Top Reasons Public Sector Uses Temporary Workers

As the outside recruiter and business development representative for Peak Performers, I spend a lot of time at recruiting events and vendor fairs. At these events, I am often asked by people why public sector entities (state agencies, federal government, city and municipalities, transit authorities, and education organizations) use staffing agencies. There’s actually a lot of answers to this question. Here are some reasons the public sector has increasingly grown to rely on a temporary and contingent workforce to run their operations.

They Can’t Find People with the Right Skill Sets

First and foremost, professional staffing agencies exist to fill a need and that need is very often for roles that the client themselves cannot find the right people for. A large state agency has many things to do besides recruit. Staffing agencies spend most of their time doing primarily that. They are also exposed to a wider pool of qualified candidates because they regularly advertise jobs, attend recruiting events, and build up a robust referral network. The sheer activity of recruiting naturally pulls in more candidates than they can use, and many of those candidates may be fits for other jobs the recruiting firm has.

It’s also important to note that public sector entities generally have a more complicated application process which discourages many job seekers. Job seekers who do make it through their process also typically wait longer to hear back from the employer. In this lag time, they are more likely to find another job and move on. Staffing agencies offer a lower barrier to entry and move faster to recruit and onboard candidates than the public sector can.

They Don’t Have the Budget for a Full Time Employee

Agencies often have a strictly allocated budget that dictates not only how much they can spend but how they can spend it. This budget has separate amounts allocated for full time employees versus temporary employees. Budget for temporary personnel may even come out of a miscellaneous budget area where there are extra funds. Budget for temporary personnel may be project-based as well and have not only a fixed amount of dollars but a fixed amount of time.

While on the surface it may seem cheaper to hire a full-time employee from the start, many clients find this is not the case. So why would you pay a company to recruit and hire for you at a markup when you could have done it yourself?

First off, the cost of employees are usually the single largest cost for every organization–and what you pay them is only the beginning of that cost. The Bureau of Labor Statistics estimates that the cost of any employee’s benefits package 31% of their total cost to the employer. That means that if you pay an employee $34.50 per hour, the true cost of that employee is $50 per hour. Given this cost, it actually makes decent economic sense to pay a staffing company a markup fee.

This also doesn’t factor in the unseen costs that go into hiring: the cost of staff time to recruit and interview candidates, the cost of training employees, and the cost of making a bad hire. The Center for American Studies estimates the average turnover cost to be around 50% of the annual salary. In other words, if you pay an employee $34.50 an hour (about $71,760 annually) you pay on average $35,880 for a bad hire. Ouch.

“Try Before You Buy”

Recruiting is expensive. The cost of making a bad hire is also expensive. When an employee is let go shortly after starting, organizations eat the time and cost of recruiting, interviewing, onboarding, and training said employee. (That’s not accounting for intangible costs if the employee hurt the organization, damaged morale, or hampered productivity.) Then the recruiters have to start over with no guarantee the next person will be better.

For this reason, many organizations have embraced “try before you buy” hiring, also known as temp-to-perm hiring. In this approach, the client brings on the new employee on a temporary basis and hires them as a full time employee after a trial period. Meanwhile, all the aforementioned costs are incurred by the recruiting firm. Risks are minimized as well.

Many organizations will try out an employee using this method if they are unsure if their own intention is to hire them on full time. They have a “let’s wait and see” approach to determine if the project is important enough to justify the cost and if they really need that position filled for the long term.

All Work is Temporary

The Department of Labor recently estimated that 20% of all workers work on a temporary basis. Even without factoring in the “gig economy” that is now so pervasive, more workers are choosing to work on a temporary basis and more employers are seeking them out that way.

Even for full time workers, the increasing market trend is pointing towards the average worker staying in their job for 2-3 years. Thus, we might argue: all work is, in effect, temporary.

Similarly, organizations are structuring their personnel in order to most efficiently accommodate cycles in work. We often say “staff for the peaks, not the valleys.” What we mean by this is that there are usually cycles of work that are going to be lighter during certain parts of the year. We find what works best is that the customer maintains internal staff for the “valleys” of the year and then bring on temporary staff for the “peak” work times when they are busier than usual.

Picking the Right Recruiting Agency

Staffing agencies are unique in their service offerings, price, and specialties. Peak Performers, for example, offers direct placement, temporary staffing, and other recruiting services to the public sector and select private sector clients. Let’s take a deeper look at some of the primary considerations to look at when considering recruiting firms and how best to shop wisely for these services.

What Do You Need?

It’s important first and foremost to identify what kind of service you need and what services you’d be open to. Most recruiting services break down into: temporary staffing and direct hire.

Temporary staffing is when the agency recruits and fills a role on a temporary basis. This could be due to a particular high-demand project or filling in for another employee while they are away. Although the temporary employee reports to work at the client company, these individuals are employees of the staffing firm, not the client. The client guides the daily work assignments and coordinates with the staffing firm for employee-related issues. The staffing agency manages the candidate’s performance in conjunction with feedback provided by the client’s on-site manager.

Direct hire is where you outsource the recruiting efforts to find someone for your internal position. From day one, the recruited candidate will start as your employee. Once your company has hired the new employee, the recruiting agency will have no further responsibilities (although good ones will offer placement guarantees and follow up on their placements).

While this explains most models, other models exist as well:

Temp-to-perm is when you want to bring on a temporary employee for a trial period with the intention of converting them to an internal employee if they perform well on the job. You will want to discuss with your staffing agency how long that trial period is and what kinds of fees (if any) will be charged when they are converted. You will likely negotiate the compensation package directly with your potential new employee during the conversion process.

Executive search is largely the same as direct hire except that it is typically reserved for executive, director, and C-level positions. The recruitment firm has a strong network that they can leverage to identify executive-level candidates, who are often already employed (perhaps even outside of your geographic area) and need to be sold on why they want to leave their current job. Typically, the client pays a higher markup percentage than they do for direct hire services and the recruiting firm takes a very “hands on” approach with candidate management to ensure a successful placement.

Pipeline augmentation is when you partner with a staffing firm simply to send you pre-screened resumes. This can be a good approach if you don’t have the resources to spend on recruiters, advertising, and candidate management but you want to do all your own screening and interviewing. Modern recruiting is expensive: for example, subscriptions to popular job board sites, such as Zip Recruiter and Indeed often cost hundreds or thousands of dollars per month, more if you want to promote your job. Pipeline-augmentation approach is also ideal for extremely hard-to-find positions where you need to draw from a wider talent pool.

Costs and Fees

Staff represent the largest expense for nearly every business. Bad hires are a thorn in the side of every HR team as they represent a tremendous amount of lost resources and a possible future liability. For public sector employers, it can take months of progressive disciplinary action and diligent documentation to terminate an employee. On top of all that, HR has no guarantee that the next hire will be any better. Removing temporary employees, by comparison, is relatively easy.

When considering the costs a recruiting firm is charging you, consider that they are absorbing many of the costs and risks associated with recruiting for you. For temporary placements, the staffing firm is also absorbing multiple ongoing employment costs as well.

Temporary staffing charges you a bill rate based off of the hourly wages paid to the temporary worker plus a markup fee. This fee accounts for the cost of staff time; advertising your job to attract candidates; software costs and payroll processing fees; employment taxes; benefits paid to the employee, and general expenses that help to “keep the lights on.” They are also paying for and assuming the risks of possible future workers compensation claims, unemployment claims, and labor disputes, such as discrimination or wrongful termination claims.

Conversion costs? When selecting your temporary staffing vendor, ask about costs to convert temporary workers to full time employees if you decide to hire them on permanently. Conversion costs are typically waived after a period of time, typically around 90-120 days. When applicable, fees typically are a percentage of the candidate’s first year annual salary.

Direct hire/executive search is charged in one of two ways: a percentage of the placed candidate’s annual salary or a flat fee per search. These services are offered in one of three ways:

  • Contingency basis—The agency only gets paid when they make a placement
  • Partially contingent basis— A portion is charged to start the search; another portion is due mid-way through the search; and the remainder is due upon successful hire of a candidate. This model allows you to space out the costs, and the final payment is typically determined by the exact first year salary negotiated with the candidate.
  • Retainer basis— As the client, you pay a monthly or quarterly retainer fee to the recruiting firm. Some very competitive recruiting industries with an extremely restricted pool of candidates may only offer retainer-based searches. A retainer may also be useful for a large client who has ongoing hiring needs. The retainer fee ensures that the staffing agency is continually on the lookout for talent suited for your needs.

Pipeline augmentation is typically a cost for a batch of resumes or per each resume.

What about discounts? Some clients conclude that filling the same role multiple times requires less time, energy, and expense from the recruiting firm. This is simply not the case. Filling three identical positions amounts to about three times the work as filling a single position. Only a marginal amount of time and energy may be saved by not having to build and post multiple job descriptions; however, in order to get a sufficient number of qualified candidates, the staffing firm may actually need to spend more on advertising. The majority of staff time is spent screening and interacting with candidates personally. Volume discounts are sometimes offered not because of the workload but rather the guarantee of future business.

Placement Guarantee? For direct hire and executive search, it’s also important to ask about a placement guarantee. Most companies will stand by their work and the quality of their placements, but it’s important to have this in writing. Placement guarantees are often open to negotiation and range from 30 days to one year (usually depending on the difficulty of filling the job).

Size and structure

Recruiting and staffing firms take many shapes and forms. It’s important to recognize what you’re shopping for in a firm and who you’d most like to do business with.

Local start-up: Many recruiting firms are started specifically to service a specific geographic area. These firms are often located in smaller cities and have civically active owners and operators. Expect more informal dealings and a firm who is uniquely dialed into the local workforce.

Franchises: Large national firms may take a franchise approach. They will be branded as a national chain but be restricted to a particular territory (such as a geographic area or staffing segment). Owners of these franchises will often be enthusiastic small business owners. However, certain aspects of working with them may feel more like working with a large, national firm.

Boutique firm: These firms do direct hire and executive search for a few specific industries from which they’ve previously worked. The recruiters are typically well connected within that industry; they “know people and know the business.” These firms are not typically geographically restricted and you can expect them to be ideal for very specific placements.

Local, mid-sized firm: Peak Performers falls into this category. This type of firm has expanded beyond local start-up and offers a wider variety of services. While they may still have a particular geographic or industry specialization, they have more experience, more customers, more available services, and a deeper candidate pool. Expect from these companies more professional processes, well-trained personnel, and a friendly, local touch.

Large, national firm: These firms have expanded to have many geographic locations nationwide. They will often offer a wide variety of services, have deep candidate pools, and cheaper prices (due to economies of scale). However, there are potential downsides. You will probably never meet your point of contact, as they service you remotely from the company’s headquarters, though occasionally they have regional offices for their account managers. Also, they may not take a deep approach to understanding your business and your needs, since they service so many customers at once. These firms also tend to have higher staff turnover, and you may have a hit-or-miss experience with new account managers. Finally, these firms may be less flexible and adaptable to your needs. In addition to the parameters of their corporate rules, they may have restrictions from previous contracts about what companies they cannot recruit from. They are often contractually obligated to avoid conflicts of interest.

Other Considerations

In addition to all of this, here are some other considerations that help you evaluate whether a recruiting company is truly a quality firm.

What is their communication pattern? A lot can be said about initial correspondence. Is the phone answered? When you leave a message, do they call you back? Are emails professional and prompt? Less reputable staffing firms often cut costs first with their internal staff: having less staff than they need and/or less experienced staff, who themselves are underpaid or rely heavily on commissions. There are a lot of staffing firms out there. Finding one with good communication is key to making sure you’re choosing the right staffing partner.

Industry specialization? A past record of success is the best indicator of future success. For this reason, consider finding a recruiting firm that has experience in your industry. For instance, our specialization at Peak Performers is with the public sector. Many of our clients are state and local government agencies. When you get a firm that specializes in serving an industry, they not only have an existing candidate pool and referral network from which to recruit, but they are also more aware of industry best practices and unique business processes and procedures.

What are their technological abilities? Modern recruiting firms use applicant tracking systems, advertise jobs widely across the internet, and have robust internal processes for ensuring employees are paid on time. Finding a firm with good digital tools reflects an investment on the part of the company toward working efficiently and effectively.

Are they your future recruiting competition? For executive search positions, make sure to ask about the firm’s policy on recruiting candidates away from your organization in the years following your work together. Who is “off limits” and how long does that last? (The industry standard is two years.)

What is their reputation with job seekers? It’s worth taking a moment to read online reviews of the staffing agency you’re about to do business with and approach it as though you were a job seeker. Are they getting bad reviews online? Do they seem to be responsive and empathetic to those negative reviews? Remember that a recruiting firm represents you and your brand among jobseekers. Moreover, the workforce they provide you will become a part of your organization, even if it’s only on a temporary basis.

This should give you a better idea of how to begin your search for a staffing firm. Recruiting and staffing is a complicated, human-focused business. If you ever have questions about whether Peak Performers may be right for your needs, feel free to reach out to us by contacting info@peakperformers.org or calling (512) 453-8833.