Hire Wire Nov 01 2011

The New Permanent Temp Workforce

By jeremy greenfield

In most economic recoveries, the rise in the number of temporary workers is thought to be a sign of better things to come. It shows that, to meet growing demand, companies are dipping their collective toes into the labor market.

This time may be different. Instead of hiring temps in anticipation of growth, more companies are simply changing the nature of their work from long-term to shorter-term projects. At the same time, they are using temporary workers as tryouts for permanent positions which may or may not materialize. The combination could extend the normal amount of time that temporary labor grows as a proportion of the total workforce.

According to data from the Bureau of Labor Statistics, temporary workers accounted for 1.69% of the workforce at the end of last year, up from 1.47% in January 2010. That's the largest annual increase ever, according to a report from Staffing Industry Analysts, a research and advisory firm focused on staffing and contingent labor.

"Companies are using temporary labor as one of their strategies to manage through the volatility," said Barry Asin, president of Staffing Industry Analysts.

The percentage the labor force that works through staffing firms may reach as high as a record 2.2% by 2015, according to analysts who follow the staffing industry. A June 2011 report from the McKinsey Global Institute said that 34.3% of 2,000 companies surveyed plan to use more temporary labor in the next five years.

"The penetration rate for flexible staffing is rising because companies are strategically trying to use flexibility in their largest cost, which is labor," said Andrew Steinerman, business services research analyst at JPMorgan.

Using temporary labor instead of hiring full-time employees for project-based work gives firms the ability to quickly and efficiently complete short-term projects without long-term hiring commitments, making even large companies nimble.

The largest staffing firms, including ManpowerGroup, Robert Half International and Adecco Group say that their clients are increasingly using their services for work of this nature.

Two or three years ago, companies would often hire full-time workers to accomplish long-term projects, but they're now often turning to temporary workers, said Jeff Joerres, chairman and CEO of ManpowerGroup.

"Companies have many more options and are getting very good at creating efficiency and making decisions on how to allocate resources and not spread themselves too thin," he said.

Coinstar Inc., which converts coins into paper bills and employs about 2,500, has been using temporary executives to implement a new accounting system, for example. Gilt Groupe, a New York-based online retail start-up with 900 employees, also is implementing new financial software using temps.

"If I wanted to hire someone with 20 years of experience to help out with the project, I can't afford to hire that person into Gilt right now," said Tina Falzarano, the company's assistant controller. " But I can bring someone in for a few months and tap into their knowledge and experience and project management skills."

To meet demand at places such as Gilt and Coinstar, the staffing firms have scaled up their services. "When you look at the myriad of uncertainties that employers are facing today -- economic, regulatory, the ultimate health care burdens they may or may not be on the hook for -- as one of the clients put it to us, 'why would I want to go long on human capital?'," said Michael Blackman, chief corporate development officer at Tampa-based Kforce Inc., a professional staffing firm focused on technology and finance.

As XL Health, a Baltimore-based Medicare insurance plan vendor launched in 1997, has continued to expand, its employment needs have become less certain. "We sometimes don't know what our needs are going to be in terms of headcount because we don't always know what the growth is going to be," said Paul Serini, executive vice president of the company.

To deal with such uncertainty, XL Health hires temps from staffing firms on a short-term basis with the intention of hiring them full-time if there is a good fit. "If someone on my staff that said we need 25 pharmacists, I'd say 'hire ten and get 15 temps,' and then I would want to hire as many of those 15 as I could," said Serini. How many hired would depend on the level of business. In the past several years, the company has brought in about 530 temps and has hired about 164 of them, according to Serini.

At Modis, the IT staffing division of Adecco, a large insurance client that could not be named due to contractual obligations recently signed a contract to bring in 35 IT professionals on a temporary basis with the intention that they be made full-time after a trial period; the insurance company had never hired in this way before.

Of course, not all industry observers are predicting temporary staffing to continue its ascent.

"Is this going to expand to higher levels than we've ever seen before?" said Jeff Silber, a staffing analyst at BMO Capital Markets. "Maybe I'm a little jaded, but people were saying that after the 2001 recession."

Silber cites a sputtering recovery as the reason that temp staffing won't reach its highest-ever levels: Typically, staffing industry growth dovetails with GDP growth.

Still, the macro trends aren't stopping companies like Coinstar from taking advantage of the benefits of using more flexible labor.

"We are getting leaner and leaner as we grow, so you need to find solutions to deal with these one-time items that pop up that don't necessarily justify hiring full-time people," said Saul Gates, the chief accounting officer at the Bellevue, Wa.-based concern.

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