Here is a prediction. As the market recovers the first impact on our industry will be a revival of the temp and contract market.
Employers will see increased work volumes as the economy recovers, but will “dip their toes” into the labour market at first, hiring flexible solutions initially. But then, as momentum is gained and confidence returns, they will start to hire permanently. But the first place they will go for their permanent hires will be to transition tried and tested contractors onto their permanent payrolls.
And then it will happen! The dreaded “temp to perm” fee debate.
And this is one thing our industry has all wrong. We give away our temps at discount rates. Why, I have never understood. A temp on your payroll is a precious asset. In talent-short times (and they will return, trust me on that) I simply cannot fathom why anyone in our industry would give a substantial discount on the fee when a temporary employee goes permanent.
It’s just so illogical. A perm fee is a once-off hit which is nice when it happens, but we seem to forget that we have lost a tried, tested, and hard to replace revenue earning asset - our temp worker.
I have heard all the arguments on this from clients and they don’t wash. Let’s start with the classic “But you really should discount the permanent conversion fee because you have already earned so much margin on the temp”. What hogwash. The temp margin is for the temporary service rendered. The perm fee is for the acquisition of the permanent staff member. There is no leveraging one against the other. We need to be confident with the client, that far from a celebration for us when a temp goes perm, in fact the perm fee is scant compensation for the lost revenue that temp could have earned on future assignments.
Some clients will even try and use the ‘hire purchase’ argument. “But can’t you see” they say “ It’s like me renting a TV and then buying it. It’s always cheaper to buy a previously rented TV”.
Sounds neat, but its fallacious. A TV is a depreciating asset. A human being, in a contract assignment where they are getting trained, absorbing the company culture and learning the systems, is an appreciating asset.
The perm fee should be more, not less.
And one more thing…
Don’t pro-rata perm fees for long-term contact assignments. That’s dumb. We lose. Keep the distinction between temp and perm crisp and clear. (I know in some countries our hands are legally tied on this, but in many it’s just about negotiation.)
If it is a fixed-term assignment, it’s a contract role and therefore it’s a timesheet hourly rate with our margins on top, or it’s a fixed weekly or monthly rate. Don’t for a minute think “well it’s a six month role so we will take our perm fee and divide it by two because it’s half a year”.
Do the arithmetic!
A perm fee at 20% for 75,000 placement is $15,000
If a client wants to pay half the perm fee because it’s a six-month gig then you get $7,500
But the margin you will earn on a $75k level person on a temp basis for six months at a 55% markup is approximately $19,000
$7,500 vs $19,000
You can see why the client likes the idea!
Sure, if the client wants to pay a perm fee instead of margin for a six-month gig for example, that’s cool. But it’s the full perm fee. The client will still be paying less than the equivalent margin i.e. $15,000 vs. $19,000.
But you get a full fee and that’s fair and proper.
If you are not convinced, think about this. If you owned an investment property, and rented it for five years to a nice young couple, and then they wanted to buy it from you, would you give them a 25% discount off the sale price because of the rent they had previously paid? I don’t think so. So why do you give your temps away cheap?
Believe me on this. We have NOTHING else to sell, apart from our service and our talent skills.
Don’t give away the farm.