Staffing Company vs. Direct Hire

[rcecale]

I've been checking out the help wanted ads lately and have noticed what seems to be a trend. It seems that more and more companies are using staffing agencies for hiring their personel. Not just for the temp-type jobs, but also for long term/permanent-type jobs as well.

In the IT world, I can certainly see the need for the contracts which last 3, maybe 6 months or so. the company is doing a major change and they need the temporary increase in their IT staff to pick up the extra workload involved...whether it be upgrading to a new OS throughout the enterprise, or imnplementing an entirely new accounting software package, etc. There always seems to be the need for the temp contractor. No problems here.

My real question concerns using a staffing company for longterm employment. I worked at a company a few years ago, a three-month temp job, but the manager I worked for was also a temp. Interestingly enough, we were both put in place by the same temp staffing company. We submitted our weekly timesheets together, etc, but she had been on the job for a few years. This is the part I don't quite understand. She was there for a year or so following my departure, with the IT Director wanting to bring us both on full-time. Unfortunately, he said his hands were tied and that his budget didn't allow for it...not even for her, despite her longevity there.

Aside from the money the company is paying the staffing company to pay the employee, they also have to pay the staffing company for their costs as well. And from what I've heard, this is often times equal to or even more than what they pay the employee!

What are the benefits to using a staffing company over doing a direct hire of an employee for long-term positions?

Randy

[widebody911]

Originally posted by rcecale
I've been checking out the help wanted ads lately and have noticed what seems to be a trend.

... a trend that started in the early 90's, not that anyone's saying you're asleep at the wheel...

Aside from the money the company is paying the staffing company to pay the employee, they also have to pay the staffing company for their costs as well. And from what I've heard, this is often times equal to or even more than what they pay the employee!

This depends. Pimping agencies have sprung up like wildflowers in the past decade, and some are literally just a guy working out of his spare bedroom in his PJ's. The "spread" - the difference between what the client pays and the contractor (the guy who actually does the work) gets - varies widely, but anectdotal evidence seems to indicate that it is shrinking in general due to competition. One factor is the level of 'street smarts' of the contractor. People who are new to this type of gig almost as a rule get taken to the cleaners, and since it's usually easier to get a CD with AutoCad drawings of the latest stealth fighter off of ebay than it is to get the info on the spread... I'm on a board like this one for pimps, and it's interesting to see them brag about the spreads they get. I've also dated a couple of pimpettes, and was able to get deeper into the inner workings, if you know what I mean

What are the benefits to using a staffing company over doing a direct hire of an employee for long-term positions?

While they actually pay more in "wages," there are 'benefits' to the employer; I have to qualify benefits because I think it's a matter of perspective.

As a contract employee:

• you're not a headcount, you're an expense
• the employer doesn't have to pay any med or retirement or SS, UI etc
• because you're an expense, there's probably accounting tricks they can use to their advantage. I'm not an accountant and I don't play one when I dress up in rubber and leather and slather myself in canola oil.
• they can kick you to the kerb much easier than a normal employee, even in 'at-will' states like CA. It's also been alleged that companies use this to get around anti-discriminatory hiring rules that they don't like.
• (allegedly) the pimp does the heavy pre-screening, taking the load off the HR dept
• reduce HR overhead because the pimp does the basic grunt work (ie paychecks, etc)
• you don't affect their health insurance premiums or anyt of that kind of stuff
• there are pimps that specialize in H1's, which make it easier for companies to get indentured servants

I've been doing this type of gig for almost 10 years now. For the past 1.5 years, I've been doing 1099 contracts, which is a whole 'nuther ball of earwax.

[einreb]

The markup for a person hired via a 'staffing company' goes to cover the fact that they've done some level of screening on the employee, may provide benefits, handle payroll, taxes, et cetera. It can also provide some level of protection between you and the 'employee', but lawyers will be happy to come after you anyway.

If you can locate, screen and handle the overhead for the employee, bring them on as a regular employee. (i.e. you already have the mechanisms in place). If you are a sole proprietor, it may make sense to let somebody else handle the paperwork.

My accountant actually has a company set up for leasing back employees. I find someone that I want to 'hire', so my accountant's company hires them and I lease the employee back. He is able to provide insurance, 401k, benefits to the employee and I don't have to deal with any of it. Staffing companies will do the same thing, but charge a higher markup since they typically find/screen the people. Also, if you want to hire a person full time from the staffing company you typically have to pay a fee to break them loose.

-b

[VaSteve]

The hard part is if you float a resume on on of the job boards... you get multiple calls from recruiters who "..are working on a couple of things you might be interested in..."

What's really fun is when you probe them for names, you know that all these guys are working on the same positions. Several firm in my area are hiring people all the time. By the descriptions you can usually guess the firm. It's kinda fun.

The problem is, if your currently working, they phone screen you for a few minutes and then want you to come in for like 30 minutes to meet the rest of the recruiters and so they can see if you know how to tie a tie.

Then you're invested in them and they make you feel bad when you're not interested in their client.

Many of them, not all, are simply the "user car salesmen" of the job world. They push a position that might be uniteresting or hard to fill or with some company that you'd never want to work for. But they need to get you into a job because they need a paycheck. The better ones will establish a relationship with you because they know you might be hiring more people through them.

[dhoward]

I have used staffing companies for both. I usually include a "right-to-hire" clause in the terms.
What Widebody said....

[RickM]

Try before you buy. Actually it works out well for both sides.

If a company uses large amounts of consulting services an occasional hire from the consulting pool can be negotiated....without cost.

With smaller organizations the right to hire verbiage, as mentioned by dhoward, is appropriate.

[legion]

I think the main thing that company's overlook is the external employee is motivated to get work done quickly and meet deadlines and are usually not in a place where they have to deal with the consequences of cutting corners.

[widebody911]

Originally posted by legion
I think the main thing that company's overlook is the external employee is motivated to get work done quickly and meet deadlines and are usually not in a place where they have to deal with the consequences of cutting corners.

When you're being paid an above-average wage, where is the incentive to cut corners? I've had to fix a lot of stuff that the 'perm' people hacked together in a hurry because they didn't really GAFF about it.

One of the things I like about contracting is I've automatically excluded from all of the petty political BS. I don't have to attend all the useless meetings, 'team building' events, teleconferences, reorgs, etc. My existence is predicated on delivering; if I don't deliver, I won't last long. That and my personal hygiene habits place me at the opposite end of the spectrum from the French Being an 'external' entity, I possess the 'outsider' mystique, so not only does my opinion on technical matters carry more weight, I can also pick and tap the best ass without the accompanying 'dating in the workplace' repercussions.

[legion]

Most of the externals I work with care about one thing: getting their defined piece of work done by the deadline. "Done" means handing off work, it does not mean meeting coding standards, actually testing, and meeting performance objectives. I think that it is largely a result on the deficient contracts we use, but still, there are different motivations.

"Hacking together" doesn't fly where I work, but a lot of externals attempt it anyway to get things done quickly. I can't tell you how many times I have had to completely re-work what an external has said was "final".

Don't get me wrong, I've worked with some real high-quality externals-- some that are irreplaceable members of my team. The bad ones stick in my memory though.

[rcecale]

WOW! I knew I could count on you guys for the answers. I'm not surprised at all.

Being "armed" with this information sure will make a difference if/when the need arise.

Thom, I wouldn't necessarily say I've been "asleep at the wheel" per se, I just haven't had the need or desire to drive that vehicle. I do appreciate the answers though, from everyone.

Randy

[widgeon13]

Smoke and mirrors boys, just smoke and mirrors.

[JeremyD]

Pretty interesting the thoughts here... I actually run a staffing company in florida. Temporary, temporary to hire and full time staffing in the clerical, help desk and light industrial arenas.

Companies hire temporary employees for lots of reasons. Some do it to cut costs. (some of the larger companies have benefit costs that exceed 50%of the salary)

Some do it for the flexibility - especially if they are in cyclical industry.

Some do the try before you buy - that usually works best for both parties.

Some do because they want to focus on their core business.

The reasons that staffing companies are doing so much of the hiring these days is because the dolts that run companies are all of sudden finding themselves understaffed and during the last downsizing slashed the HR budget. Now there is no one to do any recruiting/screening/ interviewing.

[widebody911]

Originally posted by VaSteve
The hard part is if you float a resume on on of the job boards... you get multiple calls from recruiters who "..are working on a couple of things you might be interested in..."

Standard trolls. You'll get more of these when it's obvious to them that you haven't been contracting for long, if at all.

You'll also see generic job ads with a bunch of skill requirements that would sometimes seem like they would conflict, ie "experienced Unix sysadmin with 10 years of visual basic, Java and embedded systems development experiece"

What's really fun is when you probe them for names, you know that all these guys are working on the same positions.

Usually they won't give you names, but this info can be extracted. You'll know the req is hot when you get several 'crooters hitting you up all once.

The problem is, if your currently working, they phone screen you for a few minutes and then want you to come in for like 30 minutes to meet the rest of the recruiters and so they can see if you know how to tie a tie.

Only the rookies fall for that. It's even worse if you're not working, because they feel you have nothing better to do. Tell them you have another engagement @ in the vicinity of (nice restaraunt here) and they can buy you lunch if they want to discuss the gig.

Many of them, not all, are simply the "user car salesmen" of the job world. They push a position that might be uniteresting or hard to fill or with some company that you'd never want to work for. But they need to get you into a job because they need a paycheck.

I had an interesting experience along these lines. A pimp contacted me about an opportunity (w2 contract) that sounded interesting. I blazed through the interview process and the client loved me. The he calls to tell me the client wants me... but he lowballs me - bad. What's fun is he doesn't know that I know how the game is played, so I get the standard "the highest the client can go is $X" routine. No - in real life, the rate is decided between the client and the pimp ahead of time, and the pimp's job is to find the person who can fill the client's need while leaving as much money in the pimp's pocket. I decline the offer. For the next week, the pimp hounds me, each time with "I talked to the client and..." or "I talked to my manager and..." and bumping the rate a few $, but I finally had to tell him "no" out of principle. Yeah, I should have taken the gig - it would have been interesting, but I knew I could get more money elsewhere. One exchange I'll never forget was when he said "How about you work for 3 months @ $X; if you're as good as you say you are, we can talk about an increase." I told him. "It's because I'm as good as I say I am that I want $Y" The best part was revealing to him that I had extensive knowledge of the game, and that I'd dated a pimpette for a while who worked in the same office he did. I'm a bastard, but the look on his face when I dropped the bomb was priceless.

[Drago]

Originally posted by widebody911
When you're being paid an above-average wage, where is the incentive to cut corners? I've had to fix a lot of stuff that the 'perm' people hacked together in a hurry because they didn't really GAFF about it.

One of the things I like about contracting is I've automatically excluded from all of the petty political BS. I don't have to attend all the useless meetings, 'team building' events, teleconferences, reorgs, etc. My existence is predicated on delivering; if I don't deliver, I won't last long.

+1.

I've been doing it for over 6 years now, out of 11 in the industry (aerospace). Wouldn't have it any other way.

[JeremyD]

Just like all forms of business - there are good and bad - ethical and unethical. and just for the record, I like the term "Flesh Peddler"...

Another interesting note - around 2.7% of the population works for a "Staffing Company" in the US. In many parts of Europe that number climbs to 20-35%.

[Drago]

"I had an interesting experience along these lines. A pimp contacted me about an opportunity (w2 contract) that sounded interesting. I blazed through the interview process and the client loved me. The he calls to tell me the client wants me... but he lowballs me - bad. What's fun is he doesn't know that I know how the game is played, so I get the standard "the highest the client can go is $X" routine. No - in real life, the rate is decided between the client and the pimp ahead of time, and the pimp's job is to find the person who can fill the client's need while leaving as much money in the pimp's pocket. I decline the offer. For the next week, the pimp hounds me, each time with "I talked to the client and..." or "I talked to my manager and..." and bumping the rate a few $, but I finally had to tell him "no" out of principle. Yeah, I should have taken the gig - it would have been interesting, but I knew I could get more money elsewhere. One exchange I'll never forget was when he said "How about you work for 3 months @ $X; if you're as good as you say you are, we can talk about an increase." I told him. "It's because I'm as good as I say I am that I want $Y" The best part was revealing to him that I had extensive knowledge of the game, and that I'd dated a pimpette for a while who worked in the same office he did. I'm a bastard, but the look on his face when I dropped the bomb was priceless."

That is fantastic. The game is just that, a game. Take 'em for all your worth, everytime.