan come from higher payroll as some staff join in high-wage states. But it’s particularly notable in years 3 and 4, so it’s also subject to the most uncertainty, and as a business NoMoreOffice could find ways to control this. For example, they could choose not to pay more in high-wage states, making it less likely job candidates from those states join the company. Or they could put the plan in action as outlined, but keep an eye on whether their estimates of new hires in high cost states are as high as they initially expected. If their assumptions were too conservative, payroll cost escalation might turn out to be less important than it looks right.

Second, the varying tax regimes of certain states have almost no effect whatsoever on the overall cost to NoMoreOffice. Of course, if your company is based in very low SUTA states and shifts to higher SUTA states, your experience might be different. But as with all tax topics, this one is quite nuanced.

Third, the costs of the new benefits is about 40% of the total new costs born under this plan, but 75% of the year 1 cost and 60% of the year 1 and 2 costs. Therefore, Finance’s immediate analytical focus should really be designing and funding this program the right way. There are of course many levers they could explore by adjusting eligibility, benefits levels, etc.

Fourth, the overall costs of higher benefits and payroll in year 1 are $221,470—over $100,000 higher than the savings from closing the office. And it only gets worse from there. Over four years, the decision is expected to cost over $1.3 million.

Exploring the limitations to conducting variance analysis in Excel or Google Sheets

We hope you found the discussion above illuminating, and the spreadsheet files behind it helpful if you’re contemplating a similar shift in work location.

But as helpful as spreadsheets are in building a headcount model, relying on spreadsheets while trying to collaborate with your executive team will hold you back. When your CEO asks for the impact of a decision on each department, you’ll kill your credibility if you have to leave the C-suite for your cubicle for several hours. To persuade your leadership team, you need to answer questions in real time.

Why can’t spreadsheets get you there?

1. Spreadsheets stink for managing multiple scenarios. In our case, we had to create three: a base model, an alternative, and a third to calculate the difference between them. If we wanted to change some of the assumptions, like hiring growth or the structure of benefits, or adding more than 100 current employees and 50 new hires, we’d need to make those changes in exactly the same way to both scenarios to avoid miscalculation.
2. Looking at different time horizons is hard. If we wanted to look closer at the cash flow impact in year 1, or change from a quarterly view to a monthly or yearly one, we’d be reworking formulas and recreating charts. That’s a major hassle.
3. It’s a pain to keep a model like this up to date with the latest staff list and compare the forecast with actuals as time progresses. You have to import staff data manually each time, copy/pasting it into the right tabs in each scenario.
4. You can’t share the spreadsheet in whole across the org—it contains salaries for every employee in the company. Instead you have to create and keep track of redacted copies.
5. We’ve relied on just a few charts in our analysis above. What if we want to see the impact by department, or adjust benefits by job level and see that? Such ad hoc analysis can take many different directions, so being able to really quickly build new views into the data and feed the insights back into the assumptions is critical.

The good news is that OnPlan exists precisely to keep what you love about spreadsheets—the ability to build models with unlimited flexibility in an environment and with a syntax you know—while addressing the limitations of spreadsheets, like those above.

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