EmploymentHuman ResourcesRecruitment

The Economy Gets Fixed (Term)

By January 23, 2014 6 Comments

this week’s whiteboard is brought to you from the indignantly furrowed brow of Sean Walters while your regular blogger battles pesky leeches on the Central Coast bush walks of NSW…

The word round the camp fire is that 2014 has started with the recruiting gusto that every January has promised, yet failed to deliver, since I first sobbed into my cornflakes after the GFC of 2007. Market optimism is high, and both agency and internal teams are bullish in their expansion plans for the year.

For our internal recruitment clients, we’ve seen a massive increase in the desire for fixed-term recruitment contractors. It seems that although confident, a risk-averse corporate isn’t so confident that they’d actually offer a permanent job to someone. Heaven forbid that the existing team clear their 60 vacancies each backlog and find themselves over resourced! Hey, but at least they’re hiring. It certainly beats this time last year, where I resorted to busking on Queen Street with a horse mask just to pay the bills.

Yes, that was me…

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When asked by a client to source a fixed-term contractor, being the by-the-numbers recruiter that I am, I always suggest that it may be worth funding the hire via an hourly rate option. I even cost it out something like this:

“Dear Mr or Mrs Hiring Manager
3 month FTC paying $80k pro rata. ​Our fee: $xxx
​​​​​Contractor’s salary over 3 months: $xxx
​​​​​Total: $xxx
3 month hourly rate contractor:​​Hourly rate: $xxx
​​​​​Total: $xxx”

Erroneously I believe, the vast majority of my clients of late have opted for the FTC option.

Admittedly, the FTC “cost” is typically marginally lower that the hourly rate contractor total. However, do these figures show the real cost of hiring, and more to the point, the benefits of outsourcing the risk of hiring to the agency?

For a fixed-term hire, an already beleaguered HR department is asked to generate a contract, usually with no notice. Your new employee will then have have a notice period, you will have ACC levies to contend with, KiwiSaver to pay, and if your contractor turns out to be a dud, you still have to comply with the law and performance manage them out of your business. My recruiter brain couldn’t begin to put a value on all of this, so I’ll revert to type and just describe it as a chronic ball-ache.

The other option? We’ll payroll your contractor. We’ll manage the risk. They don’t work, you don’t pay. Contract generation? We’ll do that. Holiday pay? Not your problem. And here’s the kicker….once you’ve factored in the admin costs, and the time and distraction of actually employing someone, it actually costs your business less!

So who else is winning by recruiting a “temp”? Two people; the contractor, who is typically getting paid more, has more flexibility, and is closer to that dream of being truly self-employed. And also you, the Recruiter.

Ask any successful contractor recruiter about deal value of a “temp” vs. a placement fee. You’ll make more for longer running a good contracting book. You can even go on holiday and still hit your targets.

I recently shared a beer with a former Finance Director-turned-Business Valuer. Actually, he was drinking Gin & Tonic, but whatever. The message was still clear; if you want to sell your recruitment business, come to him with a contracting book, and not a permanent agency whose success is dependent on one-off placements from someone who will sail around the world the second the business is sold.

Speaking with an outsourced payroll provider, it’s surprising how few agency GMs are pushing into the contracting space. Maybe that one-off $18k fee with no ongoing management is just too tempting to an industry addicted to Big Money Deals? Maybe a low double digit hourly margin doesn’t conjure up the image of buying the bach, hair transplant or boob job?

Or maybe some of us are just scared to admit that we don’t really understand the logistics of a market that will account for 40% of the US workforce by 2020?

Fixed-Term Contracts certainly have their place. For those who aren’t professional contractors, but are interested in project work, they offer more stability and certainty than temping. Likewise, many hiring managers can only get a hire across the line with their bosses by going with the FTC option. However, I’m not convinced that their place is a big as the corporates tell me.

Until I am convinced, I’ll keep pushing hourly-rate contracting as being beneficial for all parties. I genuinely believe it helps us as agencies add value to our clients by outsourcing their risk and pain, whilst also helping our own businesses thrive.

So internal or agency, how are you geared up for the growing demand for contingent workers in 2014? Are FTCs the best solution and I’m missing a trick, or, excluding their dress sense and Red Bull addiction, have those IT contractors been right all these years?

^SW

Jonathan Rice

Jonathan Rice

MD at New Zealand rec-to-rec firm Rice Consulting and co-founder of on-demand recruiter offering Joyn. Recruitment agitator and frustrated idealist, father of two, husband of one, and lover of all things Arsenal and crafty beer.

6 Comments

  • Avatar Jayne Rice says:

    Great Blog (as ever Sean) as a former “Temp” and “FTC’er” I know which option I would rather take, give me temp all the way. Looking forward to hearing the opinions of other Recruiter’s out there in the market.

  • Avatar Jane says:

    I agree – true hourly contract is the best option. However where the margin is very low a fixed term fee is better for the cash flow – especially if the client is a late payer… Wellington recruiters will probably know what I’m talking about!

  • Avatar Paul says:

    Most importantly down here in Wellington, where fixed term is becoming very common in government – no quality candidates want this. Perm types want perm work. Contract types want contract work. The best candidates shy away from FTC.

  • Avatar Kirsty Hunt says:

    I have spoken to numerous Recruitment Agency Owners and Managers who profess “we want to focus on expanding our contracting desk”. Yippee I think they’ve seen the light (starting each month with a secure income stream and perm placements become the jam on top … all the while growing an asset in their business) but alas all too often these words are merely good intentions. When digging a little deeper I discover that they’ve really not given much thought to their internal practices and processes to manage the subtle differences in growing and managing contractors.
    Two very recent examples;
    One agency only pays half the commission to their recruiters for a contract placement as against a perm placement and have no intention of changing this model. How does that possibly incentivise growth?
    The other and far more common are cumbersome back end processes, I was literally told ‘our payroll lady hates the contractors, she makes it really difficult for them (to get paid)’. Your contractors are your customers too, if life is made difficult for your contractors you cut off your potential revenue stream.
    On the flip side the agency owners/managers who take the time to listen, learn, (quickly) adapt and outsource time consuming back end processes are leaps and bounds ahead of the pack!

  • Avatar Mike says:

    Perhaps a day rate temp / contractor would be more appealing to the client (and maybe candidate) costs would be more or less fixed at 5 days per week and they might get better value for money as the contractor would have to complete tasks in a day rather than work an extra cost hour or two.

  • Avatar Nikki Wilkie says:

    Great blog Sean …. I remember you on Queen St busking …. I believe I gave you $5 towards your bills 🙂 … So happy you’ve managed to get though those challenging times mate.

    Agree with all your sentiments.

    Having had many conversations with agencies over the years whilst an internal recruiter I always felt strongly that the temp / contract to perm option should be a lower margin than hourly rate and also that the amount of time a temp / contractor was in the business should be reflected in the conversion invoice.

    Nowdays as no longer internal I see that the contractor hourly rate option is a significant business asset for a recruitment agency especially as there aren’t many assets within a recruitment operation. So why should agencies lower the margin or reduce invoice based on duration already in the business?

    I think businesses who don’t get up to speed really quickly with flexible and alternative working / employment situations will be left behind and ultimately will be impacted via not be able to attract the best talent and competitors taking them over.

    Great read and well written. Good stuff mate.

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