Quantifying the value of contingent staffing

Ok so “what’s riding on our placements” isn’t quantifiable.

I’ve complained on different ocassions in this blog that staffing firms have such the bad rep online, specifically in the Blogosphere. There’s a two-year-old post entitled “reducing staffing firms’ margins one blog post at a time” and on the ERE network, “recruiters are blood-sucking parasites,” the point from both posts were that staffing firms’ “cuts” or “mark-ups” are simply unjustified and that the company itself will save more money if they just hired directly, as opposed to a “contract-to-hire” or the more popular term “temp to hire” arrangement.

This argument is everywhere, on and offline. I hear it every day. Why should I pay you $75/hr for someone I can hire directly for $45/hr?

Unfortunately for our industry, it doesn’t seem to be a well-known fact that a person’s hourly wage is the only thing that comes out of his/her employer’s pocket. Most know that benefits need to be added too, but beyond that, most are still unaware of other employer costs which are abated by the use of a staffing firm.

If you are hiring on your own, you will most likely have to spend some money on advertising, which could run you an average of $150/posting per job board. If you post it somewhere popular you’re probably going to get at least a couple hundred resumes, 95% of which are probably not qualified for your position for one reason or another. So in addition to your $150/posting/job board cost, factor in the amount of staff time that will be spent sorting through those resumes, replying to them, and then contacting the ones you are interested in, bringing them in for their first, second, third interviews, do their reference checks and background checks (cost varies). Then add to your cost whatever projects that were delayed because staff’s attention was diverted to hiring or because the project needed that new hire’s expertise. And that’s even before the employee even begins employment or collects his/her first hour’s wages from you.

Hiring on a t-p basis through a contingent staffing firm, on the other hand, minimizes the above activities to a minimum. Contingent staffing firms charge a fixed hourly mark-up that their clients don’t have to pay for until the employee works his/her first hour. Meanwhile, you got your job sourced for and advertised. You only saw the top two or three candidates for an interview versus having to see 10 or more. Someone else did the reference checks and background checks. The time it took you to hire that person was dramatically reduced and you got your project started right away. What is the ROI on that?

Employment
FUI, SUI, FICA, workers comp insurance, payroll taxes and benefits add up to 38% on top of an employee’s hourly wage.

Termination/Attrition Costs
It happens. Sometimes the hire just doesn’t work out, or due to unforeseeable economic events, you had to let the employee go. Start adding on COBRA, outplacement services, and (if you have a large number of former employees drawing from it) the risk of your unemployment insurance rates increasing. Oh. And if the former employee decides to file a grievance. Add your legal fees.

Contingent staffing firms charge a fixed mark-up and are only applied to the employee’s hourly wage. On the low end it will be around 45%, on the high end, around 55%. No charges before, and the charges end when the employee is terminated.

So in doing the Math, hiring through a contingent staffing firm just makes sense, doesn’t it?