Contrary to popular opinion, the care sector is not immune to the effects of a recession. Even in the context of an ageing population, it has been unable to escape difficult economic times and fallen victim to a drop in demand. Like so many other businesses in the current climate, care organisations have come under pressure to reduce high costs and maintain competitive advantage. But whilst other industries have responded to the downturn by streamlining their operations and staffing levels, care organisations, distracted by a focus on quality care provision, have failed to keep up. In an ongoing battle to attract permanent recruits, they have continued to rely heavily on expensive and uneconomical staffing arrangements, namely, unmanaged temporary agency recruitment, to supplement their workforce. As a result, the recession cost the care industry as much as £814m in lost profits last year, industry experts predicting further heavy cut backs in the year ahead.
But burdened with the task of catering for more individuals in the future, ensuring quality service provision at all times, the current situation begs the question: what can care organisations do to reduce organisational costs while maintaining quality of care? John Salisbury, Managing Director of the number-one procurer of temporary labour, de Poel, spoke to Supply Management to explain how care providers urgently need to wake up to more strategic procurement of temporary agency labour in order to emerge from the recession successfully.
What is an 'unmanaged' temporary agency workforce?
As MD to the number-one procurer of temporary agency labour in the UK, I am one of the first to shout about the benefits of a temporary agency workforce. In the care sector particularly, temporary agency staff are an extremely effective way of allowing homes to respond quickly to fluctuations in demand, and to supplement a workforce currently bereft of skilled social workers, qualified nurses and sufficient permanent recruits, largely due to the hands-on and sometimes draining nature of care work.
The problem with temporary agency recruitment, lies not so much in the practice as it does in the unregulated and fragmented nature of the recruitment industry. Indeed, many care organisations, preoccupied with front line clinical work rather than back-office operations, continue to have an unmanaged supply of workers and a haphazard approach to the procurement processes. Using a large number of agencies providing varying levels of service and charging a range of different rates, care homes have blurred visibility of spend, limited control over supply arrangements and no way of managing indirect costs.
Gaining visibility
One of the most important steps in taking a more strategic approach to the procurement of temporary labour is to gain visibility of how many and what kinds of workers are being employed and in what areas of the business, (in procurement terms - establishing how and where spend is being allocated). Most care organisations will have geographical variations in recruitment expenditure as a result of location-specific operational or skill-set requirements, market and demographic dynamics, allowing national costs to creep up beyond head office peripheral vision where individual homes are responsible for employing their own workers. It should therefore come as no surprise that temporary agency labour is often referred to as an 'invisible cost' within organisations, and why gaining visibility of spend creates opportunities for cost-cutting and more efficient budgeting by paving the way for companies to maximise existing resource and take national control of finances.
Along the same lines, gaining visibility of charges and rate calculations is effective in identifying areas where companies may be over-spending and circumstances under which agencies may be over-charging them. The truth is that a lack of government regulator has given unscrupulous recruitment agencies the go-ahead to mystify charges and rate calculations, and over time, agencies have acquired a negative reputation for imposing high margins, profiting from erroneous travel schemes and even forming price-fixing cartels. Looking at what agency charges are made up of and analysing how they are calculated for individual jobs across different agency suppliers is thus a significant step towards eliminating these expensive oversights. Ideally, all final, agency rates should be made up of the basic pay to the worker, National Insurance (NI) contributions, holiday pay (WTR) and the agency margin. Rate calculations, as regards NI and WTR should follow one of two principles approved by HMRC.
Obtaining control
Most care organisations that use temporary agency labour will not have formal partnership agreements in place and will rely on a large number of suppliers operating under different terms and conditions. (Hence, why charge rates and service levels vary so dramatically across suppliers). For procurement teams, such informal arrangements result in high expenditure both in terms of the indirect expense of recruiting poor quality staff, and the direct costs of being over-charged by agencies. For this reason, care organisations need to obtain formal control over their supply base.
To begin, organisations should look at rationalising their supplier lists. Only when suppliers are consolidated down to the most reputable agencies providing the best quality of service in line with specific recruitment needs and key business drivers, will organisations be able to abolish the indirect costs associated with supply of poor quality workers.
By organising the suppliers into a managed 'panel' of agencies or a preferred supplier list (PSL), care organisations can then establish standards for service, pay rates and charges across homes. Standardised rates specifically, will only be accepted by agencies where there is some mutual benefit - in this case, from reduced competition (which incidentally, will also improve supplier relations). Standardising rates is one of the most critical ways of applying a more strategic approach to the procurement of temporary agency labour, for three reasons. First, it eliminates agency-imposed high margins, with agencies compelled to stick to the rates set by the care organisation. Second, it reduces the chance of indirect costs arising from low-quality service provision by forcing agencies to compete on service rather than on price. Third, and what care organisations are often unaware of, is that if rates are standardised to an optimum level (where the market-driven charge rate is balanced with a competitive pay rate) the quality of temporary staff will improve. This is extremely beneficial for care homes concerned with ensuring quality care provision whilst keeping costs down.
The service level standards are perhaps easier to introduce, and best implemented via formal service level agreements drawn up by an organisation's legal team. They should include Key Performance Indicators, which agencies can be measured against in order to monitor performance and control indirect costs resulting from poor service provision over time.
Managing indirect costs
One of the biggest complaints I hear from users of an unmanaged temporary agency workforce is the sheer number of paper-based invoices and timesheets involved. According to most care organisations, these occupy valuable staff time and create a heavy administrative burden, giving rise to gross cost implications before a business is even charged for the labour itself and distracting workers from a focus on important care work. According to the Chartered Institute of Purchasing and Supply, raising and processing a single timesheet or invoice amounts to approximately £50.06 each (taking into account work and time involved, postage costs and a typical error rate of 15%). With a tendency to increase organisations' recruitment spend by as much as 5% in some cases, the administrative tasks associated with recruiting temporary agency labour should not be overlooked by procurement directors. A more strategic approach would be to streamline the admin and accounts processes through use of a timesheet and invoice-processing system. Converting paper-based documents to electronic files, (saving time, removing postage costs and stamping out errors), such systems are a valuable investment, consolidating invoices down from thousands per year to just one each week, massively reducing processing payments.
Less obvious, but by no means no less important when managing temporary agency labour spend in the care sector is the need to mitigate the risk of legal exposure. According to the Employment Agency Standards inspectorate, there were 2,393 infringements of the law among recruitment agencies last year, and the prevalence of legal side-stepping across the recruitment industry should not be ignored. Significantly, the Care Quality Commission identified a tendency among agencies to cut corners on worker checks during a recession as a means of keeping costs down and highlighted some serious implications for how the quality of care may be affected during rocky economic times.
Then, with a series of employment laws brought in by the Government last year, opportunities for expensive litigation cases have only increased. In the care sector, there is now more chance of homes being fined for failing to adhere to laws on migrant workers, ISA registration, working time regulations and of course, agency working itself with the introduction of the Agency Workers' Directive. A lack of clarity over who is responsible for carrying out worker checks means it is also often the users of temporary agency labour rather than the supplying agencies who are fined for evading laws. Thus, a large part of managing and controlling costs when employing temporary agency labour involves keeping on top of incoming legislation and implementing formal terms of business with suppliers. Clarifying employer and agency responsibilities, formal agreements are also effective in removing a care organisation's legal culpability where agencies breach the terms of the contract.
http://www.supplymanagement.com/analysis/features/social-service/
"Savings of 8% on the company's temporary agency labour spend has increased profitability."
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