Need to hire someone? Start by comparing temporary staffing versus direct hiring cost. Believe it or not, there are times when it is smarter to use temporary help. Other times, it is far better to do a direct hire for yourself.
Cost of a Hiring People
First if you have never used a temp service you need to reacquaint yourself with some terms like
temp markup rate
and bill rate. Hopefully you already understand about
and how they function. Now in order to compare temps to direct hires, first we need visit the cost of a direct hire.
Cost of a Direct Hire
In the case of hiring some directly into your company, you can either find and hire that person yourself or you can hire a
Whichever you choose, there is a cost associated with that hire and for simplicity let's look at hiring the person yourself.
Here is a high level summary of the costs of hiring someone directly to your company;
On-Boarding Costs - Make offer, Orientation on Company enrollment process
Employee Costs - Benefits (medical, vacation, holiday, sick etc.), Salary, Human Resources, Payroll Expenses, wage garnishments, end of year tax forms etc.
Hidden Costs of Hiring
In addition to direct costs of hiring someone are the risks and hidden costs associated with hiring a new person. There are 2 major categories of risks associated with hiring.
Bad Hires - If you or someone in your organization makes a hiring mistake, it can cost from 2x to 5x or more of that persons annual salary
Timing Factors - Say you hire that next bright star but you lose a big contract and it will be another few months before that new person is producing? Can you afford to keep a person on board who is still learning?
Cost of Temps
Now to complete the comparison of temporary staffing versus direct hiring cost, we need to look at the cost of a temp.
Recruiting - You will probably review a few resumes and you may interview a couple of candidates.
Time card and Invoice Processing - You will have to process time cards/invoices
Wages & Markup
Beyond this most costs are a wash.
What Does This Mean?
The cost decision to hire with temps vs direct hire comes down to 2 things, risk and time.
If you have a short term project and don't want to commit long term to an employee, a temp employee is a better deal.
If you don't have a clear picture on the future of your company and do not want to risk the costs of a bad hire or can not clearly see the long term viability of a project or need to fill a position a temp is the best option.
Here's why, when you hire an employee, there are costs such as vacations, insurance and leave that you are no longer responsible to pay. If the staffing firm offers benefits, they are wrapped up in your billing rate. You don't have the financial exposure.
Final Thoughts of Temp vs. Direct
Over the long haul you want to keep good employees working. As a company you should provide these benefits to good employees to keep them at your company. On the other hand, if you don't have a clear outlook or there is some risk in your future, the cost of having these employees is a huge risk.
In the new economy, companies will have to seriously look at which path makes sense for them. So while you may want to compare temporary staffing versus direct hiring cost, you should probably look at the risks before you make your decision!