Six ways to manage temporary labour spend

24 September 2013
All businesses, whether private or public, face the challenge of making scarce resources go further. As the economic climate improves, temporary recruitment appears to be bouncing back stronger than permanent roles, so making budgets stretch further is critical for procurement professionals. Temporary staff recruitment is one area that can make a significant contribution to improving cost efficiencies. To identify where savings can be made, it is vital to understand how total spend on temporary workers is broken down across your business. Most large employers have some high-level knowledge of their total spend on temporary workers. But very few have easy access to a more granular view of how total spend is broken down across their business, making it much more difficult to understand how and where value for money can be achieved. There are several different components of a temporary worker’s total ‘charge’ rate such as pay to the worker, statutory costs like Employers’ National Insurance and the agency fee itself. These can vary wildly and be subject to interpretation, or moreover opportunism - even where rates are formally agreed with recruitment agencies. If you have no visibility of each element and don’t fully understand how and why each element is applied, you may well be paying over the odds. So how do you get to the detail that uncovers exactly what you are spending on your temporary workers? Here are six key areas: 1.    Review and standardise margins as far as possible Whether you have a single recruitment agency or a whole supply chain, you should aim for a standard margin for each job category. This approach simplifies procurement and reduces overspend on supplier fees. Communicating with your suppliers and re-procuring them to standardised margins will deliver some ‘quick-win’ savings. 2.    Ensure you know how supplier margins are calculated It sounds simple, but some businesses still don’t understand how supplier margins is calculated. Making sure you know this can deliver ‘quick win’ savings. It is important you seek absolute transparency from suppliers about their pricing approach. For certain roles, don’t forget to also ask about any potential uplifts in margin. For example, what would happen to the supplier margin if a temporary worker undertook overtime or shift work? Does the margin stay the same or is it applied to the increased pay rate? 3.    Seek clarity from suppliers on their approach to pricing Working Time Regulations (WTR), National Insurance (NI) and other costs These charges are highly complex to administer because they are based on hours used as well as earnings thresholds. It is a complex area for recruitment suppliers to manage and each will have their own approach. It is important to seek clarity from suppliers on their approach to charging you employee and employer NI, and WTR, which includes the contribution towards income tax, holiday entitlement and sick pay. It is also important to understand from each recruitment supplier their pricing approach for pensions auto-enrolment. 4.    Review both your temporary worker and permanent worker pay rates simultaneously Aligning temporary worker and permanent worker pay rate reviews is even more important now to remain compliant with Agency Worker Regulations (AWR). AWR aims to ensure temporary workers are given a comparable pay rate to permanent workers undertaking the same or similar role. 5.    Put authorisation processes in place for pay rate increases There may be some instances where an increase in the pay rate is required, possibly because there is low candidate interest in your area. In this case, maximising value for money will be achieved through a robust and well communicated approval process so that appropriate authorisation is received before any recruitment activity takes place. 6.    Standardise temporary worker expenses Worker expenses can often be hidden and have the potential to cause dramatic increases on total cost. Therefore, it is recommended to agree and implement a standardised expenses policy and enforce this with your recruitment suppliers to ensure expenses are only paid to the agreed rates and items. ☛ Jamie Horton is managing director at Comensura ☛ For more information on how to manage temporary worker costs download the Comensura’s practical guide
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