How old hiring practices are costing your business time and money

In today’s market, innovation and responsiveness are critical to business success.


Accommodating this change often means employing a contingent labor force. The Freelancers Union estimates that 42 million – or about one in three – American workers are currently engaged in the contingent labor force. And with good reason: a 2010 Intuit study notes that “80 percent of large corporations plan to substantially increase their use of a flexible workforce in the coming years.” The study also predicts that by 2020, a full 40 percent of the U.S. workforce will consist of contingent labor. Contingent labor comes in many forms and skill levels, ranging from seasonal customer service associates to skilled freelancers whose talents are needed for the duration of a new project.

The reasons for utilizing contingent labor are as varied as the contingent professionals themselves. But one thing is clear: Being able to leverage this trend in an efficient and cost-effective fashion is crucial to a business’s future.

The bottom line: why contingent labor wins.

Hidden costs, surprising value.

It’s no secret that there are hidden costs embedded within every hire. But the difference in those costs for permanent employees and contingent labor is probably more — far more — than you think.

Permanent hires are burdened with embedded costs. Hard costs like health benefits, training, vacation time, and 401(k) contributions certainly add up. But what about difficult-to-quantify costs like recruiting and training? What about lowered productivity and separation from bad hires? How much do these factors add to the total cost of each permanent hire?

A recent Houston Chronicle article offers this answer: “[A] $75,000-a-year — or $36-per-hour — employee would incur almost $40,000 a year or more than $19 an hour in hard costs. This increases the cost of a full-time employee to more than 50 percent of her annual pay for a total of $115,000 or $55 an hour.”

Contingent labor, on the other hand, offers far fewer embedded costs. Without sick time, holidays, or benefits to pay for, the cost drops substantially. That’s a huge boost to the bottom line, especially for businesses that need to add large amounts of headcount.

But that’s only part of the story.

When turnover is high, the costs are even higher.

The new speed of business often requires companies to change their labor needs rapidly, sometimes overnight. Companies with large permanent headcounts are frequently forced to answer this challenge through layoffs. These are stressful, costly events for both employees and businesses alike. But in this new agile economy, headcounts expand just as rapidly as they contract. When your company is ready to expand, the costs of replacing a workforce to support a new product or business line may put a sizable dent in your bottom line.

2012 study by the Center for American Progress reviewed 30 case studies on the cost of employee turnover. The results were staggering: the cost of replacing an employee earning $75,000 or less — or 9 in 10 American workers — adds up to 20 percent of their annual salary.

This estimate includes the costs of hiring, training, and low productivity during the employee’s first days or weeks on the job.

And yet, training comes with its own unquantifiable costs. According to UniversalGiving CEO Pamela Hawley, employee morale can be decimated — taking productivity with it — if weeks and months spent training the wrong hire all prove futile:

“The cost of a wrong hire can be thousands, if not hundreds of thousands, of dollars. You’ve spent the time training, then there is a vacuum in your organization when they go. You’ve spent 3, 4, 6 months of your employees’ time … getting someone up to speed. Then your employees need to get someone new up to speed. But first, they have to begin the rehiring process, again. More money. More time. More weight on the organization.

And don’t forget the morale cost. This is where it is most heavy on the team, and we have to be considerate of our people. We should respect the energy and investment of their time.”

Hiring. Training. Releasing. Hiring. Training. What does this all add up to?

Employing a full-time hire costs more than 50 percent of their annual salary. Replacing that hire costs an additional 20 percent. That brings the total for replacing a permanent hire making $75,000 to $130,000 per year.

Old solutions to a new problem: where traditional staffing falls short.

Expensive lessons.

The savings and adaptability of a contingent workforce are nothing new. Many companies have carried large groups of freelancers or contractor labor on their books for years. But, according to Nichole Spaight, without the proper oversight, this strategy can be risky and expensive. Spaight is a 16-year veteran of the staffing industry and one of Adecco’s vice presidents of field sales. She’s worked with plenty of companies whose missteps in contingent labor management have been costly.

“When companies are looking at their staffing spend, one of the most overlooked costs is risk mitigation,” she said.

The pluses and pitfalls of traditional solutions.

Many companies turn to staffing management providers to manage their contingent labor force. By working with these vendors, employers transfer much of the financial risk associated with a contingent workforce to the staffing agency.

Business owners who work with workforce vendors in a co-employment relationship also offload substantial administrative duties and costs; the vendor handles payroll, state and federal tax administration, and even worker’s compensation coverage and claim management. Many staffing partners also offer benefits that are unavailable to 1099 contractors employed directly by the businesses themselves.

But traditional staffing management solutions are increasingly proving to be ineffective and unwieldy solutions to contemporary staffing needs. They require businesses to provide substantial administrative oversight for the contingent workforce, as well as for the vendor itself. Staff and resources must be devoted to managing multiple vendors, multiple invoices, and multiple points of contact.

Traditional staffing programs are also off-site and hands-off, making them hard to reach and sometimes even harder to work with. Likewise, benefits and taxation administration becomes a challenge for businesses if the vendor is mismanaged or unclear in its communication with business leaders.

Rethinking co-employment:
not all staffing programs are created equal.

Costly misconceptions.

“One of the most common misconceptions about staffing companies is that they’re all the same,” said Spaight. “This leads many companies to turn to the cheapest possible staffing solution. They believe that the caliber of talent is the same from firm to firm, and they don’t realize that the changing economy has led many of the most talented professionals to become contractors. We’re seeing a significant increase in the popularity of temporary, or contract work, from job seekers as well as organizations—it allows job seekers to diversify their skill sets and gives employers the opportunity to see if someone is the right candidate for a long term fit. ”

These misconceptions can have severe implications for a company’s bottom line. With lower quality talent at their disposable and fewer resources to leverage, bargain providers take longer to source, vet, and hire talent. The productivity lost by bad hires also takes a heavy financial toll. “As a result, employers end up spending more with a cheaper firm than they would with a premium provider,” Spaight noted.

A better solution.

Selecting the right staffing provider for your business can be challenging. There are a range of factors to consider: quality of talent, the amount of time between hire and full productivity, and – of course – cost. For some smaller businesses, traditional staffing solutions make sense. But for large companies whose workforce needs demand speed and quality hires, the older models no longer fit the bill.

End-to-end contingent workforce solutions like Adecco’s Master Vendor Program can alleviate the concerns that come with last-generation staffing partnerships. “The Master Vendor Program provides a single, centralized workforce management system designed to help large and mid-sized companies cut down on staffing costs,” said Spaight.

The Master Vendor Program takes a hands-on approach to understanding your company’s mission statement, culture, and working environment. “We spend a lot of time on-site,” Spaight added, “to understand what each business values. Is it a hands-on or hands-off company culture? Do they value innovation or execution? These are the things we’re looking for when we’re working with a new business partner.”

Adecco provides a single designated Program Manager for each of its 300 Master Vendor Programs around the U.S. These Program Managers serve as a single point of contact for their partner companies. Many work on-site alongside the companies’ HR teams. Others work off-site or near the office, depending on the client’s preference.

“The Program Managers aren’t just there to provide staffing support,” said Spaight. “They’re a part of the client’s business. They’re charged with driving productivity and reducing turnover. They also work to provide increased transparency for their partners on everything from timesheets and approvals to billing and contracts.”

Seismic gains.

Working closely with their business partners, the Program Managers provide consistent vetting and onboarding of new hires. They also manage training and orientation. They help new hires get up to speed more quickly, removing much of the embedded cost associated with adding headcount.

The Program Managers work to lower to administrative costs, as well. They facilitate consolidated invoicing on a single billing cycle and manage all of the necessary documentation that comes with new hires. They also manage co-employment, redeployment, associate payroll processing, and conflict resolution. By providing much-needed reporting and support and removing the need for companies to cover these costs and processes with full-time HR and finance employees, the Program Managers become a critical component of their partners’ HR teams.

These revolutionary attributes recently allowed one Master Vendor Program to help a Fortune 500 financial services company achieve maximum workforce ROI. By consolidating 70 staffing vendors into seven trusted and vetted talent providers, they achieved substantial reductions in both the cost and administrative oversight previously devoted to staffing challenges.

The presence of an on-site Program Manager also helped lower employee turnover rate from 5.6 to 4.9 percent. Regulatory compliance risks were even more heavily impacted, since the Master Vendor Program reviews all contracts to ensure full compliance with insurance, indemnity, and service requirements.

However, not all businesses need a 360° staffing solution. Programs like Adecco’s Preferred Vendor Program provide a level of service similar to the Master Vendor Program, but at a cost that’s more accessible to smaller businesses. “The Preferred Vendor Program is a step in the evolution of contingent labor management,” Spaight said. “It’s a way of providing a comparable level of service [as the Master Vendor Program] to smaller and emerging businesses.”

The Master Vendor Program provides a single, centralized workforce management system designed to  help large and mid-sized companies cut down on staffing costs.

People: your competitive advantage.

Choosing the right staffing solution for your contingent workforce is about more than just watching a line in your corporate budget. The wrong choice can lead to lower productivity, longer training and adjustment periods, higher turnover, and increased administrative expenditures. The right staffing solution, on the other hand, can relieve your internal staff of many unnecessary responsibilities and costs. It can also act as a partner, rather than just another vendor.

Moreover, the contingent workforce solution your business chooses should be one that understands and aligns with your company’s goals and values. The people it provides should do so, as well. “It’s critical that businesses recognize that their most important asset is their people,” Nichole Spaight said. “People are the competitive differentiator.”

And that’s the true measure of a human capital solution: does it provide the right people for the right job?

Ready to discuss your hiring strategy? Contact us today!

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