The broken business model of staffing agencies
Tags: Recruitment, Staffing, Staffing And Recruiting, Aquentworkforce, Benefits

Every day, staffing companies of all sizes give away one of their most important services for free — their expertise in recruiting.

The hard work of sourcing, screening, and evaluating talent for contingent roles is why clients work with staffing firms. And yet these same firms do not actually make any money on these recruitment practices.

So when do they make money? When their candidates are actually hired by clients. Except, by that point, the service they are now providing clients is not recruiting people but employing them on behalf of their clients.

Treating Workers as Commodities

More specifically, here’s how this pricing model currently works: Clients pay an hourly bill rate that is calculated as a markup on the talent’s hourly pay rate. This markup covers not only worker pay but also employer taxes, worker benefits, overhead costs, and profit. Since the bill rate doesn’t change based on whether workers are on assignment for a day or a year, the notion of what a client actually pays for recruiting is highly imprecise and lacks transparency for the client (or even the staffing company).

The funny thing about paying only for employing people is that most staffing companies are notoriously bad employers — because our industry views recruiting as our primary function and the main value we provide. There’s often little investment of time and energy in the people we place as true employees.

Though these workers are technically temporary staffing employees, they often work at a single client for a year, two years, sometimes even longer (which looks awfully similar to a “permanent” job on the client-side). But unlike how clients treat their own employees, many staffing companies don’t typically work on engaging, nurturing, and developing talent since they typically view these workers as commodities.

Doing Better With Benefits

Many staffing firms provide bare-bones benefits to the talent that they place. They focus simply on legal compliance rather than going above and beyond. But if they actually spent more on talent benefits — for things like high-quality medical insurance, paid sick leave and time off, and good retirement plans — they’d earn it back in spades.

That’s because employee benefits aren’t a cost. They’re an investment that improves the bottom line. Better benefits help staffing companies attract and retain the best talent for their clients — workers who are actually much more productive than the average employee.

We’ve found that many of our client companies want talent to have better benefits. They’re concerned about the employee experience of such workers. They don’t want their contingent workers to feel like second-class citizens. But the fact of the matter is, there are obstacles (related to taxation and insurance logistics) to offering benefits directly to their non-employee workforce. Consequently, companies just work closely with their staffing partners, which are certainly in a position to offer more, and to do better.

Beyond benefits, there are all sorts of things staffing companies should focus on more as employers, including talent engagement and support, compensation benchmarking, pay raises, training and professional development, and career coaching. As an industry, we tend to invest in these areas for our staff, but we haven’t translated these employment functions into what makes sense for the people we place.

Time for a Change

It boils down to this: Staffing companies are giving away the service they’re known for the most (recruitment) and are charging for a service they don’t do particularly well (employment). It really makes no sense when you think about it. Our industry has it all backward.

It is time for a change. Our industry needs to start separating recruitment and employment — from how we structure our services to our pricing models to client agreements. We need to start investing more in employment services so that we’re actually adding value for our clients. We need to devote resources to treating talent as the employees they are instead of treating them as an afterthought.

Because only when we align our economics with the value we provide can we maximize that value for our clients, for our talent, and for our business.

This article originally appeared on ERE.net.