Temp-to-Hire is Becoming a Full-Time Practice at Firms
"Try before you buy" has gained favor as employers seek more flexible workforces and await signs of a sustained economic recovery.
Last fall, when T-Mobile needed hundreds of engineers and technicians for the new cell system it acquired from a competitor, the company went straight to its staffing vendors. Other than perhaps for the numbers, it was a routine procurement. There was one exception, however: T-Mobile took the opportunity to include a temp-to-hire clause in the contract.
"It’s not been a regular course of business in the past," says John Sullivan, T-Mobile area director of engineering and operations for Northern California. He supervises some 250 employees, of whom about 110 are contingent workers. Of the company’s 22,000 employees nationwide, 20 percent to 30 percent are contingent.
"Many of them are not necessarily interested in full-time work," he says. "But for those who are, it’s a chance for us to see who’s a fit and it gives them the chance to see this is a pretty good place."
T-Mobile didn’t set out to use the temporary engagements as a tryout period; it didn’t intend to use the staffing vendors as a sort of outsourced recruiter. But when the opportunity arose, the company figured, "Why not?" Sullivan says.
"Why not?" increasingly appears to be a question being asked by companies already comfortable with hiring temporary workers. Whether they turned to contingent workers because of a sudden upturn in business and then developed a strategy around the need or they strategically decided to build a flexible workforce before hiring their first temp, these companies are finding hidden values in what was once regarded as second-class staff.
It’s a hiring tactic and not a workforce strategy, says Simon Billsberry, CEO of Kineticom, a staffing contractor in San Diego. But "as a tactic it’s very beneficial. We’re seeing it more. There is significant growth in the temp-to-perm area."
"Try before you buy" is becoming quite popular in some areas, Billsberry adds--so much so that the largest of the companies with flexible workforces have been pushing staffing contractors to cut or even eliminate the conversion fees they have to pay when hiring a contingent worker.
Losing an office temp to a client has long been a fact of life for companies like Kelly, Manpower and AppleOne. They and other staffing contractors try to limit the practice by assessing fees sometimes exceeding 30 percent of a year’s salary to the hiring company. But finding office workers is a snap compared to hiring an engineer with specialized skills in a growth area. To staffing companies, such employees are a revenue-making asset that they don’t want to have to keep replacing if they can avoid it. Increasingly, though, they can’t.
Gary Noke, president of Decision Logic, a division of TAC Worldwide Cos., says that after one of his company’s workers has been on a client job for six months, the client can hire the worker without a fee. "The larger companies are forcing that on the contractors," Noke says. With larger companies, that fee-free conversion provision is always required, he says.
Contractor as recruiter
With the iffy economic recovery, companies that in another time would have ramped up their full-time staff are hiring contingent workers with a conversion right. Once they become convinced that the business uptick isn’t just a temporary spike, they’ll look first to the temporary workers to fill vacancies.
"Your contractor," Noke says, "becomes your recruiter."
Staffing companies uniformly grumble about that: They do the recruiting, while the client gets to pick over the staff and hire away the best of the workers.
"There is a war for talent," says Billsberry, whose company--like all the staffing contractors--recruits year round. "We compete for the best people with everyone else. It’s in my best interest to keep them working because they’ll go somewhere else." It’s a competition among two or three other staffing companies to find talent and keep them working with Kineticom’s clients, he says.
The only ace for the contractors is that many of the most in-demand workers prefer short-term assignments and would rather not work for a single company.
"The companies that get it are moving to have a permanent flexible workforce. And most of the bigger companies get it."
That’s long been the case for IT workers and certain types of engineers who naturally fit into project work. When the project ends, they move on to another--sometimes with the same company, but often not. At the end of the 20th century, with the specter of wholesale computer failures looming, thousands of programmers came out of retirement and academia and even left regular jobs to take on high-paying Y2K projects. In January 2001, they retired again or signed on with staffing contractors for project work rather than go back to full-time cubicle life.
T-Mobile’s Sullivan says that even though he has a fee-free conversion right, he believes that most of his contingent workers aren’t interested in becoming employees. There are cultural issues--many of his techs are noncitizens--that might prevent it. The pay differential is higher for a temp and, Sullivan says, "some people just like to be able to do something different."
Hiring contingent workers was once a matter of necessity to help a company get through a busy cycle. And working as a temp was a matter of survival, a way to earn some money until the next "real" job came along.
That’s still the case and, say recruiters and staffing contractors, likely always will be.
Mellon Bank, for instance, was ramping up for a special credit card offer and needed hundreds of short-term workers at its call center in New Jersey. Greg Antonelle, recruiting director for AimHire Associates, helped fill the bank’s need. As the campaign winds down, the temp staff will too.
But with the changing nature of the economy and with highly skilled IT workers blazing the trail over the past two decades, building a flexible workforce has become a strategy and not just a tactic. Adding contingent workers to the workforce mix is an accepted way of doing business not only at the Fortune 500 level, but increasingly for medium-sized businesses as well.
A strategically hired contingent workforce can be even more productive than full-time staff, says Chris Hagler, national director of strategic services for Resources Global Professional. "They don’t get involved in company politics," Hagler says. "They are not wrapped up in all the things you find staff talking about at the water cooler. They come in and do their job."
Hiring to fit unique needs
Companies make a strategic workforce decision by sizing up their cyclical needs, workforce costs, time to hire, core functions and even image. Looking at each of these components and deciding both their value and how they can best be managed will lead to developing a workforce strategy that might include a mix of full- and part-time employees, contingent workers and outsourced work.
Hagler, who helps companies work through these issues, offers an example. For Coca-Cola, marketing is a core function, but accounts receivable is not, she says. And so the company keeps its marketing operation in-house, with full-time staff, and outsources the accounting function. For a bottler, the decision might be to have only a minimum number of line workers and supplement them with temps to handle sudden demand.
"If you have a really strategic HR person, they will look at what is core and what is not. They’ll work with the other divisions to assess demand and need and develop an overall strategy that creates a flexible workforce," Hagler says.
Her company, like many of its rivals, specializes in placing professional talent including accountants, chief information officers, supply-chain specialists and HR experts. Resources Global Professional recently began to provide lawyers on a temporary basis.
American Staffing Association data attest to the strength of the temp market. The ASA reported that last year nearly 2.5 million people on average were working as contract and temporary employees every day, the highest level since the go-go days of 2000. That was almost 2 percent of the nation’s total nonfarm workforce. To keep that many people working, staffing firms had to recruit and hire 11.7 million employees during the year.
The ASA estimates that 8 million of them transitioned to full-time work during the year, but not necessarily with their client’s company. However, an ASA survey found that conversion fees paid to staffing companies for hiring away their workers came to $7.3 billion last year, which represents almost 10 percent of total revenue for the staffing industry.
Analysts project that the staffing industry will see even greater growth this year, not only because of organic economic growth but because large companies are embracing the concept.
"The companies that get it are moving to have a permanent flexible workforce," Noke says. "And most of the bigger companies get it."
One of those companies is Johnson & Johnson.
Olivia Baumgartner, a recruiter with Johnson & Johnson Professional Recruiting, the company’s internal hiring arm, says contingent workers are a key part of the company’s workforce. Indeed, about half the 90 employees in her office are temporary consultants. "We just grew so fast," she says.
Baumgartner has worked in human resources for several companies, including a recent stint as a manager at Hewlett-Packard, and says she has seen contingent staffing become a way of life.
"It’s cost-effective and it gives a company a chance to look over the workers and try and buy," she says. Workers like it too, Baumgartner adds. "They get a chance to learn about a company and get a broad exposure to the different ways companies do things."
She should know. At HP and now at Johnson & Johnson, Baumgartner is part of the contingent staff.
Workforce Management, June 2005, pp. 82-85 --Subscribe Now!