Save Boatloads of Money

Corporate recruiting is lucky.

We are the piece of any corporate HR function that can show our business hard and fast data around spending and savings. We can show you, Mr. Hiring Manager, how much you spent last year per hire, how quickly we filled your need, the quality of those candidates, and exactly where we found them, plus about 37 other data points. Wow. We’re good. Recruiters, not usually a shy bunch, will market our successes to you relentlessly. We run staffing like a business and we like to make sure you get that.

So, how is it that we measure every molecule of a full-time hire, and continue to drive down cost per hire, but know little about the “other” side of staffing. I present to you contractors. Shady sort. And a little scary, if you remember the Microsoft fiasco a few years ago. Co-employment is not your friend. This uneasy feeling may have something to do with our lack of touch on them, or their price tag. But, you can’t really run a business without them.

It used to be that once a contractor requisition was approved, it was automatically distributed to our vendors. We chose these vendors based on information they provided that they (a) could provide us the best rates while (b) guaranteeing excellent quality ( c) from their “unique” databases where they’d have access to people no one else could find. Cool. Except that we spent $7M last year on contractors. Not cool.

Markups (% over pay rate) on contract labor are insane. Particularly in the IT market, we saw our markups sometimes upward of 110%. We began to ask questions of our contractors, like how they decided which agency to sign up with, how much they were paid, and how their interview process went. Even whether they had actually submitted references and background checks. Imagine my surprise!

What I learned is that unique databases are like snipe hunting. The cool kids know they don’t really exist, but they get a kick out of telling people they do. I, apparently, was not one of the cool kids. With a few exceptions, contractors sign up with a variety of agencies. Some contractors never even meet their agency recruiters. They are often submitted without even knowing it. They are not paid nearly as high as you might think, based on the exorbitant cost for their service. Also, for you non~agency folks like me, there is something called a “time stamp.”. When one of my vendors and I found the same candidate for a high end project-management role, he actually challenged whether I had found her “first” and asked for an email with a time stamp on it. Seriously.

Also, contractors are not like normal people. They’re contractors because they want to be contractors. They make more money than us corporate types, and they don’t like the strings attached. They are here to build their resume. Most of them aren’t really interested in full-time roles. They speak differently; they like to be kept “warm.” They need to know you care. The candidate development portion of this process is far moret hands on than it is with full-timers.

With no real guidelines, or benchmark data to use, we at Emdeon did research and used our best HR judgments. I like to stay on the good side of the OFCCP and the EEO, so we took great pains to do this correctly. We hired a payrolling firm. Payrolling firms are the contractor’s W-2 employer and cover all associated taxes.

Then, we began to source candidates, just as we would with a full-time opening.

We provided the candidates with their payrolling firm’s application, via email. Interviews are conducted by our managers. Offers are extended by the payrolling firm. The payrolling firm manages their onboarding and all communications with the contractor. The savings is recognized quickly. Payrolling services are 17% as opposed to the aforementioned 110%.

Track the savings by each open position. The savings are calculated by what the cost per hour would have been if a vendor provided the candidate.

A real example:

Java Programmer for a 200-hour project.

Agency cost 95$ per hour = $19,000.00

Vs

Insourcing Costs $52 per hour = 10,400.00

Article Continues Below

So, a savings of $8,600.00 is quickly found.

As you can see, if you multiply this by 50 contractors, this is a very effective cost-saving strategy. Using this model, in three months’ time, we saved our business $170,000. We got a lot of attention for that. An actual example (not the complete savings) of some of what we saved is shown in the graph (click to enlarge).

We did find some potholes along the way. To find ethically sound solutions, we worked with our vendors on these.

Q. How do we build a pipeline?
A. You don’t need one. They don’t stay available long enough.

Q. How long does a contractor need to be gone from our company, before we approach him to come back, thereby going “around” the agency?
A. One year.

Q. Can we recruit contractors working at other companies, for our vendors?
A. Yes. If they are on line, they are fair game.

Q. Can we ask our contractors for referrals?
A. Yes. That’s how it works.

In an environment that constantly demands improvements and savings, this is a model that can help you achieve your goals this year.

Contributing Author: Anne Wallbrech

 

Beth Minter is the Director of Talent Acqusition at Emdeon, formerly WebMD, in Nashville. Previously, she has held corporate recruiter positions at Dell and Sprint. She holds a M.S. from Emporia State University.

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9 Comments on “Save Boatloads of Money

  1. Beth,

    First of all congratulations on your ingenuity. Your creativity and compassion for saving your company money is compelling to say the least. I believe that if more people within corporate America would position themselves as entrepreneurs the landscape as a whole would certainly look much more fruitful for all of us.

    On the other hand, as someone that has over a decade of experience in helping companies fashion custom contract staffing solutions; I find your plan overly simplified and somewhat inaccurate.

    First, selecting a staffing vendor that you trust, fits your company model, and provides a ‘service'(not just candidates) is a crucial component. If you have partnered with a staffing firm in the past that provides you sub par candidates, with no service, at a 110% markup (market rate is 60%) you may need to reconsider your selection process. Like any other industry, staffing firms come in all shapes and sizes. Be diligent in finding a good one that knows your business and negotiate a fair rate for the appropriate service.

    While we are discussing price, in your cost savings scenario you neglected to include how much you are paying the internal recruiter that has taken over these extra responsibilities. I would assume that with all of this extra contract insourcing, you will need more internal staff. I would estimate a good corporate recruiter in Nashville at about 70K + Benefits + 401K + Bonus maybe. Oh, and the training of this person and the extra management, etc…

    You make mention to a pipeline. This is something that involves a reciprocal relationship with consultants that you, as a corporate recruiter, can not necessarily participate in fully. This pipeline involves the maturation of a relationship that far outreaches any single contract. Staffing recruiters represent an endless supply of contract assignments with multiple clients that insure stable work for the future. Therefore, they are far more incentivized to work with a firm versus a corporate liaison. By neglecting this pipeline you and your hiring managers are likely losing out on the ‘top dogs’ in particular skill sets. The really sought after talent will not be found on job boards or reply to postings. Their opportunities come to them far faster through well established recruiter relationships built over time.

    Lastly, as you mentioned, these candidates require much attention. Once placed, they must be coddled, given frequent updates, reassured of deadlines, and communicated on happenings within the contract market outside of your company. After all, they are a temporary fixture and life beyond this assignment is very real to them. If this process is not done properly; the contractor leaves mid-project and your hiring manager is left holding the bag. This unfortunate situation creates additional time, expense, frustration, and delays as you re-recruit, re-screen, and your hiring manager re-trains an adequate replacement.

    The theory behind your insourcing makes sense. After all, recruiting is recruiting right? Why pay for something that you have the ability to do on your own. Honestly, I feel like I can re-paint my house this summer too; but I’ll gladly leave that to the professionals.

    PS – You should always ask contractors for referrals, it just makes good sense.

  2. Well said Beth!!! Considering I previously came from a ‘headhunting’ background and have now switched teams to the ‘corporate’ side, I know all to well the scenario’s in which you speak of! I can especially appreciate the comment about the database that everyone has (to one extent or another), but no one really utilizes. We have a database, but my key potential hires are only a page long within a spreadsheet. Along with that, I appreciate the whole ‘pipeline’ comment. Very true! Sure, its great to have a pipeline, but the fact is that the best talent is working and 80% of them aren’t looking. How can you steal a competitor employee with a contract gig? It’s not going to happen… therefore, there is no pipeline.

    I’ll be VERY interested to see how the 3rd party guys/gals respond to this. Thanks

  3. One question: Does anyone actually believe that the person found for $52 is the same person that you would be billed $95 for? If you had agencies charging you $95 for $52 people you were clearly doing business with the wrong agencies. We recruit java people pretty much all day every day. The people we see at $52 tend to be not very good – and there are lots of ones that are not. People that are billable at $95 would typically be senior level developers or architects (and would cost considerably more than $52). I doubt if you are comparing ‘apples to apples’.

    SOME companies may in fact be suited to having in house recruiters hire contractors. However, from what I’ve seen they are few and far between. It would have to be an organization that uses lots of contractors and can justify the infrastructure that it really takes (and costs) to do it well.

    Does the company really want to be in the agency business (after all that’s what they are really doing – except the only client is themselves)? Do they want to have people that manage the contractors like an agency does (vs. recruit them/onboard them, etc but have little to do with them thereafter)? What about time sheets, paying them, etc (payroll firms typically cut checks – there is a lot more involved than that in managing contractors). From my experience, the skills required to typically do corporate recruiting and contractor recruiting are a bit different. Do they have the staff that can really do that?

    Do the savings outweigh the costs? I think a sharp pencil will find out most of the time they do not.

  4. Everyone that commented on this post has valid points. Having worked both corporate, agency and now on the sourcing service side of the industry I have learned these things.

    1. Companies always feel like they are over paying for recruiting when typically they don’t have a clue of the real costs associated with recruiting, pay rolling, and managing contractors. A 17% payroll cost is around what large staffing companies like Kelly Service and Man Power can come in at, but when you talking about recruiting IT people these firms usually have kids that just got out of college recruiting for them or people who decided that they would try their luck at being a recruiter because they heard their cousin made a killing at it. The smaller firms that have recruiters that have been in the business and actually know how to source people and manage expectations of both the client and candidate tend to be at smaller firms that have a higher rate of burden due to the economies of scale they are working at (less people to spread not only the pay rolling cost, but he insurance requirements they must hold and people they must employ to get the job done). Managed services companies like Agile1’s and IQNavigators of the world who go in and slam the rates down tend to be a short term fix for the bottom line of the recruiting budget, but I think companies will find over time aren’t helping because they are running the firms that can actually full fill on the work out of the process.
    2. Corporate recruiters are not given the time or resources to find candidates and build pipeline (which are very important if you are recruiting people who actually have hard skill sets to find if your looking for people to move one pile of rocks from one spot to another rock on you might not need to build pipeline, but when your looking for an Oracle EAM functional professional the pipeline thing actually might help you fill the gig). Corporate recruiters spend a lot of time handholding hiring managers that don’t understand that there aren’t a limitless supply of qualified candidates at the recruiters finger tips at all times and that waiting week after week to make decisions on the people they have met just isn’t cool, but also extremely destructive when it comes to finding people that want to take the job.
    3. Contractors are not all the same. Some contractors will leave a project if they are offered a dollar more for their time and when this happens especially in IT where knowledge transfers is typically more than click on that button over there and this one over here and your good to go not to mention the other people involved in the project who suffer lost productivity from having someone walk off that hey depend on to get parts of the project completed before they can do their work. Again if you don’t have the pipeline how much more time do you think it is going to take you to start from scratch trying to identify the person for the job.
    4. The old days of good mark ups are gone. I find it hard to believe that someone was getting 110% and if they did then that says a lot about the people who ran the recruiting department in the first place. Rates have come down over he years and maybe down so low that it is becoming harder and harder for true recruiting professionals to make a living and offer the level of service that companies demand. There is such a thing as a reasonable mark up and this is different from firm to firm. The guy who says he can do it for 35-40% might not be able to full fill to the level companies expect (many fortune 500s require 3-5 million in insurance to be held by the agency to do contract business with them you an only imagine what the premium on that level of insurance is.)

    The old saying you get what you pay for can be said day in and day out when it comes to recruiting and hiring of contractors. The good ones aren’t cheap and neither are the recruiters and sourcers that can actually put a deal together. Oh and we can’t forget the sale person that had to hound the client company just to have the chance to do business with these companies. They to need to get paid for all those phone calls they had to make to get the business so your burden just went up again. I don’t there will ever be a love fest between agencies and companies because there is always money involved and everyone is looking to make a deal.

    Ryann Reddy
    Director of Search
    Namegeneration.net

  5. I couldn’t resist one more comment. I’ve owned 2 firms and have been placing contractors for almost 20 years. I’ve found the direct costs (taxes, liability insurances, etc) of placing contractors is approximately 15-18%. Including indirect costs (recruiters, job boards, applicant tracking systems, lights, etc, etc) a firm typically isn’t making any money at less than 35%. I run my company very ‘lean and mean’. I’m sure there are those that would dispute those numbers, but I challenge them to put pen to paper and prove otherwise. Can’t be done. Study the numbers from any public firm that is in the business (the numbers are there to see on the internet for any one interested) and you will find the same. Any organization that thinks they are truly placing contractors at 17% over pay rate is fooling themselves – or has recruiters working for free out of cardboard boxes and finds the people by hanging out on street corners and their contractors never have to be managed. Can’t be done.

  6. You have raised some good points surrounding the age old business decision of “make or buy?”. As organizations continue to seek cost containment and reduction, it behooves human resource professionals to examine every dollar spent and formulate a “value quotient” for such expenditures. Your article (and some responses) have prompted a few questions and thoughts of my own:

    1. Did you consider the affect, if any, to your employment brand? Do you run the risk within your employment market(s), of being viewed negatively by certain candidates because you’re creating a “temp” work environment? In my experience, the use of vendors actually insulates an organization from this potential downside.
    2. Did you consider an aggressive procurement process that could result in substantial reduction of mark-up paid to current vendors? If you’re typically using 50 contractors, I would think your current vendors (or possibly a limited number of them) would be anxious to reduce mark-ups substantially in order to retain the business relationship within a longer term, limited competition environment.
    3. You’ve mentioned an eye towards EEO and OFCCP regulations. From your description it seems your organization is directly sourcing the candidates (posting positions, searching resume databases, phone screening, managing candidate communication, interviewing, selecting) and then handing off the administrative function of payroll to another company. I’m no lawyer, but this raises questions in my mind as to whether this would pass any legitimate test of separation. I think you’ll have to keep your eye on this particular piece of the puzzle.
    4. Another area of potential savings that was not mentioned is the ‘temp to perm’ conversion. Depending on the contractual relationship with your vendors (or are they former vendors at this point?), most staffing firms charge a conversion fee when the client decides they can’t live without the services of Joe or Sally Contractor. If you’ve previously paid these fees, you’d be able to include that in realized savings to your organization.

    You’ve definitely presented some great ideas here. It provides food for thought and a potential road map for any corporate HR or Recruiting Leader looking to manage organizational costs and contribute to bottom line results. It should also prompt thought and discussion on the vendor side with respect to identifying the changing needs and goals of their customer base. This should open opportunities for creative account development and retention strategies.

  7. You people have absolutely got to be joking????????? Coming from corporate recruiting (snore)where you are a non revenue generating resource (a cost to the bottomline)to a Managing Director with a successful consulting company, and seeing the big picture it is obvious you are insecure with your abilities as a professional recruiter.

    Ryann makes somewhat of a good point, “Corporate recruiters are not given the time or resources to find candidates and build pipeline.” Corporate recruiters are not given that!! Why?? They are generally lower level administrative types whose costs outweigh the value they add to the executives at the company. So why invest?

    It is troubling to see corporate recruiter types so against creating mutually beneficial relationships with outside vendors. Funny enough they are the first ones to come calling when they lose their jobs as a corporate recruiter.

    Anyway corporate recruiters or Human Resources should have no part or interaction with any vendors or vendor programs. Procurement is the only qualified and unbiased route for the corporation! Yes the corporation…who you work for…who you are hurting by trying fill every job yourself. See the big picture….if it takes 2 moths to identify and hire a candidate think about the additional revenue that could be generated by the individual if he came contract to hire with a week? No one cares anymore about being a full timer vs a contractor! FTE’s are the ones getting laid off right now and replaced by contractors. Don’t be afraid of what you don’t understand, what you can’t compete with or just flat out are not qualified for!

    Tiny bit of inforamtion…most of your executives using all of the basic selling techniques to be successful at their jobs. Bye for now but you definitely have me fired up…just like this SHAM of an election we had!!!!!

  8. oh yeh…..one more thing….Bet posted this example:
    A real example:

    Java Programmer for a 200-hour project.

    Agency cost 95$ per hour = $19,000.00

    Vs

    Insourcing Costs $52 per hour = 10,400.00

    So, a savings of $8,600.00 is quickly found….hold on hold on…where are your payroll costs?? Occupancy costs? Time value of $$$…cost of benefits???? I am sure it took you 10x longer to find the candidate.

    If you guys were paying those rate differentials I may be coreect with my previous post that says, “Anyway corporate recruiters or Human Resources should have no part or interaction with any vendors or vendor programs. Procurement is the only qualified and unbiased route for the corporation! ”

    Oh by the way I am still at work, working for my clients? Where are you?

  9. Look!!!!!! this poor bastard needs a job…a former corporate recruiter

    Comment on Recruiters in the Market by Dale Charron
    Today, May 06, 2009, 3 hours ago | Dale Charron
    Name: Dale Charron
    Email: dalecharron@hotmail.com
    Search Consultant
    St John Health
    Currently reside in Orlando, FL area

    13 years in Human Resources and recruiting both from the corporate side and staffing side. Full life cycle recruiting and Multi-facited in many industries and very adaptable to any culture/environment. Former project experience and overseeing teams. Also have about 3 years in sales and formerly a business owner. I’m looking for a fresh state in my new location here in the Orlando area.

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