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HR Takes Charge of Contingent Staffing

It's not always been HR's job, but unles HR manages its organization's use of temporary workers, it runs the risk of serious legal, financial, and security problems.

August 7, 2002

With all the workplace issues that HR has to juggle, the hiring and management of contingent workers might be low on the list. Why worry about temps, who are here today, gone tomorrow, and as expendable as paper clips? They’re hardly as important as the hiring, training, and compensation of a cadre of regular employees.

That’s one school of thought. But some HR professionals realize that temps aren’t quite so trivial. In their view, it’s critical to have a clear concept of how temps are hired, managed, and released. A company that uses contingent workers but doesn’t track them can find itself on shaky legal, financial, and security ground:

  • Microsoft Corporation agreed to a $97 million settlement in 2000 to end a long court battle with its "permatemps" -- contingent workers who were hired for years at a time by the software company, allegedly in an attempt to avoid paying them for health benefits, pensions, and employee stock-purchase plans.

  • A Minneapolis company that makes medical devices estimated that its outlay for contingent workers was No. 9 on a list of its 10 largest expenditures. Once the company began to track its actual spending with itiliti, a company that provides Web-based workforce procurement and management software, it found that the cost of contingent workers actually ranked No. 2.

  • Another company’s records showed that 1,200 security badges had been issued to IT contractors, but the company had only 400 temps in its workforce. That meant that 800 active security badges were in the hands of people who could "come in and do what they wanted," although they no longer worked at the site, says Chad Wells, vice president of marketing and business development for itiliti, which is based in Edina, Minnesota.

HR’s role in contingent staffing
How does HR fit into all this? That depends on the organization involved. In many large companies, procurement hires contingent workers. IT groups also do much of their own contingent hiring, given the specialized nature of the work.

But there are organizations in which procurement isn’t responsible, and neither is HR, says Bill Rothenbach, vice president and service director in Syndicated Research Group’s human capital strategies service. "Sometimes there’s a distrust of HR that makes line managers unwilling to bring it into the process," he says.


"It’s extremely difficult for anyone except finance to know what’s being spent on contractual workers."

And in some companies, HR has no interest in being involved, even though the interviewing and "hiring" process of temps is more akin to HR than procurement.

That’s been the experience of Gene Zaino, CEO of Contractors Resources. His company provides administrative and business management services for independent contractors and acts as the third-party employer of record for the companies that engage them. "HR says, ‘We don’t do [contingent or consultant hiring] -- that’s procurement,’ " he says. "We’d love to pull HR in. We think it would be of tremendous value to the organization."

HR absolutely should be in the business of managing contingent workers if those workers make up a regular, significant part of an organization’s staffing, says Linda Merritt, human resources strategic planning director for AT&T.

"It’s a workforce capability management issue," she says. Contingent staffing "becomes a place where capabilities are housed. If you can’t see into it, you don’t know if it’s being managed well.

"You might want to see some people re-employed in your organization [after an assignment ends]," she says. "But if the only person who knows about them is a local line manager, or procurement, who just got them paid but doesn’t know about their skill sets," HR can’t begin to make that decision.

Part of the problem lies in business systems that don’t talk to each other, or don’t collect the same sets of information. Procurement cares only about making sure that contingent workers get paid. It doesn’t have to collect information about their performance or skills. But there are ways around that, Merritt says. "It’s HR’s responsibility to reach out to procurement, to find ways to get the data you need, and they don’t. You can access it through some IT solutions."

And what if hiring managers are hiring as they see fit, and no one is keeping tabs on them? That’s where the problems begin.

The contingent mess
Without oversight, contingent staffing becomes "a hidden cost to an organization," Rothenbach says. "It’s extremely difficult for anyone except finance to know what’s being spent on contractual workers."

It’s possible for companies to lose track of how many temps they actually have, says Ed Remus, vice president of procurement for NextSource, a human-capital management software company based in New York City. Remus previously worked as senior procurement manager for Lucent Technologies.

While Remus was at Lucent, the company had more than 7,000 temporary IT employees, but because of the way they were hired, the day-to-day head count was nearly impossible to gauge.

"There was no one place we could go and find that out," he says. "The way we had to get information on contingent workforces was to send letters and e-mails to all the VPs, who farmed the letters down to the project managers, saying, ‘OK, how many do we have today?’ It was a difficult thing." And, Remus adds, Lucent’s problem isn’t unique. "I see it now with a lot of our customers."

Without some set of controls, line managers use certain staffing companies because they’ve developed a good relationship with them, or believe they’re getting a good price (whether they really are or not). Companies have no opportunity to save money through price comparison and competition, volume discounts, or other negotiating strategies.

That was the situation when Gary Anderson joined Carlson Companies, Inc. The privately held marketing, travel, and hospitality giant owns more than 745 hotels, among them the Radisson chain, and has a restaurant empire that includes TGI Friday’s. It employs more than 188,000 people worldwide, but its temporary workforce generally runs "in the hundreds," he says.

Anderson, who is now the manager of contract labor in Carlson corporate procurement, initially was hired to deal with contingent staffing in IT.

"There were the normal things you’d find: maverick buying, paying too much, contracts not in place." Also, staffing companies did not consistently run criminal and educational background checks. To top things off, Carlson was using 144 different staffing companies. So despite its size, the company had no leverage with its vendors. Quality, both of the staffing companies and the temps they supplied, also was an issue. Anderson points out that Carlson’s problems were not unique. He hears plenty of similar stories from his procurement colleagues.

Other firms wind up with a temp-management mess because of mergers and acquisitions, says Chris Mortonson, chief sales officer for Fieldglass, another software technology company that has a Web-based application to help companies procure and manage their contingent workforces. In one company that Fieldglass worked with, "there were multiple business units with different purchasing processes, different HR management rules, and no consistent job descriptions across the company or the business units," he says. "There was no common definition of recruiters or procurement, and disparity on what staffing companies were used to hire, even in the same organization. The rates varied, and the quality of the workers varied."

Contingent chaos, in short.

Setting up controls
The first thing a company has to do is assess how much it uses contingent workers. Remus recommends a look at accounts-payable records first. Sometimes that’s the only central repository of information about contingent hiring.

Some accounting systems have coding that makes the information easy to find. If the payables list isn’t long, "you can eyeball lists of providers. Staffing jumps right out at HR. And if you see lots of payments to individuals [who might be independent contractors], that’s a red flag," he says.

Once HR knows the extent of the organization’s use of contingent workers, it can work with procurement, finance, and hiring managers to develop a process. Anderson said he began by going to staff meetings of various work groups and collecting information there. How many workers were being hired? How long did they stay? Who did the hiring?

Once the patterns are apparent, the organization (perhaps led by a strategic HR professional, as Merritt suggests) can start to create some parameters for contingent hiring. It can decide which vendors to use, on the basis of cost, expertise, and track record, for example. It can determine how long assignments will be, in order to avoid any co-employment problems such as those encountered by Microsoft. It can establish payment limits that can be exceeded only with approval from someone above the hiring manager’s level.

As it has in other areas of HR, technology has made contingent workforce management a lot easier. In addition to itiliti, Fieldglass, and NextSource, Chimes, eLabor, CascadeWorks, and other companies all have software suites that manage contingent staffing from the employer end. More and more staffing companies are introducing systems of their own, and many of them are forming partnerships with the software companies mentioned above.

Most of the systems include instantaneous e-requisitions that greatly speed up the hiring process. These systems can be set up so that only requisitions that fit the guidelines established by HR or procurement can be sent out to staffing companies.

Once the organization has chosen a process for contingent hiring, it’s crucial to get the hiring managers to go along with it. No one is going to fire hiring managers for doing an end-run around the new process, but it’s a waste of time and money if they don’t use it.

"It’s an education process, and it takes excellent communication," Anderson says. "You tell the [hiring managers] over and over what you’re doing, and you get their buy-in to the process."

What works best, he says, is to create and present a process that shows them why it’s in their best interest to use it. "Does it remove work? Lower costs? Remove hassles? What are the deliverables? When you show them that, people get on board," he says.

Remus agrees. "You’ve got to have something that the users see as a value-add. If they see it as a nuisance, or as work, you’re not going to get them to use it."

He recommends selling the new process not only by emphasizing its ease of use, but also by telling the managers, frankly, what risks the company runs by not standardizing and managing the process: higher costs, possible lawsuits, and more. "We’ve found it’s not something you jam down people’s throats. You say, ‘Here are the risks, and it won’t upset your apple cart to do it this way.’ "

With technology, the process really can be faster, easier, and cheaper, Anderson says. And when a technology solution is in place, HR or procurement is out of the day-to-day decision-making, and won’t become a bottleneck for the hiring manager who needs a temp right now.

In the case of Carlson, implementing itiliti’s system meant that the company reduced its list of IT vendors from 144 to 9. Every contractor is reviewed at 90 days or at termination so that the company can determine if the vendor and the worker it supplied were up to snuff. Anderson stresses that technology is just a tool, however. "The processes have to be in place first."

Help from the staffing companies
HR and procurement also have allies on the other end of the process, says Joanie Moran, director of operations for the southern division of Adecco. For starters, companies such as Adecco can help firms analyze their contingent-staffing history. "Sometimes they don’t even know how many people they’re using. They might think it’s 10, and it’s 40," says Joyce Russell, senior vice president of Adecco’s southern division.

"They might think they have a formal process, but it’s not as formal as HR thinks, or the supervisors have gotten a little lax when it comes to requisitions," Moran says. "On their own, they’ll requisition 10 people HR doesn’t know about."

Once a staffing agency knows an organization’s processes, it can serve as a friendly enforcer. "When we come back and say, ‘You’re not on the approved [hiring manager] list; do you want us to call HR?’ they say, ‘No, no,’ " Moran relates. They go back to the process, she says. The order gets approved in a timely way, but there’s been a reminder that there are guidelines, and someone other than HR is keeping an eye on it. "We play the gatekeeper in that process."

Workforce, March 2002, pp. 50-56 -- Subscribe Now!