The use of temporary workers is on the rise in the United States. Manufacturers and other companies are using temps to help contain expenses and supplement the workforce, creating a boom in the staffing industry. A recent WSJ article points out that temp jobs represent a large portion (over 25%) of all job gains in March 2014. One of the reasons is the increased flexibility that temps provide.
In the short run, labor is a fixed cost. Companies that lay off permanent workers for short periods of time in response to demand variability risk losing those workers and getting a reputation as a bad place to work. Using overtime and temps creates a variable cost, which allows companies to better balance their labor costs with market place demand. Using temps as one means of managing costs and output allows companies to increase service levels and profitability.
Many companies won’t use temps due to a fear of decreased quality and productivity. However, when you work in partnership with the temp agencies to prescreen and pre-train workers on basic skills such as teamwork, Lean, quality and basic technical skills, the workers can enter the workplace at a level of competence that equals that of lower level permanent workers. Using internal mentors can bring them up to speed even faster.
Don’t overlook temps as an effective supplement to your workforce. Contact me find out how you can develop a strategy to use this key resource without compromising quality.
Some companies are wary of expanding their workforce as they grow. Companies can deal with potential growth by developing a strong supplemental workforce made up of temps. By developing a strong partnership with one or two temp agencies, temps who are pre-screened and pre-trained can be brought in with minimal disruption to quality and productivity. If the growth stabilizes at new levels of revenue, the temps can then be hired as already-trained workers.
Planning for Growth
Having a strong process for S&OP can help managers develop strategies to address company growth. Having a plan for the future allows for using temporary workers and overtime to supplement existing labor resources in order to build and ship products in a growth environment. If operations can gain insights to the variation of demand in the near and mid-term, they can help improve productivity and reduce overall labor costs while meeting rising demand.
Many companies use temporary workers either as a supplement to the regular labor force to help cover seasonality or spikes in demand, or as a way to “test drive” people for potential future employment. The problem is that those companies often treat their temps like second-class citizens. They don’t include the temps in team meetings or celebrations of attaining and exceeding business goals, or holiday parties, etc. The temps can feel that they aren’t part of the team and often their work ethic reflects that.
Companies should treat everyone on the team as a member of the team regardless of their employee status. It is important that all members are pulling together to attain the team’s vision and goals to the greatest possible extent. There shouldn’t be any second-class citizens on a team. Invite temps to team-related events and celebrations. Bonus programs and possibly special employee events such as holiday parties might be the only exceptions.
If companies expect maximum contribution from all team members, their employment status shouldn’t be part of the equation.
Many companies today use temporary workers to supplement their workforce. This can be a very effective way to flex both up and down as customer demand changes. I currently have clients who use temps to make up from 5% to 50% of their workforce. However, many of these same clients do not recognize their temporary workers as a key part of their teams. They often don’t include them in company and team meetings, they don’t measure their performance and they won’t allow them to hold positions such as team leader.
Equal Expectations, Equal Treatment
If you use temps, which you should, you need to consider them as equals to company employees in all situations except possibly exposing them to key financial information. You rely on temps to produce quality workmanship with productivity equal to your regular employees. How can they do that when they don’t attend team meetings or are treated as second-class citizens?
I have one client that was beginning a vital change management process but wouldn’t allow temps to attend team meetings or hold leadership positions even though they had been on board for many months (some for more than a year, which is another issue) and in some cases, held roles equivalent to managers.
Investing in Temps
If you expect your temporary workers to produce results equal to your regular employees, treat them the same. Allow them to hold team leadership positions when qualified and to participate in team and company meetings so they stay informed. This will keep them excited about their potential with your company and may make their eventual hiring much easier. You never know where a vital employee will come from.
If you talk to your local cost accountant, they will tell you that labor costs (along with materials and supplies) are recorded as variable costs. In reality, they should be treated as fixed costs. Why is that? Because, in the short run, it is not easy to turn this asset into costs that can vary with revenue which is the definition of a variable cost. It is very difficult to lay off people in a low revenue month and then rehire them in a high revenue month. If you try to do that, hiring costs, training costs and cost of quality all increase usually to the degree that they more than offset keeping the people through the downturn.
Many companies will try to furlough people or send them home early in an attempt to turn this fixed cost into a variable cost. While this works in the short run, people will get tired of the lower income and unpredictable work schedule and eventually will look for a new job. This again raises the cost of hiring, training, etc.
The only true variable labor cost is the use of temps and overtime. If your company is in a volatile market, it is best to plan for a level of temps and overtime to create a variable environment.