How to Minimize Staffing Agency Snags

As more employers turn to temps to fill the talent gap, HR professionals should stay alert for signs of potential problems.

By Tamara Lytle Oct 24, 2017
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Millions of temporary workers are assigned to U.S. companies each week. Unfortunately, many of these individuals don’t show up for the jobs, leaving managers in the lurch. In other cases, the temps report for work, but HR professionals end up wishing they hadn’t.

Take the temporary driver for a rental car company who not only lacked the clean driving record the staffing agency promised but also had a suspended license for driving under the influence. He T-boned another car and sent that driver to the hospital, creating a legal mess for the employer.

Or consider the administrative assistant at a library who lasted less than three weeks after training. She spent much of her time instant-messaging friends and trashing co-workers before deciding to simply stop coming to work.

​As more employers opt to fill talent gaps and increase workforce agility by contracting with staffing agencies for temporary workers, some have learned the hard way that it’s not always a smooth path.

Yet the demand doesn’t seem to be letting up. U.S. staffing companies employed an average of 3.2 million temp and contract workers per week in 2016—up from 2.2 million in 2009, according to the American Staffing Association (ASA). That growth is expected to continue as the overall workforce expands, says ASA General Counsel Stephen Dwyer. 

Moreover, many in HR predict an increasing reliance on staffing agencies as it becomes harder for companies to find talent on their own. “The candidate pool is slim pickings,” explains Ryan Machir, SHRM-CP, an HR generalist for Illinois Tool Works, a manufacturing company based in Glenview, Ill.

But before entering the temp terrain, it’s important to educate yourself on the potential problems and legal risks to avoid trouble down the road, experts say.

What You Get

Companies often use staffing agencies because doing so gives them more flexibility. They can, for instance, ramp up during the busy season without having to lay people off later. Leveraging temps also helps avoid some of the costs and headaches of managing staff, since the agency is responsible for recruitment, workers’ comp, unemployment insurance, Federal Insurance Contributions Act (FICA) taxes, various reporting requirements and any benefits.

In exchange, staffing companies mark up the labor rate by as much as 60 percent to cover their costs and make a profit. So, for example, a company paying $22.50 an hour might be assigned a worker receiving $15 an hour from the agency.

Staffing experts say temp workers are best suited for three situations: 

  • Completing a specific project.

  • Filling in for someone on leave.

  • Handling a sudden influx of business.

If it’s not for one of those purposes, it’s probably best to hire a regular full-time employee, says Machir, who has about a dozen temps working on the production floor and has contracted for hundreds more at previous employers. He also worked for a brief stint as a contract recruiter for a staffing agency.

Hiring a temp worker may not always be the time-saver it seems, warns Jeffrey Naftal, SHRM-SCP, director of HR at Prince George’s County Memorial Library System in Maryland. He recalls being burned by the temporary administrative assistant who spent most of her time messaging friends. By the time she stopped showing up, the person who had trained her and who she was filling in for had gone on maternity leave, so no one was available to train a replacement. 

“It didn’t serve us any purpose,” Naftal says. “We paid good money to have someone come in and do nothing.” 


​What Kind of Workers Do You Need?

Staffing agencies generally offer help in filling three types of positions:

Temporary. These workers are hired for a short-term project or job, such as covering for someone on parental leave or helping with the holiday rush.

Temp-to-perm. These individuals start out as temps but are hired full time if they perform well.

Full-time. These folks are hired to fill senior staff posts or high-demand specialist positions such as those in IT. Staffing agencies generally charge a percentage of the first year's salary for their efforts rather than marking up an hourly wage as they do with the other two types of workers.

Legal Risks

​Just because temps aren’t employed by your company doesn’t mean using them frees your organization from potential litigation. “Don’t lull yourself into a false sense of security that because an individual comes from a staffing agency, you’re immune from liability, from being named in a lawsuit,” cautions Joel Greenwald, managing partner of New York City-based firm Greenwald Doherty LLP, who specializes in employment law representing management. 

An Alabama auto parts manufacturer, for instance, was on the hook—along with two staffing agencies—for $2.5 million in penalties for federal safety and health violations last year after a temporary worker was crushed to death inside a machine, according to the U.S. Occupational Safety and Health Administration (OSHA). Had the staffing agencies and manufacturer provided the temp with proper safety training and equipment, they would have averted the fatality, OSHA reports.

Natalie Ivey, SHRM-SCP, president of Results Performance Consulting Inc. in Boca Raton, Fla., recalls working in HR years ago for the rental car company that used a staffing agency to hire the driver with a suspended license who caused an accident. Her contract with the agency specifically requested individuals with a five-year clean driving record who could pass drug and criminal background tests. She even paid the staffing agency $2 extra an hour to get better drivers. 

“They were bobbing their heads up and down [to indicate] ‘yes, yes,’ but they did not honor the contract,” Ivey says. 

The motorist who was injured sued Ivey’s employer, which in turn had to sue the staffing agency for breach of contract, she says. 

Many companies assume that signing a contract stating that the agency is the employer of the temporary worker absolves them of responsibility as an employer, but that’s often not the case.

Companies still can be considered “dual” or “joint” employers when they direct the day-to-day activities of temporary workers or even tell them when to take a break. A temp who alleges a hostile work environment could sue both the company and the staffing agency, Greenwald says. And, if the agency isn’t paying a fair wage, the company could be the target of a lawsuit. 

That’s why vetting an agency is so important. “You have to always be conscious of where you get your labor from,” Greenwald says.

However, the American Staffing Association’s Dwyer says the joint-employer standard established by the National Labor Relations Board actually benefits companies because agencies provide the workers’ comp coverage when there are injuries.

‘Don’t lull yourself into a false sense of security that because an individual comes from a staffing agency, you’re immune from liability, from being named in a lawsuit.’
—Joel Greenwald, Greenwald Doherty LLP

Ask legal counsel to review the indemnification clause of each contract rather than relying on standard language, Ivey advises. For example, language that clarifies who’s responsible for mistakes made by a temporary forklift operator might need to be different from language for a petroleum engineer, she says.

In addition, having temps work side by side with regular full-time employees for lengthy periods may be problematic, Machir warns.

That’s the issue Microsoft ran into in 2000 when it paid $97 million to settle a federal lawsuit by thousands of people who said they were classified as temps for years as a way for Microsoft to avoid paying them benefits. 

“A general rule of thumb is you don’t want to be using a temp for more than 90 days,” Machir advises.

Proper training can help avert tragic consequences. OSHA recommends that staffing agencies provide general safety training and that “host” employers educate workers about the dangers specific to their worksites. The ASA provides webinars, best-practices information, peer networking and other educational materials to promote safety, Dwyer says.

Performance Problems

For some HR professionals using staffing agencies, one of the biggest headaches is dealing with no-shows.

At the rental car company where she used to work, Ivey recalls planning for a crush of customers on the weekend of a golf tournament. The agency promised 75 workers but only 50 came, so she ended up having to pay her staff overtime. 

“I have been left in the lurch—I can’t tell you how many times—because we didn’t have enough boots on the ground,” Ivey says. 

Nancy Taylor, HR manager at the 70-employee Hunter Trading Co., a hunting apparel warehouse near Memphis, Tenn., has experienced a similar problem. With many warehouses and more than 240 staffing agencies in the area, workers job-hop without worrying about repercussions if they don’t show up for work. 

“We have bred a monster here,” Taylor says. “They can leave you tomorrow and go work somewhere else for 5 cents more.”

About 37 percent of staffing agency clients said they have been negatively affected by “ghost bookings,” which occur when the agency promises to fill an order before it has the workers lined up, according to a 2012 buyer survey by Staffing Industry Analysts (SIA). (The figure is a proxy for no-shows because clients likely wouldn’t know about a ghost booking unless the workers didn’t arrive to the job.) The problem was even more pronounced in the energy and chemical industries, in which 53 percent of clients said it was an issue, and in the tech and telecom sectors, in which 48 percent cited it.

Staffing agencies also don’t always screen workers for soft skills, Taylor notes. She now uses staffing agencies only as a last resort, preferring to hire workers directly for the peak summer season. “I can screen better and be a little more picky,” she says. In doing so, she has brought turnover down from 400 percent when using staffing agencies to 3 percent.

Taylor and her staff use their connections to other managers in town to suss out whether applicants have a good work record. She also partners with local schools to locate summer help. 

When she worked for Toys “R” Us, she had trouble keeping all 1,000 temps through the last days of the Christmas rush. She partly solved the problem by entering the names of those who worked through Christmas Eve into a raffle with $200,000 in prizes.

[SHRM members-only toolkit: Practicing the Discipline of Workforce Planning]


The Price Tag

Steep and sometimes confusing pricing for temps is another common HR complaint. At previous jobs, Taylor retained what staffing agencies call “temporary to permanent” workers—people who start out as temps but might be hired as regular full-time employees if they perform well. The advantage is that companies can “try before you buy,” she says. But agencies usually either require that the workers maintain their temp status for three to six months, ensuring that the agencies receive an ongoing markup, or charge the company a fee. 

Those fees rankle Naftal. In one case, he also had to pay a signing bonus because the worker was shocked that his compensation as a regular full-time employee was lower than what the agency paid him. Since he hadn’t gone through the regular hiring process, salary expectations hadn’t been communicated earlier. 

Staffing billing rates rose 1.2 percent between 2015 and 2016, according to SIA. U.S. Bureau of Labor Statistics data show that labor costs also have gone up, as average hourly rates of employees at temporary agencies (including headquarters staff) rose from $14.66 in May 2007 to $17.44 in May 2017. 

In addition, the volume of workers a company is assigned from the agency can affect pricing. That means two companies could pay different rates for the same type of labor.

Minimize Problems

With advance planning, HR can help avoid potential problems and build strong relationships with trusted staffing agencies. Here’s some advice:

Ensure that HR is involved. When Naftal’s IT hiring managers are anxious to fill a vacancy, they sometimes deal directly with the staffing agency. That’s a mistake because HR professionals are more experienced with hiring and better at spotting red flags, Naftal says. HR interviews three candidates for each temporary position and helps weed out those lacking people skills, he says.

Communicate clearly. To ensure a good match, talk to the staffing agency recruiter about your top priorities for a particular opening, advises Paul McDonald, senior executive director for Robert Half International Inc., one of the largest U.S. staffing agencies. For higher-level jobs, a short phone conversation with HR, the staffing recruiter and the line manager can save time in the long run, he says.

The more you share about your company’s culture and vision, the more successful your relationship with the staffing agency will be, says Linda Meeks, business development manager with Kelly Services Inc., another large staffing agency. A pet peeve of hers is when HR doesn’t respond to e-mails or other requests for information. “If they don’t give us responses, we sometimes don’t know how to move forward,” she says.

Give agencies plenty of advance notice so they have more time to search for good workers, Taylor recommends. She tells them she’s willing to wait a few extra days, if needed, to get the right people. 

Providing feedback about individual workers can also help them and the agency improve, Machir says.

Provide detailed job descriptions. Make sure the contract specifies when you need someone who is proficient at a particular skill and not merely competent. You might specify a minimum score that workers must earn on tests in their field, Ivey says.

Recognize that not all staffing agencies are equal. Ask for recommendations. Focus on agencies that specialize in the jobs you want to fill. If you cultivate strong relationships with agency representatives, they will call you when qualified workers are freed up from other assignments, Taylor says.

Companies can still be considered ‘dual’ or ‘joint’ employers when they direct the day-to-day activities of temporary workers or even tell them when to take a break. 

To avoid no-shows, review agencies’ job satisfaction metrics, since workers who are engaged and satisfied are more likely to show up, suggests Kat Kocurek, vice president of marketing at Inavero Inc. in Portland, Ore., which conducts satisfaction surveys of clients and temps for staffing agencies.

Conduct spot checks. After Ivey’s experience with the temporary driver who caused a car accident, she added a provision to her next contract requiring the staffing agency to provide a copy of workers’ driving records or background checks within five minutes of her request. 

Focus on safety. Ask the staffing agency representative to tour your facility and meet with the safety manager. Staffing agencies and the companies that contract them share responsibility for safety. So, good communication is needed to ensure both understand any hazardous work conditions that may exist and what training each will provide to ensure that temp workers have safe work environments, according to OSHA’s website.

These steps might take extra time and effort. But with a little patience, HR professionals can address their temporary workforce needs and avoid unpleasant bumps along the way. 

​What To Ask

​Before signing a contract with a staffing agency, ask the following questions:
  • What industries do you specialize in?
  • What clients do you currently represent?
  • How large is your client database?
  • Are your recruiters certified?
  • What type of background check is conducted?
  • Are candidates interviewed in person or online only?
  • What does the drug test screen for?
  • What is your fee structure?
  • How quickly can you get an agency staff member onsite if there's a problem?
  • Is your agency affiliated with the American Staffing Association?
  • What are your most recent satisfaction scores from clients and temporary workers?

Source: Inavero Inc.

Tamara Lytle is a freelance writer in the Washington, D.C., area.

Graphics sources: U.S. Bureau of Labor Statistics, Staffing Industry Analysts and the American Staffing Association.

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