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How to properly use Temporary Labor

Chris Mead • Nov 26, 2022

Temporary Labor - When to use... and when NOT to use.

If you have ever worked in Manufacturing, Warehousing, Logistics, Hospitality, or Healthcare you have more than likely used temporary labor to fill positions.  However, are you properly using temporary labor in a way that supports your talent acquisition and staffing plans?


More than likely the answer to that question is "NO".  Most companies are using temporary labor as an 'easy' alternative to finding and maintaining full time employees.  While bringing in temporary labor is an easy solution in many cases it's not the right long term solution.


How is Temp Labor Being Used

Temporary labor is used by companies for a number of reasons:

  • Temp-to-hire (see if employee is a 'good fit')
  • To cover temporary (seasonal) fluctuations in productivity (peak season)
  • To cover special (short-term) projects
  • To fill shortages in full time labor

There are a number of other reasons to use temp labor however, most are just spinoffs of the above.  Overall, out of these 4 reasons there are only 2 that are viable to a healthy talent acquisition and recruiting plan.


Temp-to-hire

A number of companies use a 'temp-to-hire' (sometimes called temp-to-perm) model to bring in employees.  This is a model where an employer hires a temporary staffing agency to bring them employees.  This usually comes with a 60-90 day period where employers are required to maintain the employee as a temporary employee paying a commission of 30% to the temp agency on hours worked and sometimes a steeper markup of 40% on overtime wages. 

 

High Cost per Hire

Below is a quick cost analysis of a temporary employee making $13/hr working 50 hours per week:

  • $13/hr x 40 hours                        $520
  • Markup on regular time (30%)      $156
  • $19.50 (OT rate) x 10 hours           $195
  • Markup on Overtime (40%)          $78
  • Markup paid per employee          $234 per week per employee!

If you have 20 temporary employees for a 90 day contract that is a cost of approximately $60,000 in a 90 day period.  And if you on average only hire 1 of those 20 employees your cost per hire is $60k!  However, let's be conservative and say you hired half of these employees.  That is a cost per hire of $6,000 per employee and that doesn't take into account cost of HR staff to onboard, training staff, etc.  Keep in mind that the normal cost per hire is around $4,000 per employee as a national average.


High Turnover

On average the turnover of temporary and contract employees is around 370%.  Additionally, depending on the industry the average tenure of temporary employees is measured in days, instead of weeks and months.  A number of studies have been completed that show that average tenure is 9+ weeks.  However, that is based on tenure with a temp agency, not with a specific employer.  Even the 370% is based on the agency and not specific employers that are contracting employees.  Therefore, even the 1 in 20 hire for temp labor above may not be accurate.  It may be less, increasing your cost per hire beyond the $60k per employee.


Temp-to-Hire - The Verdict

Overall the 'Temp-to-Hire' or 'Temp-to-Perm' model isn't something that we see as being a productive part of a talent acquisition, recruiting, or staffing plan.  The cost per hire is too high for this to be the sole method of bringing employees into your organization.


Fill Shortages in Full Time Labor

There are times where a company may find themselves struggling to find full time employees.  However, as a consultant I see too often that employers say they are having difficulty filling full time roles but they fail to identify why.  They make the easy turn to a temp-to-perm model and never look back.  However, I don't think I need to remind you of the steep cost that comes with this type of model.  It's not practical for a company to do business like this.


If you are stuck and want to turn to temp labor that is fine. Or you can reach out to a provider like My Support Staff for help with filling full time roles.  Additionally, we will work with you to build a full talent acquisition, recruiting, or staffing plan.


Fill Shortages - The Verdict

While this is the go-to it can quickly turn into a temp-to-perm model.  However, it's important for HR teams to determine why they can't find full time employees.  They need to look at their recruiting plan and find the gap. While we tend to blame the 'labor market' this isn't the problem (if a temp agency can find employees so can you!).  While the labor market may be difficult we usually find issues in employer branding and/or internal processes surrounding recruiting.


Seasonal Fluctuations or Special Projects

We will combine points 2 and 3 above into one as they have some overlap in their intent but are brought about by different needs.


Ebbs and Flows

We all know that business has its ebbs and flows (increasing and decreasing production).  And each company has its version of a 'peak season'.  While the markup per employee is the same that is negated by the fact that this is a short term need and you reduce the need/perception of layoffs when the increased production is complete.


Special Projects

Sometimes we have special projects that take place such as a change in packaging that requires hand loading until automated machinery can be brought in.  Or if a portion of the business is 'down' for one reason or another which has increase labor needs in the short term.


Fluctuations and Projects - The Verdict

We see using temporary labor for covering fluctuations and special projects as a productive part of a talent acquisition, recruiting, or staffing plan.  The ease of ramping up for these short term projects offloads this task from the HR team and allows the HR team to focus on day to day business needs.


Additionally, it allows for a better use of full time employees skills by offloading simple tasks from full time employees to increase efficiency.  When using temporary labor to cover these fluctuations in business it's important to train them in tasks that are easy to learn as you aren't looking to invest in training complex tasks being that the tenure of these employees is short-term.


The Solution

My Support Staff provides consulting and outsourcing services to help employers succeed in the realm of recruiting, onboarding, training, and safety.  We partner with you to understand the needs of your business and provide a multifaceted approach to filling roles within your company.  We aren't 'anti-temp labor' but we do believe that temporary employees are exactly that temporary.  Contact us today to start working on creating a fully functional program for talent acquisition, recruiting, or staffing.

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