The Economy Gets Fixed (Term)

this week’s whiteboard is brought to you from the indignantly furrowed brow of Sean Walters while your regular blogger battles pesky leeches on the Central Coast bush walks of NSW…

The word round the camp fire is that 2014 has started with the recruiting gusto that every January has promised, yet failed to deliver, since I first sobbed into my cornflakes after the GFC of 2007. Market optimism is high, and both agency and internal teams are bullish in their expansion plans for the year.

For our internal recruitment clients, we’ve seen a massive increase in the desire for fixed-term recruitment contractors. It seems that although confident, a risk-averse corporate isn’t so confident that they’d actually offer a permanent job to someone. Heaven forbid that the existing team clear their 60 vacancies each backlog and find themselves over resourced! Hey, but at least they’re hiring. It certainly beats this time last year, where I resorted to busking on Queen Street with a horse mask just to pay the bills.

Yes, that was me…

When asked by a client to source a fixed-term contractor, being the by-the-numbers recruiter that I am, I always suggest that it may be worth funding the hire via an hourly rate option. I even cost it out something like this:

“Dear Mr or Mrs Hiring Manager
3 month FTC paying $80k pro rata. ​Our fee: $xxx
​​​​​Contractor’s salary over 3 months: $xxx
​​​​​Total: $xxx
3 month hourly rate contractor:​​Hourly rate: $xxx
​​​​​Total: $xxx”

Erroneously I believe, the vast majority of my clients of late have opted for the FTC option.

Admittedly, the FTC “cost” is typically marginally lower that the hourly rate contractor total. However, do these figures show the real cost of hiring, and more to the point, the benefits of outsourcing the risk of hiring to the agency?

For a fixed-term hire, an already beleaguered HR department is asked to generate a contract, usually with no notice. Your new employee will then have have a notice period, you will have ACC levies to contend with, KiwiSaver to pay, and if your contractor turns out to be a dud, you still have to comply with the law and performance manage them out of your business. My recruiter brain couldn’t begin to put a value on all of this, so I’ll revert to type and just describe it as a chronic ball-ache.

The other option? We’ll payroll your contractor. We’ll manage the risk. They don’t work, you don’t pay. Contract generation? We’ll do that. Holiday pay? Not your problem. And here’s the kicker….once you’ve factored in the admin costs, and the time and distraction of actually employing someone, it actually costs your business less!

So who else is winning by recruiting a “temp”? Two people; the contractor, who is typically getting paid more, has more flexibility, and is closer to that dream of being truly self-employed. And also you, the Recruiter.

Ask any successful contractor recruiter about deal value of a “temp” vs. a placement fee. You’ll make more for longer running a good contracting book. You can even go on holiday and still hit your targets.

I recently shared a beer with a former Finance Director-turned-Business Valuer. Actually, he was drinking Gin & Tonic, but whatever. The message was still clear; if you want to sell your recruitment business, come to him with a contracting book, and not a permanent agency whose success is dependent on one-off placements from someone who will sail around the world the second the business is sold.

Speaking with an outsourced payroll provider, it’s surprising how few agency GMs are pushing into the contracting space. Maybe that one-off $18k fee with no ongoing management is just too tempting to an industry addicted to Big Money Deals? Maybe a low double digit hourly margin doesn’t conjure up the image of buying the bach, hair transplant or boob job?

Or maybe some of us are just scared to admit that we don’t really understand the logistics of a market that will account for 40% of the US workforce by 2020?

Fixed-Term Contracts certainly have their place. For those who aren’t professional contractors, but are interested in project work, they offer more stability and certainty than temping. Likewise, many hiring managers can only get a hire across the line with their bosses by going with the FTC option. However, I’m not convinced that their place is a big as the corporates tell me.

Until I am convinced, I’ll keep pushing hourly-rate contracting as being beneficial for all parties. I genuinely believe it helps us as agencies add value to our clients by outsourcing their risk and pain, whilst also helping our own businesses thrive.

So internal or agency, how are you geared up for the growing demand for contingent workers in 2014? Are FTCs the best solution and I’m missing a trick, or, excluding their dress sense and Red Bull addiction, have those IT contractors been right all these years?

^SW