Growing Use of Temporary Employees Solves Some Challenges, Creates Others

The increase in use of temporary employees is altering the face of the U.S. workforce and the manner in which HR professionals acquire and manage people, according to labor economists and staffing industry leaders.

In June 2014 there were nearly 2.9 million workers classified under “temporary help services,” an increase of more than 200,000 from June 2013, according to the U.S. Bureau of Labor Statistics. Temps now make up about 2 percent of the workforce, and they aren’t going away any time soon.

The use of temps and other contingent labor—freelancers, contractors and consultants—“is becoming more mainstream,” said Jim Link, the Atlanta-based chief HR officer of staffing firm Randstad North America. He said the resulting challenge to HR “is about finding a way to get work done in a new and unique way.”

Managing the Talent Supply Chain

Typically, temporary employees are co-employed by staffing firms and the organizations where they are placed. In many cases, the staffing firm recruits and orients temps and determines their pay and benefits. With HR’s role diminished in these processes, managing and motivating large numbers of temps—and the permanent employees working side by side with them—has become more complicated.

Carl E. Van Horn, distinguished professor and director of the John J. Heldrich Center for Workforce Development at Rutgers University in New Jersey, said that the phenomenon “is going to bring a different culture” to many employers. “Leaders have to figure out how this is going to affect their business.”

“Organizations are being forced to take a hard look at their employment model” and must learn to manage a talent supply chain in much the same way that manufacturers manage the supply of materials, said Chicago-based Robin Erickson, who directs Bersin by Deloitte’s talent acquisition research practice.

American Staffing Association President and CEO Richard Wahlquist said that the boost in temp use has shifted some control of recruiting and hiring from HR to procurement professionals, especially in large organizations. “There’s much more of a focus on price,” he said. But while “that works when purchasing office supplies,” he said it is not always the best approach to building a competitive workforce.

Staffing firm leaders say HR professionals need to step back and examine all available methods to obtain the skills they need for their company—rather than assuming that a permanent hire is always the answer. Said Link: “The greatest mistake that HR professionals make is trying to treat everything the same.”

Avoiding Labor Overcapacity

Temporary employment tends to be cyclical: Historically, it diminishes during a recession, as companies look to cut costs without mass terminations of permanent employees. Temp employment grows during economic recoveries, though normally it tapers off as the economy stabilizes and pressure to add talent prompts companies to boost permanent hiring.

Anthony P. Carnevale, research professor and director of the Georgetown University Center on Education and the Workforce in Washington, D.C., described temporary employment as “a coping strategy for companies in the short term. Once you’re at full production, it doesn’t work anymore. You’ve got to get more people” in permanent positions.

However, the depth of the recent recession, and the protracted recovery, have rendered permanent job growth sluggish and have kept temp use strong. “More so than after any recession, businesses are wary of labor overcapacity. They just don’t want to go through the pain” of laying off permanent employees again, said Wahlquist.

“I think the trend will continue,” said Erickson.

Factors Driving Temp Use

Van Horn said that several factors continue to support temp use in the current economy: More organizations are learning how to manage a temporary workforce. Employers are looking for ways to cut costs. And it has become more difficult for employers to find what they want in candidates for permanent jobs.

Surveys show that temp assignments last on average three to four months and that many temps want—and eventually are offered—permanent jobs where they have been placed. But some temps value the option of taking off summers or simply walking away from an organization that does not feel like a good fit.

Many organizations are bringing in temps for reduced roles, such as assistants, rather than for professional-level work, said Carnevale, in part to save money and because it’s harder to find the more experienced, skilled people. “The professional and college [graduate] markets have moved down an octave,” he said, referring to the trend toward hiring these workers one level below what they seek or for which they are qualified. People working outside of their desired fields are often working more than one level below where they want to work. As a result, the gap between the haves and have-nots could increasingly widen.

Managing Inherent Temp Costs, Workplace Conflicts

Though temps can provide relatively fast and flexible solutions to employers’ needs, there are limits to the savings they provide. Temps are recruited, subjected to background checks, and given competitive pay and benefits. All of that costs money and is passed on from staffing companies to their clients. In addition, staffing firms’ expenses will continue to rise as various provisions of the Affordable Care Act take effect, so employers can expect to shoulder the burden of some or all of those costs in the future.

Staffing experts note that with temps and permanent employees working on the same projects, it is inevitable that they will compare pay, benefits and schedule flexibility. “You’re going to have conflict,” said Houston-based Kip Wright, senior vice president of staffing firm Manpower, North America.

People should know where they fit in the organization, who reports to whom, and why some people will have different jobs and reporting responsibilities and pay/benefits than others. HR needs to establish “clearly articulated roles and responsibilities” for temps and permanent employees, advised Steve Armstrong, general manager of U.S. operations for staffing firm Kelly Services in Troy, Mich.

“You need to engage these people individually,” said Rich Thompson, chief HR officer of HR solutions provider Adecco Group in Jacksonville, Fla. “Because they are someone else’s employee, we don’t communicate enough about performance” issues.

Van Horn also urged HR professionals “to figure out how to show these temps the path to permanent employment, if there is one. I don’t know [of] many companies that do that.”

Wright said HR professionals can seize the initiative by becoming labor supply-and-demand experts, and by designing what the organization’s talent plan will look like and how it will be implemented.

Staffing firm leaders say they can help HR departments factor temps and other contingent workers into short-, medium- and long-term employment planning. “The staffing industry is dramatically different than what it was six or seven years ago. There’s a much more consultative relationship” with HR, said Armstrong.

Steve Bates is a freelance writer based in the Washington, D.C., area and a former writer and editor for SHRM.