31 July 2013

No temp-to-perm fee? You've got to be kidding!

One of the more odious internal recruitment practices being seen with increasing frequency around the country these days is the inclusion in recruitment PSAs or tenders of the ‘no temp-to-perm fee’ condition.

I saw it again this week when industry news service ShortList brought attention to the Glenorchy (Tasmania) City Council’s current recruitment tender document including such a clause.

Here’s what I hate about this practice:

1. It penalises the agency for providing outstanding service

Think about it for a minute: A recruitment agency places an average candidate into a temporary assignment. The candidate works out their (let’s say) 6 week assignment diligently and competently, but no more. They finish the assignment and the recruitment agency subsequently places them into another assignment, from which the agency makes a margin.

Consider the alternative where the agency places an excellent candidate into the temporary assignment; one who impresses the employer so much they are offered a permanent job.

Under the ‘no temp-to-perm fee’ clause, the agency has clearly and unequivocally delivered an outstanding service, not just once , but twice. The first service was an excellent temp worker and the second service was an ideal candidate to fill a permanent vacancy.

The first service receives an appropriate return (margin) to the service provider. The second service does not provide any return. And Mr Internal Recruiter, please don’t give me that pathetic ‘but the agency hasn’t done any more work to deserve the fee’ bullsh*t reasoning.

I assume by this logic you are happy to pay a fee every time an agency you give a vacancy to ‘does work’, whether they deliver a candidate that’s hired by you or not? I thought not.

Please don’t insult my intelligence by using an argument whose logic you only wish to use when it works in your favour.

2. It provides little incentive for the client to undertake a separate permanent recruitment process

Why wouldn’t a client just recruit using a temp-to-perm process? They hire a temp for, say, 4 weeks, then convert them to permanent. They have probably paid $1000 or less in margin and have a ‘tested’ permanent worker.

Of course, for highly skilled, high demand workers, this won’t apply as the field of suitable available candidates who would consider a permanent job through a T2P process is likely to be too small and would compromise the quality of hire too significantly.

For lower skilled, more easily filled roles, it’s unlikely the T2P-only hiring process for permanent roles would significantly compromise the quality of the permanent hire.
 
3. It provides a significant incentive for the client to undertake a temporary recruitment process like it’s a permanent process

A permanent recruitment fee reflects the time, skill and resources invested in a permanent recruitment process; a process that almost always takes longer, (much longer) than a recruitment process for a temporary worker.

If a client has no temp-to-perm fee to pay then they are likely to  substitute this much longer process to ensure, as much as possible, that their candidate hired as a temp will be suitable for the perm job.

If the recruiter does a really great job, the client may only need two weeks, rather than say two months, to conclude that the temp should be hired permanently. The outcomes is that the agency recruiter will score a total margin of around $500 for their efforts. That’s taking the piss … big time!

4. There is no guarantee that the candidate was converted to a permanent role

With such a large financial incentive to convert temp workers to perm for $0 under a ‘no temp-to-perm’ clause, who can be absolutely sure the worker has been offered a permanent job?

The client could just offer the temp worker a slightly higher rate (easy to do as there is no pesky agency margin to pay) and ask the candidate to tell the agency they have been offered a permanent job.

As there is no T2P fee involved, what reason has the agency got to request a copy of the candidate’s letter of offer? The client now has a tried-and-tested temp, still on temp terms of employment and they aren’t paying a margin, nor have they paid a perm or ‘break’ fee.

I mean … all clients tell the truth all the time about resumes received and candidates hired, don’t they? #sarcasm

5. It’s highly detrimental to sectors of the recruitment industry that are heavily reliant on casual, temp or contract recruitment

As any recruiter who specialises in, for example, the industrial, hospitality, agricultural, healthcare or IT sectors, will tell you - there is a much stronger preference for using agencies to source temps, casuals and/or contractors compared to sourcing permanent staff. These recruiters are financially disadvantaged to a much greater degree by a ‘no temp-to-perm’ clause than recruiters in more permanent recruitment dominated sectors (eg accounting, sales, executive etc).

6. Other vendors are not asked to provide their equivalent of the free temp-to-perm

Do companies expect free tax consulting because their accountant provides them with an auditing service? Do photocopier providers have to throw in endless reams of paper for free with each photocopier they have sold? Do Councils expect the household general waste removal contractors to also provide free recyclable disposal services ? I mean the trucks travel exactly the same route on the same day, right?

Free temp-to-perm fees are asked for, and given, in certain circumstances. Those that can be reasonably justified are the exception.

The increasing habit of companies and not-for-profit organisations expecting recruitment agencies to sign up to a one-size-fits-all-in-all-circumstances free temp-to-perm fee is an unjustified and disrespectful rip off.

Please resist this practice with all your might.

1 comment:

  1. Phil Isard1/8/13 9:54 AM

    Ross,

    You have written an excellent article, and I'm sure you could have kept going on other points. The recruitment industry (like a lot of industries) is under pressure at a number of different fronts, this is just one.

    Remember when the economy is down, business leaders tell themselves this "don't let a good down turn go to waste." In other words, do the things that the market would be less tolerant to, if it was a peak in the economic cycle. So, ask yourself this, would they be more or less successful if we were in good/great economic times with this strategy?

    Regarding no temp to perm, I think it is important to look what you can do as a business leader or decision maker. If I was approaching this, I would be working to present facts to re-define the scope of the PSA or tender (I know it's easier said than done, though if you persist, you may get a breakthrough).

    With this situation, the client will now be hiring candidates from a highly active market (meaning they are available immediately). This is such a smaller part of the labour market (less than 3%), and active candidates length of employment is much less, in fact if you hired two today, one will most likely be gone within 6mths.

    This differences in temporary and permanent recruitment isn't just our service, it's the type and caliber of the candidate. Companies that choose this path of no temp to perm, should expect an increased rate of attrition. Current attrition is between 18-20% (current market conditions have most likely increased this percentage). What's the cost of a business’s attrition increase; they say it's a minimum of 150% of a person wage to replace someone that exits the business.

    Imagine going into a tender presentation and saying. "All the things that you wanted us to answer are in our submission. Our presentation today, is what you have potentially overlooked, are unaware of, and the cost associated with this." Re-define the scope.

    Secondly, working with temporary or contract workers to provide good insight or education of the flexibility, variety, freedom and control of income and time temporary or contract worker have, is one way to prevent workers accepting a temp to perm offer. I don't believe there is anything wrong with this approach, particularly if your assisting the candidate achieve their work/life balance.

    The beauty of business, is this, you can choose who you do business with. Match this with what Nigel Harse told me once "business should not judged by its size, rather it profitability!"

    Phil Isard - MD, Consultive

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