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.