Partnering with a Human Capital Management (i.e. Staffing) Firms Helps Manage Costs

In May 2010, the unemployment rate was 9.9%.  Today, that number is slowly (ever so slowly) inching down (in June 2012, the BLS reported the unemployment rate hovered at 8.2% - unchanged from the month before).

However, companies are still not hiring en masse.  There are a myriad of reasons, but regardless of them, many are choosing to work with human capital management (i.e. staffing) firms when they need new workers rather than manage the hiring process internally.

This is because human capital management/staffing firms help businesses reduce costs – the costs to manage the entire hiring/employment process and all the different employment costs associated with maintaining a staff.

What hiring costs are you referring to?

The list of these costs is quite expansive.  They can include, not only, the salaries of staff/recruiters who manage the entire process, but costs related to:

1. Advertising
2. Pre-employment testing
3. Background checks
4. Drug screens
5. Work Eligibility verification checks

What are intangible hiring costs? There are several:

1. Economies of scale – human capital management/staffing firms have a larger, broader pool of qualified candidates than most employers can maintain.  These workers have already been identified as dependable, reliable, and conscientious; they can fill a need in a day or even a couple of hours (if needed).  Employers looking to hire seasonal workers (for example) have to advertise job openings*, cull resumes/applications, interview and then process all documentation for a candidate who will only work a short period of time.
2. Retention – A hiring mistake can cost from 1.5x to 3.5x (or more) of that person’s “fully loaded” annual salary (i.e. salary + benefits).  By partnering with a staffing firm for temporary or temp-to-hire employees, companies have the opportunity to observe their performance, interpersonal skills and work habits before offering a full-time position.  This dramatically cuts down on new hire turnover – which can be substantial - and the associated costs (see below).
3. Cost of Time – It takes (on average) 8 weeks to recruit, screen, interview and hire a new employee.  During this time, workplace productivity suffers, since other employees have to cover the workload left by the exiting employee.  Shortening the time to get the position filled becomes very important.

^{* newspaper ads can vary from $250-$3500 depending on the size scope of the newspaper. Postings on job boards can cost over $400, depending on the number of listings, while a standard recruitment brochure typically costs several hundred dollars to design, print and distribute.} 

 

What ongoing costs are associated with maintaining a staff?

1. Payroll costs – By using temporary employees for special projects or during periods of high demand, companies have access to the needed experience and skills but do not increase their fixed payroll costs.
2. Benefits expenses – Temporary and temp-to-hire workers are employees of the human capital management/staffing firm.  They receive their benefits from the firm, not the company they are assigned to.
3. Payroll/Benefits management – actual payroll and benefit costs are not the only costs.  The costs of managing both processes are also reduced.  
4. Overtime costs – By using temporary workers, you can reduce/eliminate the amount of overtime pay you paid to employees (see article on “Real Cost of Overtime” for more information)
5. Unemployment Claims – By using temporary workers, you can reduce/eliminate the amount of overtime pay you paid to employees (see article on “Real Cost of Overtime” forUnemployment claims made by temporary workers do not affect the company’s rating (and therefore payments).   more information)  

That is great, but human capital management (i.e. staffing) firms charge a fee.

It is true that firms do typically charge a fee (or markup) for their services.  However, private industry employers pay (on average) an additional 42% of their paid wages on benefits and taxes alone for their employees. 

However, this percentage only deals with the hard costs of benefits and taxes.  By partnering with a human capital management firm, a company can offset hiring costs (both tangible and intangible) as well as all the costs associated with maintaining a staff (see sections above).  These can be significant, especially when employee hours are included. 

Do not be fooled by the term “intangible” when looking at cost savings; these dollar amounts are very real.  For example, let’s look at the cost of making a bad hiring decision – a cost that is more prevalent than most people think.  For example, in a recent survey, IDC found that a full 15% of new “administrative” employees (i.e. back-office) are let go in the first year.  In another survey, 41% of companies stated that the cost of one bad hire exceeded $25,000 while 25% state that the costs exceeded $50,000*  So if an employer lost 15% of their back-office staff a year at a cost of $25,000-50,000 each, the costs would be astronomical.

*this cost ranges based on type of job 

The Flexible Workforce is the Future

A flexible workforce is going to continue to be a major factor as fluctuating demand the need for just-in-time (i.e. flexible) inventory and deliveries continues to be standard way of doing business.  Working with a human capital management partner will help drive efficiency and productivity in the sourcing of workers and talent.

It is a significant investment of money and resources to internally implement the hiring process for both employees and temporary workers.  Partnering with a trusted human capital resource firm, like Snelling, allows you to focus your time and resources on the core aspects of your business, while we manage your search for qualified candidates.

By Christiane Soto, Snelling.com  

Download a full-color PDF of this article! It is a significant investment of money and resources to internally implement the hiring process for both employees and temporary workers. Read our summary paper to learn why partnering with a trusted human capital resource firm, like Snelling, will allow you to reduce costs and become more profitable.  Click here to download a PDF version of this article today!