I was in a meeting with an HR executive recently talking about some pain points they are having. You see, in my business of staffing, you don’t get in the door unless someone in HR is unhappy with some kind of results in their hiring. It’s the game. You’re unhappy, I come in and tell you how I’ll make you happy. This HR Pro was having a hard time finding engineering talent. They did what a the majority of corporate recruiting departments do – they used a number of sourcing options, posting options, looked at hiring incentives, made sure they paid competitively, etc. Not bad, hit all the basics. After this failed, they went the direct-hire agency route. Made some hires. Some worked out. Some didn’t. Paid fees on all of them, since all made it past the guarantee.
So, how are you going to help me?
Fair question. Really the only question she needed an answer to.
I dig in and find out that while the direct-hire agency route worked. It left them feeling ‘unsatisfied’ because although they didn’t blame the staffing firm they were working with for the turnover, they couldn’t get over paying all those fees, and now have nothing to show for it. The reality was, they have a tough environment, a challenging workplace culture, and some managers who aren’t the best managers. This caused the turnover. Still, they are left in the same place they started — ‘we still need engineers’.
Okay, now it’s my turn.
Me: “How about you try contract?’
Her: “We don’t use contract, we want to hire direct.”
Her: somewhat stunned I asked this question and expected an answer — “Well, we need these people long term, not temporarily, and we want top talent and I don’t think hiring contractors would give us top talent.”
Here is HR executive’s dilemma: first, they need engineering talent; second, they turn over talent because of their environment; and third, they don’t want to pay fees. Whether she wanted to hear it or not, Contracting was the answer to her problem.
Here was my conversation with her:
“You need to bring in Contract Engineers to fill these jobs. We will find talented people, you will be amazed. After 12 months, I’ll let you have them for no buy-out. Thus, you’ll have no fees. You have a bad environment with high turnover, you need us to find you engineers who can survive this environment and help you move forward all at once. Contracting is great for this. For many reasons people decide to contract. Folks like you judge them for that, and consider them low talent. I can give you a list of clients we are working with right now that will share stories with you about how wrong this is. You will find great loyal talent when using contractors.”
“But it costs so much!”
“That is another misnomer! Let’s say your total hourly cost for an engineer is $60/hr, which includes pay, benefits, PTO, bonus, 401K match, taxes, etc. I can get you that same level talent for $60/hr. I can do that because I don’t pay all the fringes you pay, I pay the same taxes, and lower amounts of PTO. Your cost on a 12 month contract hire is virtually the same as if you would have hired the person direct, plus if you fall in love with them, you pay nothing after 12 months.”
It’s not a sales pitch. It’s just the facts when you work out the numbers. She signed up. I’ll let you know how it works out, but to be honest I already do. We’ve been doing this for 33 years. It will work out great, and she’ll solve her problem.
There are 3 concrete ways which Contract Hiring is a no-brainier:
1. High Turnover positions.
2. Short Term Projects – 3 months to 3 years – but basically we don’t nee the person on after that
3. Beginning or Ending of a location. Need to grow quickly, or shutting down a location
There really isn’t any reason to be paying 20-35% fees (yes, I spoke to a company paying 35% the other day!) for direct hires. The industry found a better way, HR Pros just struggle to change. One other major factor that makes contract hiring work, is it seems to make companies more comfortable in taking some risks in hiring people they normally wouldn’t. ‘What the heck, they’re on contract, if we don’t like them, we can replace them.” Every time I hear this, it makes me smile, because I know they’ll like the person! But if contracting gives them that ‘freedom’ then I’m all for it! I hate telling them they have the same freedom hiring direct!
Nice post, but it’s not all roses in contract-ville. For example, there are issues that HR professional need to worry about that relate specifically to putative (common law) employment. And there was no mention of the culture gap that exists when companies hire on contract. Morale of existing full-time employees has a tendency to sink when full-timers work with in conjunction with contractors in a similar role. Contractors often have less allegiance to the organizational strategy. In the example you gave in your post, a contractor solution might make meaningful contributions to operations, but using them as a solution will not address the culture and management issues that you identified. Since these areas fall in the “HR Domain” it’s no wonder that HR professionals raise an eyebrow to hiring contractors.
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