Recruitment Agencies – is it time to adapt?

As the move to a more flexible workforce increases – Is focusing solely on permanent positions a risky recruitment business?

The world of work is changing.  Many companies are implementing flexible workforces and new ways of managing talent. A recent U.S. Government Accountability Office report indicates that as high as 40% of the U.S. workforce is employed as contingent workers. This report also acknowledges that the definition of contingent workers is not universally agreed upon and the employment data varies with different sources. However, the trend is undeniable.

This shift to a flexible workforce is also true in Asia.

In a 2014 Staffing Industry Analysis (SIA) survey respondents from Asia say their share of contingent (contractor) workforce was 22%, and they expect that share to grow to 25% by 2016 and 30% by 2024.

The SIA study highlights the skill types fueling the contingent workforce growth. “Over the next ten years, the types of contingent labor likely to see the biggest increase are high‐skilled occupations, Statement of Work (SOW), offshore labor and outsourced functions; least likely to see increased usage are low‐skilled occupations. Overwhelmingly, the biggest concern buyers have with respect to contingent labor over the next ten years is skill shortage.“

So, what does this mean for Recruitment Agencies in Asia?

Logically it would make sense that as the percentage of contingent workers increases, the percentage of permanent employees decreases. Alarmingly this decrease in permanent employment could result in reduced recruitment fee margins and/or a reduced number of placements.

A change in Recruitment Agency practices

Acknowledging the global and regional trends, developing additional recruitment fee opportunities through contingent workforce sourcing, placement and management could positively impact the recruitment business of the future.

Ignoring the threat might result in the traditional Recruitment Agency business model (event specific or one-time recruitment fee) becoming obsolete and going through the film-camera or photocopy machine decline.

Building a Professional Contractor business

With the trend toward contingent workforce and the use of contractors, building a Professional Contractor business (a monthly fee income stream) as a secondary business can help to smooth out the monthly commission fluctuations while also future proofing Recruitment Agency business.

What is a Professional Contractor business?

Simply it is sourcing, recruiting and placing highly skilled talent for a project or fixed-term contract work. Once the placement has been made the monthly fee (markup) is realized through the end of the contract. After the Professional Contractor business is built, working smoothly and efficiently, the contractors can be repetitively redeployed on new projects generating an ongoing revenue stream.

How is a Professional Contractor business built?

The existing recruitment agency talent pool is tapped to identify talent with high demand skill sets who are interested in fixed term contracts. The second step is identifying client companies which might be using contingent workforces to normalize variable workload levels, implement projects, accommodate rapid growth, and/or to lower risk with a “try before you buy” vetting program.

Many of the existing Recruitment Agency client companies are currently using contractors. The trick is to identify how they are being engaged. The HR department may not be aware of the “shadow” contingent workforce as the contractor may not have been hired through normal HR processes. The contractors many times are engaged through:

  • Project based delivery through SOW vendors
  • Procurement  – Directly sourced
  • HR departments using MSPs for RPO
  • Department heads or Services budget owners with headcount freezes

Once the Contingent Workforce talent pool is developed and the client companies have been identified, the recruitment agency can leverage their business by utilizing Contractor Management Outsourcing (CMO). Outsourcing contractor management has two benefits. The first, avoiding the employment classification risk due to the co-employment relationship between the client company and the recruitment agency. The second, reducing the payroll, benefit and tax compliance headaches of managing short term contracts with variable start/end dates and the inherent complexities.

Questions Recruitment Agencies might want to be asking themselves:

Is it time for change?
How many consulting vendors do our clients engage?
How can we build a Professional Contractor business?

Speak to CXC Global Asia today.  “Your trusted advisor” helping your business to prepare for the new world of work and the growing flexible workforce.