Leading the HR Revolution

Staffing Agencies Grow Into Integral COG for Business

By Danielle Toth

Booming business for staffing agencies signals more than a boost in a firm’s bottom line, it indicates a boost in the overall economy.

“Economists, market analysts, academics and people in the business community should pay close attention to our industry,” says Richard Wahlquist, president and CEO of the American Staffing Association. “If you take a snapshot of what’s happening in our industry, it will give a sense of what’s happening with the economy overall and what’s ahead.”

Hiring at staffing firms is considered a leading indicator because the number forecasts what’s ahead for the overall economy. In December 2007, agencies began to see a consistent downturn in staffing employment (the recession officially began in December 2007) and in June 2009, they experienced an uptick in hirings (the recession officially ended in September 2010.)

Marc Mellman, TemPay’s chief operating officer, has witnessed the rebound growth with its clients. “We’ve noticed in the past year that with the economy, recession and unemployment rate across the U.S., temporary staffing agencies have resurfaced really strong since April of last year,” he says.

But more than leading indicators of the economy, temporary staffing firms are leading the way for an HR revolution of sorts. Companies may be attracted to staffing firms for the “temporary” but quickly learn the advantages of the “staffing” component. More and more rely on staffing agencies to provide complete human resource services—handling everything from hiring, firing, workers’ compensation, benefits and more so their clients can focus on their businesses’ core missions.

“The model has been changing,” Mellman says. “Generally, we’ve lived in a world where most companies hire full-time employees and provide certain benefits.

“Going forward, companies are looking to beef up with temporary employees rather than full-time employees. It’s more than a transitory trend. It’s becoming the way things are done. It’s been paradigm changing and contributes to the continued strengthening of temporary staffing agencies.”

Leading the Way
The main reason for the correlation between hiring at staffing agencies and the overall economy, Wahlquist explains, is that at the beginning of a recession, businesses scale back on employment as the demand for their products and services dwindles. Temporary employees are usually the first to be cut.

When business conditions improve, companies have an increased demand for their products and services that they cannot meet with their current workforce. However, many are wary to add permanent jobs, which include not only salaries but health care, paid vacations, retirement and other employee benefits. Many companies opt for temporary and contract employees to meet the increased demand until they think the economic recovery is stable. Another eventual benefit for businesses is a more efficient hiring process because they can turn their temporary workers, who already have been screened and whom the companies know their work, into permanent employees.

Joseph Otto*, who leads a Florida staffing firm, says his agency recognizes its predictive role in the economy. He is thankful that the firm weathered the most recent economic storm and has seen its business increase.

“We saw some downturn, but not to the point where it hurt us too badly,” Otto says. “We’ve been lucky to build ourselves a network of strong, loyal clients even though Florida has one of the highest unemployment rates.”

Otto explains another advantage to using temporary staffing agencies: “A lot of companies are relying on agencies now because they don’t have the money to spend on advertising or trying to find and recruit someone for a position. They need to spend more time on running the business.”

HR Revolution
As the overall economy rebounds, one might think that the demand for staffing agencies would drop eventually because companies opt to hire permanent employees. That thinking would be a mistake, says Bruce Friedman, who frequently works with staffing firms as director of assurance services at SS&G Financial Services. Although he foresees staffing agencies reaching their peak before other industries, he doesn’t expect a decrease in the use of staffing agencies.

That’s because more companies recognize today that staffing agencies provide additional value, Friedman says. Outsourcing staffing responsibilities can save money for a company because it isn’t directly responsible for paying benefits, potential lawsuit costs or training as well as everyday tedious human resources tasks.

It also offers a public relations benefit, Mellman says, because companies don’t have to announce layoffs or reductions in force because the staff provided by agencies are not employees of those companies.

“We’ve seen this use of staffing agencies for more than temp workers going on for 20 years at larger companies,” says Brian Keuper, client relations manager at TemPay. “I saw this trend begin in the late 1980’s at Eastman Kodak Company when I resided in Rochester, New York. It’s so much more cost effective. Employers don’t have to pay health insurance or workers’ comp costs. Now, we see smaller companies going in that direction.”

Keuper says the trend is growing especially in the light industrial industry where companies find they can use staffing agencies to fill supervisory positions as well as line worker positions.

John Lewis*, who runs a California-based staffing firm, says clients frequently use the agency’s services to relieve themselves of many HR responsibilities.

“We handle the hiring, firing, background checks and training needs. And on the liability side, anything that happens with the employee becomes our responsibility. It’s a huge savings for many companies,” he says.

Wahlquist agrees, noting the increased demand also has led staffing firms to become more sophisticated as they transition from simply recruiting employees to developing more efficient means of talent acquisition, screening, development and retention. He also has seen agencies take HR duties a step further, handling all of a client’s recruiting functions and even managing compliance issues, benefits, design and administration.

“What we see now is staffing firms being used in a much more consultative way with their clients,” he says. “And it makes abundant sense for any company to consider this. In virtually any industry you talk to, you ask them what their core competency is and it’s going to be they’re providing a product or a service. It’s not HR, recruiting or benefits. So to outsource that to another firm can be a very good strategy.”

Daniel Jarrod*, who runs a staffing firm in Ohio, says, “We’ve seen a paradigm shift across the board of employers going to staffing firms as their first step in hiring.

“Using temporary workers is a great way to go for employment because the agency recruits them and does the background checks and training. The company can see what kind of worker they are before committing to them. It’s a win-win.”

Not Just Big Companies
Large firms with more than 1,000 employees will most likely use a staffing agency during any given year, Wahlquist says, noting that’s been the trend for more than a decade. However, companies with fewer than 500 employees historically haven’t used staffing agencies as much.

“This is in part because smaller companies think it is too expensive or too disruptive to bring on temporary or contract employees,” Wahlquist says. “But if it’s a sound strategy for large companies, why wouldn’t it be for smaller ones? Small companies have historically used temporary staffing agencies strictly for special needs, such as employee absences, special projects or to meet seasonal demands. However, staffing companies are beginning to focus on small- and medium-sized companies as potential clients for year-round business.”

The American Staffing Association has devoted some of its communication efforts to encourage marketing to smaller companies. As Wahlquist sees it, smaller companies survived the recent recession and are more inclined to realize they need to embrace workforce flexibility in a more effective way than perhaps they did.

“In our work, we have spent a great deal of time trying to educate the public on the benefits of using flexible workforce solutions,” he says. “As we look at what’s going to make a difference for companies as they go into the next period of economic growth, it’s going to be focused around enhancing efficiency and competitiveness. And that means effective use of talent and talent solutions, which is where staffing agencies will come in.”

Staffing Agencies

  • Employ about 2 million people every business day.
  • Hire about 8.6 million temporary and contract employees annually.
  • See 79 percent of their employees work full time—about the same as the permanent workforce.

Now’s the Time
In the staffing industry’s recent history, there’s never been a better time for an agency to take advantage of growth opportunities for their businesses. Speak to your clients and find out what they want and need over and above the existing services you provide. Then develop new and additional lines of services and benefits to meet these needs. It’s a surefire way to grow existing business and expand with new clients as well.