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Permanent Jobs Shrinking, Contract Staffing Growing

A recent study shows that there is a revolution in the way companies think about the workforce. Here is the executive summary of the survey results.

April 10, 1999
Related Topics: Contingent Staffing, Outsourcing
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As a function of layoffs and volatility in the business environment, companies are rethinking their permanent full-time workforce. Contract staff and outsourcing of all but core competencies will be "business as usual" in the year 2000 and beyond. The implications are widespread.

Volatility in the marketplace, mergers and acquisitions, and accelerating rapid change in technology are forcing companies to rethink their workforce. No longer can companies afford the overhead for a large full time staff. Companies need a flexible workforce to protect against volatility. This need for flexibility is driving long-term growth in the contract staffing industry.

Overall Trends in Contract Staffing:

  • Overall contract staffing is expected to increase in the foreseeable future for solid business and economic reasons. While in 1998 with the volatility and "Asian Flu" only 39% of the over 100 companies canvassed increased contract staff headcount, this year 54% expect an increase, and looking five years out, 66% expect contract staff to grow.
  • Importantly, more than half those who experienced headcount growth in 1998 and those who expect growth in 1999 experienced or expect dramatic growth over 15%. Roughly 10% - 15% of those canvassed experienced or expect growth in 1998 and 1999 of 25% or more and several expect to more than double their contract staff.
  • Of the over 100 companies canvassed, on average 16% of the staff was contract. This varied widely, however, with some companies with less than 1% contract and others 50% or higher. In over half the companies contract staff represented 10% or less of the staff.
  • Reasons for contract staff being up are solid:
    • The employee market is tight—finding good people tough, especially in technical areas.
    • Scarce availability of skills, particularly IT and highly specialized technical areas.
    • Volatility in the marketplace requires a flexible staff that can be moved out when projects are finished.
    • Need for project work in specialized technologies more suitable/conducive to short term contract and a flexible workforce to increase productivity.
    • Full-time employee overheads are expensive. One company quotes a $25/hour employee costing as much as $53/hour with employee benefits and overheads (401K, medical, vacation time, company picnic, etc.). Another company says a $50/hour employee costs $72.50/hour reflecting fringe benefits from 45% - 60%.
    • The "temp to perm" employee model is attractive. Companies bring in temps for a 90-day probation period and then have the option to hire them full time. This is a great "try before you buy" concept and avoids "finder" fees.
    • Revenue per employee is higher with more contract and less full time staff. This is attractive to Wall Street.
    • More and more employees prefer being independent contractors, because they earn higher salaries, like the independence and mobility, and because their spouse is often earning benefits for the household.
  • As an extension of the trend to contract staffing, there is a trend being looked at where companies will totally outsource functions which are not core competencies. Specifically, companies will focus on core competencies and partner with other companies to manage non-core functions. For a high tech manufacturing company, for example, non-core functions might include accounting, benefits administration, facilities management, cafeteria and food service, mailroom, and even purchasing.

Outside Factors Affecting Contract Staffing Trends:

  • Most respondents agree that outside economic factors such as the Asian crisis, downsizing, and the stock market affect contract staffing trends.
  • Downsizing has fueled and paved the way for the whole culture of contract staffing. In the 1990s, supplemental contingent workers are more and more common—contracting is now business as usual. While the contract staff is usually the "first to go" in a downsizing situation, ultimately downsizing makes contract staffing go up as companies realize they need a flexible workforce to weather the hard times. It’s an interesting phenomenon—companies cut heads to keep costs down, but expenses go up.
  • As we continue to see more and more volatility in the business climate, companies recognize a need to change strategy for their workforce—more and more it is openly "OK" to employ a largely outside or contract employee base.

Specific Contract Staffing Needs:

  • There has been a drastic shift in the past few years from Administrative/Clerical to the IT sector and highly technical areas for contract staffing. Of the over 100 companies canvassed, 63% indicated an increasing need for IT skills and 52% for technical engineering versus just 23% for clerical/administrative, 19% for manufacturing, and 4% for warehouse.
  • The supply of technical engineers is lower than the demand so that this area is "hot." The low supply and high demand forces wages up, particularly for mechanical, electrical, and software engineers.
  • While technical skills are in high demand, what companies thirst for most is project management skills. Companies need people who can manage projects from start to finish. It is rare to find people with the technical savvy who can also manage people well to take a project through to completion.
  • Specific technical programming skills needed include specific languages—most in demand being C++, NT, Java, SAP, UNIX, and Oracle. Also mentioned are People Soft, Visual/Basic, Novel Cobalt, and Tandem. Computer Networking skills, Web, Internet, MCSE certified tech people, and CAD/CAM engineering Design are also mentioned.
  • There is a big and growing need for PC Technicians and people who can "man" the HelpDesk and Customer Service areas.
  • Manufacturing is down, in part due to automation and greater efficiencies.
  • Consultants tend to be used for more specialized specific defined assignments and projects.

SOURCE: TAC Worldwide Companies, Inc. For more information, call Dan Leinweber of Leinweber Assoc. at 978/440-7878 or e-mail dan@leinweber.com.

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