As the recession draws to a close and the debate on climate change is revived, UK businesses embark on projects to control and streamline internal operations as a means of recovery and efficiency-driving. Their supply of temporary agency labour is no exception. Indeed, it is one of the chief, so-called "back-office functions" targeted throughout the recession as one of the few areas with massive saving potential. The fact that spend on temporary agency workers has rocketed among businesses looking to "staff up" in preparation for an upturn, means there has never been a better time to gain control over supply arrangements. Matthew Sanders, Chief Executive of de Poel, explains how managing temporary agency labour spend all depends on a simple, three-part regulation process.
Visibility and control
Every time I approach a new client and ask them what their yearly spend is on temporary agency labour, I notice the same uncertain pause, the same uncomfortable shift in their seat and the same hesitant glance towards the floor. They reply: "between 5 and 7 million," and I know immediately that there is an opportunity for us to help. The truth is that most companies are largely oblivious as to what they are spending on temporary agency labour, where it is being allocated or how costs are being calculated. Individual locations responsible for employing their own temporary agency workforce as and when it is needed, allow national costs to creep up beyond head office peripheral vision. Meanwhile, a wide variety of rates, suppliers and cost-calculations, as a result of an absence of Government regulator, work to blur expenditure specifics. It is unsurprising therefore that temporary agency labour is often referred to as an 'invisible' cost within organisations... and an expensive one at that. Hence, why the first step towards managing temporary agency labour spend involves gaining visibility and control of costs at every possible level, and analysing this spend in respect of key business drivers.
Initially, companies might look at where and how budgets are being spent. Most organisations will have regional variations in temporary recruitment expenditure as a result of site-specific operation or skill-set requirements, market and/or geographical dynamics creating more or less need for a temporary agency workforce. Armed with this knowledge of where, how and why workers are being allocated, companies have more national control of finances, on top of opportunities to maximise existing resource and operational effectiveness, and to budget more efficiently in the future.
Unfortunately however, when it comes to the recruitment industry, increasing control over spend doesn't end there. With a history of imposing high margins and mystifying rate calculations, not to mention forming price-fixing cartels and profiting from erroneous travel and subsistence scheme operators, recruitment agencies have accrued a somewhat negative reputation for overcharging vulnerable workforce purchasers. For this reason, it is vital that organisations have clear visibility of the exact costings that accumulate from every supplying agency, from margins and job-specific pay rates to National Insurance and working time deductions, as well as the rate calculations themselves. Only by having knowledge of these specifics can organisations establish if and where they may be over-spending, and whether or not they are being overcharged. In turn, this creates opportunities for further cut-backs. Perhaps, less obvious, and more often overlooked, is the need to ensure constant visibility on both levels in order to monitor expenditure and keep costs down over time.
Standardisation
Spend management in the recruitment industry, in some respects, is not like spend management in any other sector. As above, with so many aspects to charge rates, there is plenty of room for rate manipulation as concerns National Insurance, holiday pay and other deductions, as well as the more straight-forward over-charging that comes about from agencies setting high margins. As such, visibility of rates is only the first step in managing how much is spent on a temporary workforce per annum - the second involves rate standardisation as a way of taking back control. And yet, there is more to rate standarisation than just blunt cost reduction. A lack of regulation in this area may also lead to under-charging or low pay rates. Though appealing at first, rates which are too low are likely to result in a higher yearly spend over the long term by attracting poorer quality staff and thus a larger number of workers. Of course, organisations are also not at liberty to set unreasonably low charge rates if they wish to continue using temporary agency staff - a cost-cutting strategy in itself.
As a term then, rate standardisation tends to refer to regulation three things: Pay rates, job-specific margins and rate calculations. The pay rates need to be optimised to ensure the supply of high-quality workers who, as a resource, can be maximised and add value to the business. Obviously, the pay will vary depending on the market-driven average rate for the specific job in question. The job-specific margins, like the pay rate, will also need to be balanced in relation to industry trends. A margin that is too low will invite poor quality suppliers, whilst a margin that is too high is likely to attract the more unscrupulous agencies. Rate calculations (as concerning the calculation of NI and WTR specifically), can legally be standardised to any one of two calculations, though there is one method which saves more money for organisations by taking into account the threshold for worker free-pay.
Given the complexity of the rate standardisation process, it is easy to understand how organisations can become bogged down by rates and charges. Without industry knowledge, it can also be a struggle to 'win agencies over' and retain a strong supply base. The good news is that the cost of outsourcing to experts in the field tends to be far less than the cost of long-term overcharging.
Management of indirect costs
One of the biggest complaints I hear from users of a temporary agency workforce, aside from the expense, is the huge number of paper-based invoices and timesheets involved. According to the organisations we have worked with, these occupy valuable staff time, create a heavy administrative burden, and most importantly, give rise to further, indirect costings. Indeed, according to the Chartered Institute of Purchasing and Supply (otherwise known as CIPS) raising and processing a single timesheet or invoice, (taking into account the average amount of work and time involved, the postage and the typical error rate - which is 15% on paper-based documents), amounts to an average of £50.06 per time. For big industry players who use a large amount of temporary agency workers to supplement their workforce in response to seasonal and market shifts, there is thus, quite clearly, a gross cost implication before these businesses are even charged for the labour. Increasing organisation's overall spend on temporary agency labour by as much as 5% in some cases, these additional administration costs are therefore not to be overlooked when companies look to manage their overall spend. Luckily, and in line with Government sustainability and efficiency targets, there are opportunities for organisations to streamline the administration and accounts processes through the use of timesheet and invoice-processing systems. As well as converting paperwork to electronic files, (saving time, removing opportunities for error and reducing postage costs), such systems consolidate invoices down from thousands per year to just one each week, massively reducing processing payments.
Similarly, but less complained about, using agency workers can cause organisations to incur legal costs as a result of leaving themselves exposed to litigation. Last year particularly, Labour introduced a series of employment laws on the back of EU decisions, tightening up on things like health and safety legislation, access to jobs for migrant workers and checks on those working with children and vulnerable adults, not to mention clamp downs on working time regulations, driver training and licencing, and of course, agency working specifically through the introduction of the Agency Workers' Directive. Notably, it is the users of temporary agency labour, rather than the supplying agencies, who have been fined for evading employment laws, though it remains unclear who is responsible in the majority of cases. Often the reason for illegal recruiting or workplace practices is ignorance of the relevant law in place, and thus, a large part of managing temporary agency recruitment spend boils down to keeping on top of incoming legislation, whether this be outsourced or managed internally. Hand in hand with this strategy, firms may find it useful to implement formal terms of business between themselves and their suppliers, in order to clarify employer responsibilities and ensure agencies live up to what's required of them.
Formal terms of business, or service level agreements, incidentally, can also reduce the indirect costs associated with poor supplier performance. Providing opportunities to outline Key Performance Indicators (KPIs) against which agencies can be measured, these kinds of agreements guarantee the supply of top-quality workers and as a result, allow resource to be maximised and costs to be kept down.
Key points to remember...
In summary, managing temporary agency workforce spend can be divided into three processes, each including one or more aspects:
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About the author:
Matthew Sanders, CEO of de Poel, founded the company in partnership with Michael Campbell in 2001. Over the years, Matthew has held senior management positions within high street multinational recruitment agencies and has managed numerous blue chip accounts. He has acquired an outstanding knowledge of the recruitment market and clients' requirements by working his way from the ground level up. Matthew is renowned for identifying simple solutions to complex problems. He believes that the de Poel approach brings true added value to a market which is often devoid of innovation and quality service. He is confident that de Poel's unique process can make a real difference to organisations' perception of agency staffing whilst significantly reducing cost.
To talk to Matthew about your organisation's temporary agency workforce spend, email: msanders@depoelconsulting.com
About de Poel:
de Poel is the UK's number-one purchaser of temporary agency labour, specialising in the procurement and management of a temporary agency workforce. They help companies to optimise their relationships with recruitment agencies, adding value, saving money, and improving standards. Their unique, web-based system e-tips® reduces administration and produces a wealth of real-time management information. de Poel is an independent consultancy holding the prime vendor neutral position in the UK. They have a track record of delivering savings of 6-12%.
For more information, visit: www.depoelconsulting.com
"Our partnership with de Poel has not only delivered significant cost savings on temporary agency staff in the transport and warehouse sectors of our business but has enabled us to successfully harness and manage temporary spend across the company."
