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Partnering with a Staffing Firm Helps Manage Costs

As the unemployement rate falls, many companies 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 will be done
  • how it will be done

This is the case even if you give the person the freedom to handle the task/job as she desires. It does not matter if they actually manage their project in that manner; it just matters that you have stated that it is your right to control the details of how the tasks/services are performed.

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:

  • Advertising
  • Pre-employment testing
  • Background checks
  • Drug screens
  • Work Eligibility verification checks

What are intangible hiring costs? There are several:
If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, the business (or the worker) can request that the IRS review all the facts and officially determine the worker’s status. Submit a free streamlined ruling form – Form SS-8,

Be aware a ruling can take at least six months to get a determination, and the answer may not be to your liking. According to Forbes magazine, 72% of Form SS-8 rulings come back as an “employee determination”. Twenty-five percent were closed without a ruling and only 3% of the rulings were as an “independent contractor determination”.

  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?

  • 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.
  • 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.
  • Payroll/Benefits management – actual payroll and benefit costs are not the only costs. The costs of managing both processes are also reduced.
  • 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)
    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” for Unemployment claims made by temporary workers do not affect the company’s rating)

That is great, but 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.