Trying Before Buying
Even as the number of temporary workers in the United States reaches near-record levels, experts say companies appear to be adding more rigor to the selection process for both temp and temp-to-hire positions.
By Andrew R. McIlvaine
More and more employees should probably start thinking of the temps working alongside them as potentially permanent colleagues.
That's according to Randstad US' Chris Martin, who says he's seeing a substantial increase this year in the number of temporary workers being converted to permanent employees by his company's clients.
This has become especially common among companies in the pharmaceutical, biotech and technology industries, which appear to be relying heavily on temp-to-perm to develop their internal talent pipelines, says Martin. Many IT departments are also making greater use of temp-to-perm, he says.
"In 2012, less than 11 percent of our openings started as contract-to-hire -- in which the company states at the outset that it's looking for someone to eventually hire permanently," says Martin, senior vice president for enterprise solutions at Atlanta-based Randstad US. "This year, through July, we're at 19 percent."
A big reason for this, he says, is the ongoing scarcity of talent for certain hard-to-fill positions.
"The war for talent is over, and talent won," says Martin. "So now you're seeing companies looking at every potential stream to hire qualified individuals."
Edward Jackson, president of Milwaukee-based Provade, a provider of contingency management software that processes about $3 billion in billings for staffing firms annually, says work orders for temp-to-perm conversions are up by 10 percent so far this year.
Even as they eye temps as sources of permanent talent, companies appear to be adding more rigor to the selection process for both temp and temp-to-hire positions. Jorge Perez, senior vice president for Milwaukee-based Manpower Group North America, says he hasn't seen any more temp-to-perm conversions now than in past economic recoveries. However, many employers are imposing much more stringent requirements when they evaluate temp workers these days, he says.
"For background checks, clients want to go back five to seven years in their histories instead of three years; they want background checks to cover ever-larger geographic regions," says Perez. "Why? We've been wondering the same thing ourselves. But, once those temps are placed, they provide clients with a good pool of candidates from which to hire full-time employees."
Many companies also appear to be stretching out the evaluation process for temp-to-perm, says Martin.
"They're trying out people for much longer periods -- the contract-to-hire period is moving from six months to over a year, and sometimes two years," he says.
The number of Americans working as temps has grown to near-record highs. According to the Bureau of Labor Statistics, employment in temporary help services in June was up by 8.1 percent over June 2013. U.S. staffing companies employed an average of 3 million temporary and contract workers per week in 2013, up 4 percent from the previous year, according to the American Staffing Association.
A study released earlier this year by CareerBuilder found that, of the 42 percent of employers planning to hire temporary or contract workers this year, 43 percent of them planned to transition some temp workers to permanent staff positions.
The uneven economic recovery has had an impact on the use of temp-to-perm, says Richard Wahlquist, president and CEO of the Alexandria, Va.-based American Staffing Association.
"We've seen the uptick in temp-to-perm occur later in this economic cycle than in previous cycles," he says. "It's been increasing during the last three years, but there continues to be a degree of uncertainty regarding what's around the corner."
Jackson says he sees many managers hiring temps as a way to not only test out talent, but to get around restrictions many companies have imposed on adding permanent headcount, in the hopes that they'll eventually get approval to take them on as permanent staff.
"One of the big challenges for many managers right now is that headcount approval in many companies is still pretty tight," he says. "So managers are saying to temps 'My goal is to convert you to permanent in the future, but I can't guarantee anything because I just don't know whether I'll get approval.' "
Jackson says his own brother, a chemical engineer, was recently brought on for a 90-day contract by a manager who said he hoped to be able to convert him to a full-time position. In the end, not only did Jackson's brother not receive a full-time offer, but the manager was laid off as well.
"My brother likes the flexibility of short-term assignments, but he might've been interested in a full-time position at that company, depending on the offer," says Jackson.
Temp-to-perm can eliminate some of the risk that comes with hiring, he says.
"It can cost a lot to off-board an employee who isn't a good fit," he says. "[Temp-to-perm] can give the company and the employee greater assurance that they're a fit, culturally and from a productivity standpoint."
"Traditional hiring is kind of like marrying after only one date," says Wahlquist. "Temp-to-perm can take the uncertainty out of what is an inherently uncertain process."
Temp-to-perm can pose its own set of risks, however. HR needs to ask staffing firms specific questions about their conversion policies prior to deciding whether to convert a temp to permanent status, says Wahlquist. If the worker in question has skills and talents that are in high demand -- engineering, for example -- then the "conversion fee" the client will pay the staffing firm to compensate it for the loss of its hard-to-find talent will be substantial, particularly if the temp has been on assignment at the client for only a few months, he says.
Clients can substantially reduce or eliminate a potential conversion fee by stretching out the assignment's duration, says Wahlquist. However, for hard-to-find talent, that could be for as long as a year, he says.
David James, chair of the labor and employment practice group at the Nilan Johnson Lewis law firm in Minneapolis, says HR should also conduct background checks on temps being considered for permanent positions, even if they've already undergone one by the agency.
"You need to conduct your own independent investigation, as opposed to relying on what the agency might or might not have done with respect to checking out credentials and backgrounds," says James.
HR should also ensure that the company doesn't come to rely too heavily on temp-to-perm as a hiring strategy -- otherwise, it could find itself unwittingly placed in the joint-employer category, he says.
"If you use this process too many times, there's a legal argument that, in the future, temps will be considered employees of not only the agency but also the client organization," says James. "If you're hiring 200 people a year and only five are temp-to-perm, then it's probably not a concern, but if it's five out of 10 hires a year, then it could be a problem."
Additionally, HR needs to be careful that the process doesn't leave the company potentially vulnerable to discrimination charges, he says.
"The importance of making a fair and appropriate hiring decision when hiring a temp from among a group of temps is the same as when hiring from a group of job applicants," says James. "Employers that use temps are often under the impression that discrimination laws and other risks don't apply in this context, but that is not true."
For government contractors, converting a temp to permanent status could risk undercutting diversity commitments they've made for open positions, he says.
"Temp-to-perm means you're bypassing the job-posting process by which you give others the opportunity to apply for that job," says James. "For employers with affirmative-action obligations, this could mean you're running afoul of commitments you've made to seek out a diverse workforce."
Martin says the temp-to-perm process is increasingly being used by job seekers to determine whether they'd like to work at a particular company. He says the number of people doing this is growing, thanks in part to the Affordable Care Act.
"The ACA lets employees port their healthcare with them from job to job without the risk of losing coverage for their families," says Martin.
Wahlquist agrees that the ACA has made working as a temp more appealing by making it easier for workers with pre-existing conditions to obtain health insurance.
"People with pre-existing conditions used to be kind of pinned in a corner if they got their health insurance through an employer, as most of us do," he says. "But now that insurers can no longer disallow coverage because of pre-existing conditions, we believe it will lead to an inflow of talent into the staffing sector."
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