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Contingency Plans

With temporary staffing increasing post-recession and into the sluggish recovery, HR must step up and police the matter to ensure the hiring and management practices are effective and legal.

Wednesday, December 1, 2010
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When Tim Slattery founded Corporate Fulfillment Systems Inc. in 1990, he didn't anticipate the trouble he would have keeping entry-level workers.

"We'd go through 20 people to find a keeper. ... We'd end up with attendance and drinking issues -- the kinds of things that don't show up in an interview," says Slattery, CEO of the Norton, Mass., marketing-support company.

Then Slattery talked with an old friend from high school whose mother owned a staffing agency. Taking their advice, he started using staffing to "try out" entry-level workers before hiring them. Today, contingent workers are part of his "game plan." In fact, a good number of the company's 30 full-time employees auditioned as temporary help.

CFS is one of many U.S. companies filling staffing needs with contingent workers -- specifically, temporary workers on contract through a staffing agency. And in a shaky economy where businesses are wary of investing in permanent payroll, their number is growing.

Seasonally adjusted temporary employment grew by 16,900 jobs in September to a total of 2,128,600 jobs, according to the U.S. Bureau of Labor Statistics.

That is a .8 percent increase over August's temporary job total and 23.4 percent more than the total in September 2009. This is the biggest year-to-year percentage increase since the BLS started measuring temporary jobs in 1991, says the American Staffing Association.

According to the BLS's non-seasonally adjusted data, there are 19.5 percent more temporary workers this year than last September.

The temporary staffing industry has added 404,000 new jobs in the past year, says Richard Wahlquist, president and CEO of the ASA in Alexandria, Va. "What I hear from our members is, 'Expect the trend to continue, even in the face of anemic job recovery.' "

In a recent survey of work trends for the next decade, 67 percent of 479 senior executives polled say they will maintain a "leaner" organization by hiring contract workers or by outsourcing work; only 26 percent disagree.

The report, entitled Global Firms in 2020: The Next Decade of Change for Organisations and Workers, was written by the Economist Intelligence Unit, the research arm of The Economist Group, based in London. Sixty-two percent of respondents say there will be a growing proportion of contract workers over the next 10 years; only 12 percent predict more permanent workers.

Why the appetite for contingent workers? As the nation peeks out of a lengthy recession, businesses are reluctant to hire employees they may have to lay off if the economy sours again. Businesses with seasonal cycles rely on temporary staff, while high-tech and professional firms bring them on for special projects.

In addition, HR uses staffing to audition candidates for openings, or potential jobs, without the cost of a recruitment campaign, the paperwork of a permanent hire or the risk of a mistake.

"I think as we're moving out of recession, it's happening more and more," says Roberta Matuson, president of Human Resource Solutions in Northampton, Mass., and author of Suddenly in Charge: Managing Up, Managing Down, Succeeding All Around. "Companies hesitate to make that commitment. ... I think the difficulty when hiring people is you're not sure if you'll be able to keep them. The feeling is, 'Is it fair that I'll have to let [them] go?' Contingency is the way to go.

"Let's say, all of a sudden you just acquired two new clients and you need 25 people on board. You may need to hire a full-time recruiter, or you can call three [staffing] agencies and say, 'I need this many workers here on Monday morning,' " Matuson says.

From warehouses to IT consultants, many businesses have long used temporary help to fill seasonal or project needs. But in the wake of the recession, companies that may never have considered hiring contingent workers are doing so to remain profitable in a still-weak economy.

There are two compelling reasons: Companies are afraid the recession isn't over and don't want to hire employees they'll have to lay off. Second, companies see the opportunity to audition employees for a position, or a potential job, without mounting a recruitment campaign, paying benefits or risking a hiring mistake.

For HR executives, managing contingent workers means learning a new set of skills. It's HR's role to find the right staffing agency and negotiate the contracts and fees, and then consult with lawyers to make sure the contracts are airtight.

HR leaders then must maintain relations with the staffing agency while making sure contingent workers are adequately trained -- all the while keeping permanent staff happy and secure. It's more work, experts say, but the benefits to the company are worth the effort.

Varied Solutions

Pittsburgh Glass Works in Pittsburgh saw contingent workers as a way to grow the business in an uncertain economy, says Russ Lawrence, an author and consultant, and -- until recently -- the HR director at PGW, where 400 out of 3,500 employees are contingent.

"We had employees who were paid high pay and benefits in a marketplace that could no longer support [them]. What do you do? Close plants? [Impose] pay cuts? ... . [Contingent workers] brought the total labor costs down over three to four years," Lawrence says.

Merrick & Co., a multidisciplinary engineering and architectural firm headquartered in Aurora, Colo., relies on contingent workers for the natural "surges" of activity in the consulting industry. And in the current unreliable economy, consulting firms like Merrick are more cautious than ever not to over-hire.

"There's always [a concern]: 'Where does the next project come from? Let's not over-hire until we recognize a project down the road,' " says Debbie Norris, Merrick's vice president of HR. " ... It's more of an issue in the consulting [industry]. It goes back to the surges. In engineering consulting, we rely on people to be working on projects to make money; if not, they're sitting on overhead.

"Surge management is key to us," she says. "Rather than bringing on a person we might have to terminate, we bring on [someone] we only need for three months. ... Nothing is more demoralizing than to hire and have to lay off."

Sometimes, that temporary position turns into a full-time job. Merrick currently has about 20 contingent workers; most are below senior level and help with production or provide a "boost" to a project.

"You're always going to be short-staffed; a temporary employee fills the gap," says Catherine Pistole, director of administration for a high-powered private equity firm in Manhattan, and author of The Temp Factor. In a firm with 72 permanent employees, she uses staffing primarily for the administrative staff of receptionists, file clerks and executive assistants.

There's a new twist to temporary staffing these days. Many companies have become hiring-shy after the massive layoffs of the past decade. In response, staffing agencies offer the option of "temp to perm" contingent employees. Employers bring in a contingent worker with the understanding, spoken or unspoken, that he or she might work out as a permanent hire.

"Temp to perm has become more popular because of layoffs," says Pistole. "... You try out someone in a temporary role. You start in the mind-set they'll stay on, and you either extend the offer or not." A canny HR director will even use temporary staff strategically to prove the need for a new position to the CEO.

"It provides so many solutions before you're ready to have approval for a new position. ... [If] I know I have a need, I can start, or 'tiptoe,' to prove it's a valid job, give it a trial period," says Pistole, who has used this strategy to hire a floating administrative assistant and a facilities person.

Auditioning contingent workers is an ideal way to check for "cultural fit," agree experts.

"I've recruited a lot, and until you meet them, you can't assess them. ... You need to see them in the environment so you can see the fit," Pistole says. "I always felt I can train a process ... but I can't train for the culture. [The employee] needs to relate well, to be a team member."

How to Go About it

Many HR professionals have picked up the phone and brought in a temp to fill in for an absent worker. But to use contingent workers strategically takes some planning. The first step is a cost analysis to make sure a staffing agency's fees don't outweigh the savings.

Because the staffing agency is the employer of record, it handles many of the normal HR responsibilities and employee costs, including recruitment, payroll, benefits, retirement, unemployment compensation and workers' compensation. But the employer is still responsible for wages and overtime as well as a finder's fee if the temporary worker is hired.

"Some of my clients [with] 10 employees or less can't offer benefits. For them, it's easier and less expensive to hire through a staffing company," says attorney Jodi Johnson, a shareholder and chair of the employment group at Monroe Moxness Berg in Minneapolis.

But larger companies shouldn't look at staffing agencies as just a way to save money on benefits, Johnson says. "You still pay an hourly wage. If the employee is nonexempt, you still pay overtime. And the [staffing agency] still charges a [finder's] fee."

Some employers also have concerns about contingent employees' morale and commitment to the company, the high turnover and training costs, Johnson says.

After getting the go-ahead, the next step is finding the right staffing agency. Pistole recommends hiring an ASA member agency. She suggests interviewing both large and small-sized staffing firms. A large firm has a broad recruiting reach and can offer a "richer" benefits package, while smaller firms have a closer relationship with the client and workers, and may give more attention to detail.

"For us [at CFS], it's been a great experience," says Slattery. "It's taken a lot of prescreening headaches away. In the past, we ran an ad in the paper -- now it's Craigslist -- and [we] had 100 applicants [for one job]. It's saved on HR [costs]."

The staffing agency may do a lot of the work, but HR still plays a key role, says Beth Bovis, partner and a vice president in the Chicago office of the consulting firm A.T. Kearney Inc.

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"It ups the ante for HR," she says. "It [requires] a skill set for HR to ensure that the workforce is engaged and delivering. ... I don't have the power to hire or fire, so I have to use other tools to make employees feel engaged. I may not directly manage performance. It adds complexity to the HR task."

For example, it's up to HR to communicate job descriptions and how job performance will be measured.

"You develop a relationship [with the agency]. You stay in touch and provide feedback. Say a person was great; [you'd say,] 'Send us someone just like Sally Ann,' " Pistole says.

One of the more murky areas is training. In general, the company handles training and supervision, while discipline and firing is done by the staffing agency.

Staffing agencies fall flat when it comes to coaching workers, Pistole says, who has every administrative assistant prepare a red folder with "cheat sheets" for temps to use. "[Agencies] should spend a little time and show them the top three priorities. To me, they fall short in that area. They just give [temps] the names, background and the stats; they don't go too much into the position."

It's a common problem, says Lawrence. "Here's where contingent [employment] goes bad. ... People hire a staffing agency and expect the staffing agency to manage the training. ... I've seen the wheels come off time and time again."

One solution, he says, is introducing a "standard work" methodology for complex work processes. Part of the "lean manufacturing" process popularized by Japanese auto manufacturers, standard work identifies the one most efficient way to perform a task and its elements.

Keep the Lines Clear

To HR, there is an obvious demarcation between contingent workers and permanent staff: Contingent workers are not on the company payroll, and they are not enrolled in the company benefits or retirement plans. Period.

Unfortunately, in practice, there is often a fine line between a temporary and permanent worker, especially when both are doing the same work, side by side, for the same pay -- and the temporary worker has been there longer. The danger is that a discontented contingent worker might try to build a legal case that he or she is a regular employee -- and sue for company benefits.

"You don't want to create false expectations among people who are clearly on a project. You don't want to make the lines fuzzy. ... 'The more you make me look like [a company employee], the more I wonder why I don't get benefits,' " Wahlquist says.

He advises HR to identify contingent workers as interim and address them differently in communications as well as on ID badges, letterheads and business cards. Even invitations to office parties should be handled through the staffing agency. (See sidebar for more on legal issues.)

Working with contingent employees also means letting the staffing agency handle any criticism or discipline.

When a young temp worker walked into her firm with short sleeves and a tattoo, Pistole was tempted to say something. "People are investing money with us. They want to see a high level of professionalism." But first, she picked up the phone and called the staffing agency, which spoke with the temp. For the rest of the day, the woman wore a band-aid on her arm.

"You have to be very careful. ... The HR manager is going to direct the work but not maintain control, [such as] dress code and lateness. I think an HR person gets in tricky waters if she starts treating [the temp] as an employee," Pistole says.

At Merrick, contingent workers follow the same guidelines as regular staff. But there are distinctions. Besides no benefits, they have their own name tags and restricted access. And they are invited to the staff holiday party as "guests," not employees.

If contingent workers may feel out of the loop, permanent workers may feel threatened by their presence. It helps to reassure the staff that contingent workers fill a shortage and enable the company to be productive, which protects their jobs.

"If you have an organization that's created a culture of trust, it shouldn't be a problem," says Matuson.

"You can explain it's probably in the employees' best interests," she says. " ... [After all,] 'You've been asking us for help.' "

If the company is hiring contingent workers "strategically to have a competitive cost structure to enable them to grow, that's good for all employees," says Bovis. "When I've seen it articulated in that way, the people impacted aren't happy, but they have respect for [the decision]."

See also:

The Legal Quagmire

Employer Obligations to Temporary Workers

Legal Risks of Temps

Ranking Staffing Companies

Temp Problems to Avoid

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