In the first of a series of spotlight articles on contingent
staffing we offer some tips and guidance for organisations looking to gain
greater value from their use of agency staff through the effective control of
demand. In some cases this has seen us help our customers to realise savings of
up to 75% on annualised expenditure, and is arguably the best way to reduce
cost in this category.
Agency staff are for many organisations an essential
component of their workforce, providing amongst other things scalability,
flexibility and expertise. It is very easy however to let the costs associated
with them spiral out of control without an appropriate level of governance.
The agency staff cost
If you take a close look at the total charge rate for an
agency worker you will see 5 main component parts:
· pay rate
· holiday pay
· employers national insurance
· pension auto enrolment fee and
· agency margin.
Using a worked example of £15 per hour pay rate to the
worker, and £1.50 in agency margin, the total cost for the worker equates to
about £20.30 per hour once the statutory costs have been applied.
The agency margin element therefore constitutes a mere 8% of
the total charge. 92% of cost in this instance is attributed to an agencies
cost of sale.
Extrapolated over expenditure of say £10m per annum, you can
see that the agency margin – the amount that is traditionally negotiated within
a procurement exercise and then controlled by contract – is £800,000. So if you
want to make 10% savings or more on total spend, you have to start thinking out
of the box.
How this cost profile
can get out of control
Temporary workers should be just that, workers that are engaged
for a temporary period. Why then, is it that some workers are engaged for 9
months or longer?
We carried out some analysis for a manufacturing
organisation recently that had had the same temporary worker engaged since
1981, and another since 1987. Whilst this is an extreme example, it is
certainly not isolated. Carrying out the same analysis with a bank, we
identified several workers who had been engaged for 3 years or more – the
customer actually thought they were permanent employees!
Placing this into a financial context, let’s say that the
£20.30 pay rate described above has been agreed for a 3 month business case.
The cost for this, assuming a 40 hour week across 12 weeks is £9,744 (£20.30 x
40 x 12). Now let’s say that the same worker is in place for 12 months – the
cost rises to £42,224 (£20.30 x 40 x 52). The difference of £32,480 therefore
represents an eye-watering 330% increase to the committed cost.
Within your own organisation you may feel that this cost
risk is under control, but is it really? Going back to the bank that we spoke
with, they certainly did. Any PO approvals for <£50k financial commitment
required executive board sign off. The majority of contractors engaged cost the
business over £50k, but every time the PO approached the magical sign off
figure, the cunning line manager would simply create a new PO, and then repeat
the process ad infinitum. Approvals are in any case, only effective if someone
is prepared to say ‘no’, and as discussed above, the real damage is done
How to take control
Within our managed service models we approach demand
management in two way: at a transactional level, and strategically.
Transactional demand management is as it sounds – best
practice controls that place governance over the order approval process,
channel opportunity to replacement channels (internal agency, employability
provider and so on) and effectively
Strategic demand management refers to the analysis of usage
and the implementation of affirmative action to eliminate waste, such as;
challenging hiring behaviours; converting workers from temporary to permanent
status where pertinent to do so; exiting workers that have become part of the
furniture; reviewing controls, and changing these controls where required.
In order to implement both approaches, you will need:
1. A robust system through which contingent staff
can be ordered, time-sheeted and invoiced, with flexible approval mechanisms,
order allocation controls, tenure controls and detailed management information
capability. The system will also need to replicate your organizational
structure so that the appropriate permissions and reporting are put into place.
2. Access to an expert resource that fully
understands the contingent recruitment market, can interpret management
information and who can use their expertise to advise on opportunities to
3. A managed supply chain, where the agency’s inherent
interest in actively stimulating demand is firmly shackled and under control.
4. An internal contract manager who is prepared to
challenge line manager behaviour and implement change where a business case
5. A firm, senior level mandate.
Working with our customers, we have helped them to realise
up to 75% in savings on their total spend on temporary workers, and
importantly, helped them to maintain their expenditure at this level without
compromising the quality of worker provided.
For example, one of our local authority customers spent
£12,500,000 in 2012/2013, and through the implementation of a number of the
measures discussed above had reduced annualised expenditure to £3,500,000 by
2014/2015, a level which is still maintained in 2017.
More recently we have helped another customer to reduce
their annual spend from peak levels of £18m to a steady £5.8 over an 18 month
transition period. We have been repeated this pattern across a number of
customers - £43m per annum to £19m, £34m to £18m, £7m to £3m and so on, albeit
with different metrics applied and over varying time periods.
The overall opportunity within your organisation depend on
your own circumstances and the tools available to you to combat demand
effectively; either way, it is likely that if you spend in excess of a million
on agency staff there will be money to be saved.