When deadlines are tight and production facilities need workers, managers do whatever they can to get by. It may seem like temporary workers are the solution, but for too long, manufacturers have been relying on temporary workers for entry-level positions that are actually permanent. The costs are significant, and it’s not just money manufacturers are losing by hiring temps for permanent jobs. Companies also lose the potential of their future workforce and dilute their culture.
A short term solution to a long term problem
When labor is an issue, companies have to compete for good talent. But because of the decade-long manufacturing labor shortage, it’s hard to believe that there is talent out there worth committing to. With so much competition, the bar is low. When I talk with plant managers, they often tell me that the only qualifications for new hires are that they show up on time and pass a drug test. (Some manufacturers are even becoming more lenient about drug testing.) With so few qualifications, facilities now rely heavily on agencies to outsource talent acquisition and end up with temporary workers.
To plant managers, a high turnover rate often feels like an unavoidable headache. But the pain is less like a headache and more like a chronic illness. Companies may hire temporary workers because they have little choice. They may even believe that they are saving money by not offering benefits or having to worry about HR admin. However, an over-reliance on temps for permanent positions can create more problems:
1. You spend more in the long run.
If it takes three or four temps to find an employee well-suited to the permanent position, you’ve wasted money, time, and bandwidth on all the temps that don’t convert to perm. Sure, working with a temp agency means that you don’t have to hassle with on-boarding to payroll or terminating contracts, but managing the agency and getting new temps up to speed on production processes also takes a lot of time.
But you make it all up by avoiding benefits, right? Well...The Bureau of Labor Statistics (which has my favorite website) tracks the cost of benefits, so it’s possible to calculate what companies save by hiring a temp and not providing benefits. For non-government workers, average benefits are 31% of the worker’s total compensation. If an employee is makes $15/hr (~$31,000 per year), on average an employer would pay about $45,000/yr total. That equates to $14,000 in benefits per year, or about $1,170 per month.
Temp agencies charge a percentage, often 25%-50% of wages, on top of the worker’s hourly rate, plus a hefty fee for converting temp to perm. Companies often cycle through temps every couple of months for a year before finding someone they can hire permanently. By that time, they have essentially been paying high temp fees for 9-12 months for people that they don’t end up hiring. If benefits cost 31% and your temp fee is 25%, with no fee to convert to perm, then it could save you 6%, but only if the hassle of working with the staffing firm is zero. Additionally, most companies have to have a dedicated HR Manager to handle the relationship with the staffing firm. The perceived cost savings of hiring temps are marginal, at best, but that’s not even the worst of it.
2. You miss out on the right talent.
When manufacturers fill entry-level roles with workers who want temp jobs, they’re missing the opportunity to hire people who want to go “all-in” on their employer. Manufacturers need to invest in their entry-level workers as their existing manufacturing workforce retires, but when you start with a temporary mindset, it’s a much harder to attract stable talent.
It’s a lot easier to get someone to invest their time in your company if you commit to them. By hiring temps, companies are bringing in workers that don’t necessarily want to commit long-term to their employer. It’s not surprising that entry-level roles would have high turnover, but it’s not because there’s a lack of people who want full-time, permanent jobs. Right now there are 1.8M women over the age of 20 who are involuntarily working part-time, and more than 55% of contingent workers would prefer a permanent role. The candidates I talk to want stable jobs with growth potential and only look to temporary jobs as a last resort.
3. You dilute your culture.
When employees are engaged and really feel like part of a team, the whole company can feel it. When wages are competitive and everyone is trying to find and keep good employees, culture is one of the only ways to stand out. However, culture requires that people at the company participate in shared values, relationships, and the things that make your company special.
Temporary workers have a hard time investing in relationships at companies and becoming part of the culture because they constantly get moved from place to place. It’s hard for the team to gel when some team members are temporary and everyone knows they will be leaving soon. Sadly, a recent temp worker told my team: “I like building working relationships with my coworkers, but just when I start to get to know them, my contract is up.”
What’s the solution?
Take the time to make direct hires for permanent roles. When roles are truly temporary, temporary workers are absolutely the right solution. But when the roles are permanent, what you save on benefits pales in comparison to the longer-term value you’re sacrificing. There are pools of talent out there that want permanent roles at a company where they can build their career. Manufacturing is a fantastic path for people who want to grow and, at the end of the day, feel the satisfaction of having built something. If you look for that permanent talent in temporary places, you’re already at a disadvantage.