Allocated heads carry the largest hidden charge.

How headcount sneaks into the TSA.

TSA headcount appears in three forms. Named seller employees seconded to Newco at full cost plus markup. Fractional FTE allocations across shared service functions, billed at a percentage of the full loaded cost. Pooled service charges where a team of seller employees supports several units and bills Newco for an allocated share of the team's cost.

Each form carries a different rationalization play. Named seconded employees can be challenged on whether the role is needed at the seconded scope, whether the markup is justified, and whether the service can be replaced by a Newco hire faster than the original plan assumed. Fractional allocations can be challenged on whether the allocation percentage matches actual support time. Pooled charges can be challenged on whether the pool's productivity is competitive with market rates.

The disciplined buyer pulls every headcount line into a single roster early. Each line shows the function, the role, the allocation basis, the loaded cost, the markup, the volume metric if any, and the term. Without this roster, the buyer cannot prioritize and the seller controls the conversation. The pattern overlaps with the broader TSA cost reduction tactics approach.

The utilization test.

The first analytical pass is the utilization test. For each named seconded employee or allocated FTE, the buyer asks how many hours per week the resource is actually working on Newco demand. The answer rarely matches the contracted allocation. A 50 percent allocation often supports 20 to 30 percent of utilization. A full time named secondee may be supporting Newco at 60 to 80 percent of capacity with the rest going to legacy parent work.

The utilization data comes from three sources. Time tracking from the seller if available. Ticket and request volume from Newco's helpdesk and shared service system. Activity sampling through structured manager interviews. Each source has limitations. Combined, they produce a defensible picture of actual demand on each line. The seller will dispute soft estimates but cannot easily dispute documented activity.

The output is a list of overprovisioned lines. Each line gets a proposed adjustment with an effective date. Allocations cut from 50 percent to 25 percent. Named secondees released earlier than the original term. Pooled charges adjusted to a lower share. The seller's response is the negotiation. The pattern overlaps with the deeper play in TSA service catalog rationalization.

Markup and loaded cost discipline.

The headcount line is usually billed at a fully loaded cost plus a markup. The loaded cost includes salary, benefits, payroll taxes, allocated overhead, and sometimes a productivity adjustment. The markup is the seller's margin on the seconded resource. A typical TSA markup runs 8 to 15 percent on cost-plus headcount lines. Higher markups appear when the buyer did not push back at signing.

The disciplined buyer tests each component. The salary should match the seller's actual payroll record. The benefits load should match the seller's standard benefits rate. The overhead allocation should be capped at a reasonable percentage of direct cost. The markup should fall inside the range agreed in the TSA. Each test produces a credit when the actual billing exceeds the contract.

Loaded cost discipline is also a leverage point for renegotiation. If the seller's loaded cost is materially above the market rate for the role, Newco can replace the named secondee with a directly hired equivalent at lower total cost. The replacement plan needs lead time for recruitment, but the savings build into the exit ramp on that line. The deeper benchmarks live in the TSA markup benchmarks article.

The replace, retain, or release decision.

Each headcount line gets one of three dispositions. Replace, where the role moves to a Newco employee. Retain, where the line continues under the TSA at adjusted scope. Release, where the role is eliminated entirely. The disposition decision balances cost, capability, and timing.

Replace is the most common path for senior individual contributor and manager roles. Newco hires its own person, the seller secondee transitions out, and the cost moves from a TSA line at cost-plus markup to a direct payroll line. The transition needs a clear knowledge transfer plan and a documented overlap period. Retain is the right choice when the role requires deep parent system access that Newco cannot replicate quickly. Release is the right choice when the utilization data shows the role was overprovisioned from the start.

The disposition map is then sequenced. The largest cost lines with the lowest replacement complexity go first. The smaller cost lines and the harder transitions follow. The buyer's value creation plan books the savings on the date the line actually drops out of the run rate. The pattern overlaps with the broader TSA stranded cost elimination approach.

Knowledge transfer and continuity.

The largest risk in headcount rationalization is the loss of operating knowledge that lived in the seconded employee's head. Process documentation in carve-outs is rarely complete. The named secondee often knows the workaround for an obscure system, the workflow for an exception case, and the history of why a particular setup exists.

The disciplined buyer protects this knowledge through structured transfer. The seconded employee's last 30 days are partly devoted to documentation, training the Newco replacement, and shadow runs of the critical processes. The output is a knowledge transfer pack that the Newco replacement owns. The pack includes process maps, system credentials, escalation contacts, and the list of edge cases the role handles.

A short retainer arrangement after the formal release is also useful. Two to four hours per week of access to the former secondee for question handling during the first 60 to 90 days reduces the risk of operational breakage. The retainer is priced at the loaded cost of the resource for the actual hours used, with no markup. The deeper knowledge transfer pattern lives in the TSA exit knowledge transfer article.

More on TSA cost reduction.