For a long time, analysts have looked at the temporary staffing industry as a bellwether for the U.S. economy. "Staffing is always the first to get hit and the first to come back," says attorney Joel Klarreich, head of the Corporate and Staffing Group at Tannenbaum Helpern Syracuse & Hirschtritt LLP in New York City.
But as the recession lifts, a better-than-expected performance in the temporary staffing industry has experts wondering whether it's more than just the economy spurring such growth. Employers may be considering the strategic advantages of turning to staffing agencies in good times and bad, which portends even more expansion for staffing companies—and greater flexibility for many employers.
From February to November 2011, the temp industry accounted for 14.5 percent of total jobs added in the U.S. economy, says Jeffrey M. Silber, a managing director of BMO Capital Markets in New York City. "If you look at the past five recessions, this is the biggest percentage ever. With all this uncertainty—new regulations, health care reform, economies teetering in Europe—companies are reluctant to hire. Instead, they're turning to temps."
On average, only 15 percent of U.S. businesses use staffing services. Of those with more than 100 employees, 24 percent do so, including most Fortune 100 companies. Just
12 percent of businesses with 25 to 99 employees hire staffing companies. Small and medium-size companies may be reluctant "because they think using a staffing agency is disruptive or too costly," says Richard Wahlquist, president of the American Staffing Association in Alexandria, Va.
U.S. Bureau of Labor Statistics data suggest that between 2008 and 2018, staffing companies will add jobs at almost twice the rate of estimated job growth overall. The prediction suggests that more employers will be looking at the strategic advantages of partnering with staffing agencies. Some say it's about time. "I don't understand why more people don't do it," says Tracy Menefee, HR administrator at Real Time Resolutions Inc., a mortgage collector in Dallas. "Maybe they're not aware or have had a bad experience with an agency, but they'd be smart to take a closer look at the advantages."
Why Use Staffing Firms?
In a 2011 McKinsey Global Institute U.S. Jobs Survey of 2,000 employers, 34 percent said they expect their companies will use more temps during the next five years. Among the trends driving these projections:
Talent mismatch. Qualified people are hard to find. Staffing agency marketers say that with expertise, up-to-date resources, focus and financial motivation, they can identify and recruit talent better than employers can.
Spiraling costs and regulatory mandates. Use of staffing agencies provides an option for shifting benefits costs and burdensome taxes. "The regulatory environment is a main factor behind this trend," contends Jim Link, SPHR, managing director of human resources for Randstad in Atlanta. "Look, for example, at health care and the financial burdens it carries."
Flexibility. Staffing agencies offer employers the ability to respond faster to rapidly changing economic cycles, global competition and changing technology. "Our industry acts as the lubricant to make change happen. It offers the flexibility employers need to respond quickly," says Jonas Prising, president of the Americas for ManpowerGroup in Milwaukee. On average, companies that use temporary labor strategically contract out for between
15 percent and 20 percent of their workers, he says.
Worth the Money?
From HR professionals' point of view, cost represents a major concern—although not an insurmountable barrier. "You'll pay a markup over your base rate," acknowledges Dan Sinas, vice president of human resources for PRcompanies, a staffing and professional employer organization in Dothan, Ala. But when the unemployment insurance and workers' comp savings are taken into account and the time saved is factored in, employers save money, he contends. There are no benefits to pay, and if the business is cyclical or seasonal, they don't incur the costs of rehiring or laying people off.
At Real Time Resolutions, about 25 percent of 300 workers are hired temp-to-perm. "The man-hours [that temp agencies] put in finding the ideal candidate [and] weeding people out frees us up," Menefee says.
Typically, the staffing agency is liable for the workplace injuries of temporary employees. Injuries on the job tend to occur within the first few weeks if not 90 days, Sinas says. "If the worker is a temp, we eat the costs." Sinas describes a client that was experiencing high turnover and worker injuries. "We said, 'Let us do the recruiting; we'll put a person on-site to do it.' We have a vested interest in controlling turnover and workplace injuries."
Where and Why Temps Work
Temps work in most occupations and industries. Industrial, clerical, commercial, and accounting or finance continue to be the most commonly sought services. Demand is growing in information technology, health care (for technologists as well as doctors and nurses), and energy and "green" technology, says Jim Link, SPHR, managing director of human resources for Randstad.
In a 2006 American Staffing Association (ASA) survey of 13,000 staffing agency employees, which was conducted before the recession, two-thirds said flexible work time was an important factor in their decision to become a temp. One in four had little or no interest in a regular job. Since then, the economic downturn may have caused priorities to shift.
"Some people take temp jobs because of their lifestyles; they don't want to make long-term commitments," says Elena McConnell, a temp with the Professional Staffing Group. But in her experience, about 90 percent of temps hope to secure regular employment.
"It's been rare that I run into people who want to bounce from job to job and take time off in the middle," adds Gary Campbell, SPHR, director of human resources at Johnson Health Center. Typically, "They want to find a full-time job."
McConnell registered with multiple agencies and found her temp-to-perm HR job in less than a month. "The temp arrangement works well for me," she says. "I didn't want to get into a new position until I tested it out."
She had a regular HR job earlier in her career and believes that both temporary and regular employment can be appropriate in certain circumstances. "Because I have recruiting experience, when I needed work I went directly to a staffing agency. I knew it would expedite the process. Recruitment is part of their core business, and they are as motivated as you are," she tells HR peers.
In 2010, 53 percent of staffing agency employees bridged into regular employment. The average placement lasted 13.8 weeks, with eight of 10 temps working full time, according to the ASA. This proportion of full- to part-time workers represents about the same ratio as in the overall workforce, data from the U.S. Bureau of Labor Statistics show.
At 277 percent in 2010, turnover represents an HR nightmare for recruiters at staffing agencies who must constantly replenish their ranks of temps. For 2011, the data are similar. "We have 2.8 million workers out there on any given day. But when you factor in attrition, in the course of the year more than 10 million worked for us," says Richard Wahlquist, ASA president.
Meshing with the Culture
HR professionals must be involved in working with agency recruiters or account managers in setting criteria for temps, says Joel Capperella, vice president of marketing at staffing company Yoh, based in Philadelphia. If this process is handled with care, there should be no cultural drawbacks from mixing temps with regular employees.
At USF Holland, a 7,000-employee trucking company in Holland, Mich., "We don't have morale issues because our own employees understand that the temps are there for limited terms," says HR Vice President Steve Blubaugh, SPHR. "The temps are cooperative because most are interested in transitioning to us full time."
Not everyone, however, sees temp staffing as an ideal solution. "If we're outsourcing our labor, we're not taking full control of the services we provide," says Jim MacDonald, SPHR, Hilton Worldwide's vice president of human resources for the Americas in New York City. "We're leaving it in the hands of the outside vendor."
As an alternative, Hilton's HR staff is experimenting with "complexing." When temporary needs arise, HR professionals move hotel staff, such as cleaners and restaurant workers, to the areas where they are needed. "It's taking from two to five locations and consolidating the work," MacDonald says. "Where other organizations have to downsize, we've been able to keep people working."
In 2010, 77 percent of the U.S. industry’s $103 billion revenue came from core services: temp and temp-to-perm.
Hilton has been using the complexing scheme for only one year. So far, efficiency has improved and costs have remained about the same. "We've found it more costly to eliminate jobs and then hire again when the economy improves," MacDonald says. "Depending on the position you're filling, replacement costs can run from $10,000 to $50,000. Hiring temps would put stress on our customer-based culture. We want our workers to be inspired, engaged and trained, and we don't believe it's the same when someone else does it."
How They Work
Staffing agencies provide three main categories of workers:
Temp.
Workers perform a defined job for a set period. Clients pay the agency a negotiated per-capita rate.
Temp-to-perm.
Workers begin as temps. The client tries them out for an agreed-upon time, often 13 weeks, and then can opt to hire them as regular employees. Clients pay a per-capita rate while workers are temping and an additional fee if they are hired for regular employment.
Direct hire.
To a lesser degree, agencies help employers find regular staff. The agency receives a fee, refundable in whole or part, if a hire leaves within a designated time.
Temp and temp-to-perm remain the major choices of most clients. Interest in direct hires, however, is increasing, especially in skilled and hard-to-fill categories. Aaron Green, president of Professional Staffing Group, a Boston agency that places professionals and high-end administrators, says his direct hire business, though relatively small, is "having the best year ever."
Still, revenue from workers in temp and temp-to-perm categories represent the staffing industry's cash cows. In 2010, 77 percent of the U.S. industry's $103 billion in revenue came from these core "body shop" services, Silber says.
Capperella describes these services as transactional staffing—when a manager needs a programmer to change a website or a receptionist to fill in, for instance. He says the categories represent $250 billion in annual revenue worldwide.
This business has been driven by cost, with employers shopping for the lowest bidder. But change is in the air. "Agencies don't just want to fill seats," Wahlquist says. "If clients believe staffing is a commodity, they will buy on price. To differentiate, you have to offer value-added. If the client needs an IT programmer for two weeks, you'll say, 'Let's see if we can help you develop talent screening, acquisition, deployment, retention and an outplacement strategy. We'll be your partner. We can do all these tasks more efficiently.' "
Today, many agencies offer approaches that may relieve an employer of recruiting or placement responsibilities. Some feature vendor management, where an agency coordinates all staffing contractors.
"We're competing for the 20 percent of staffing revenues that yield higher margins," says Rebecca Callahan, president of SourceRight Solutions in San Diego. In 2011, the U.S. recruitment process outsourcing market grew by 20 percent.
Take Stock
Before choosing a staffing agency, examine your processes for choosing vendors.
HR leaders may not have a handle on exactly how much their company is spending on temporary labor. This information gap can be found among employers of all sizes. It stems in part from the way budget categories can separate temporary labor from regular personnel costs. "How many temp agencies do you deal with?" asks Gary Campbell, SPHR, director of human resources at Johnson Health Center in Lynchburg, Va. "How many temps are in all line and staff areas of your organization? If you know what goes into those costs, you can develop a consolidated strategy that will help drive costs down."
But getting the information can be difficult. Often, line managers have sweetheart deals with staffing agencies and don't like it when HR executives start asking questions. Have a champion before you intervene.
Procurement and HR specialists should devise temp strategies together. "HR is more interested in getting good talent. Procurement may lean toward financial savings," Campbell says. "Get buddy-buddy with your procurement guy."
But keep a big-picture perspective. "Don't be wowed by the money you think you'll be saving," cautions attorney Klarreich. "Don't treat the buy as a commodity; people are not the same in each agency. When you're price-driven, you get what you pay for. In the end, you want to hire an agency whose HR functioning is as good as or better than yours."
The author, a contributing editor of HR Magazine, is a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.