We are the piece of any corporate HR function that can show our business hard and fast data around spending and savings. We can show you, Mr. Hiring Manager, how much you spent last year per hire, how quickly we filled your need, the quality of those candidates, and exactly where we found them, plus about 37 other data points. Wow. We’re good. Recruiters, not usually a shy bunch, will market our successes to you relentlessly. We run staffing like a business and we like to make sure you get that.

So, how is it that we measure every molecule of a full-time hire, and continue to drive down cost per hire, but know little about the “other” side of staffing. I present to you contractors. Shady sort. And a little scary, if you remember the Microsoft fiasco a few years ago. Co-employment is not your friend. This uneasy feeling may have something to do with our lack of touch on them, or their price tag. But, you can’t really run a business without them.

It used to be that once a contractor requisition was approved, it was automatically distributed to our vendors. We chose these vendors based on information they provided that they (a) could provide us the best rates while (b) guaranteeing excellent quality ( c) from their “unique” databases where they’d have access to people no one else could find. Cool. Except that we spent $7M last year on contractors. Not cool.

Markups (% over pay rate) on contract labor are insane. Particularly in the IT market, we saw our markups sometimes upward of 110%. We began to ask questions of our contractors, like how they decided which agency to sign up with, how much they were paid, and how their interview process went. Even whether they had actually submitted references and background checks. Imagine my surprise!

What I learned is that unique databases are like snipe hunting. The cool kids know they don’t really exist, but they get a kick out of telling people they do. I, apparently, was not one of the cool kids. With a few exceptions, contractors sign up with a variety of agencies. Some contractors never even meet their agency recruiters. They are often submitted without even knowing it. They are not paid nearly as high as you might think, based on the exorbitant cost for their service. Also, for you non~agency folks like me, there is something called a “time stamp.”. When one of my vendors and I found the same candidate for a high end project-management role, he actually challenged whether I had found her “first” and asked for an email with a time stamp on it. Seriously.

Also, contractors are not like normal people. They’re contractors because they want to be contractors. They make more money than us corporate types, and they don’t like the strings attached. They are here to build their resume. Most of them aren’t really interested in full-time roles. They speak differently; they like to be kept “warm.” They need to know you care. The candidate development portion of this process is far moret hands on than it is with full-timers.

With no real guidelines, or benchmark data to use, we at Emdeon did research and used our best HR judgments. I like to stay on the good side of the OFCCP and the EEO, so we took great pains to do this correctly. We hired a payrolling firm. Payrolling firms are the contractor’s W-2 employer and cover all associated taxes.

Then, we began to source candidates, just as we would with a full-time opening.

We provided the candidates with their payrolling firm’s application, via email. Interviews are conducted by our managers. Offers are extended by the payrolling firm. The payrolling firm manages their onboarding and all communications with the contractor. The savings is recognized quickly. Payrolling services are 17% as opposed to the aforementioned 110%.

Track the savings by each open position. The savings are calculated by what the cost per hour would have been if a vendor provided the candidate.

A real example:

Java Programmer for a 200-hour project.

Agency cost 95$ per hour = $19,000.00

Vs

Insourcing Costs $52 per hour = 10,400.00

So, a savings of $8,600.00 is quickly found.

As you can see, if you multiply this by 50 contractors, this is a very effective cost-saving strategy. Using this model, in three months’ time, we saved our business $170,000. We got a lot of attention for that. An actual example (not the complete savings) of some of what we saved is shown in the graph (click to enlarge).

We did find some potholes along the way. To find ethically sound solutions, we worked with our vendors on these.

Q. How do we build a pipeline?
A. You don’t need one. They don’t stay available long enough.

Q. How long does a contractor need to be gone from our company, before we approach him to come back, thereby going “around” the agency?
A. One year.

Q. Can we recruit contractors working at other companies, for our vendors?
A. Yes. If they are on line, they are fair game.

Q. Can we ask our contractors for referrals?
A. Yes. That’s how it works.

In an environment that constantly demands improvements and savings, this is a model that can help you achieve your goals this year.

Contributing Author: Anne Wallbrech

• What is your contractor spend?
• How many contractors do you have on site? How many do you have at your other locations, out of state? What agencies are they from?
• Is third-party vendor management really cost effective?
• How long has it been since your contracts were renegotiated?
• Who backend monitors billing to ensure it matches your contractual agreement?
• Are local folks or nationwide larger companies the way to go?
• Are your managers familiar with the 20 factor IRS test for determining the definition of an employee? Who owns the processes?

Just to get everyone on the same page, here’s how the dance goes. Call your purchasing and finance peers. The secrets are coming out the closet. If finance or purchasing negotiated your contracts, there’s a problem. They are not recruiters. These are widget folks. 1 + 1 = 2, always. But when 1 and 1 are people, whose quality matters as much as cost, then 1 and 1 don’t always add up to 2. And here’s a newsflash: Those sleek, good-looking sales folks, who bought you the expensive dinners and vodka tonics, are SALESPEOPLE. They have no control over the quality of your contractor. The placement is made baby, you’re last week’s news. Load the coffee cups into the trunk, we’re moving on! And you know what else? This is a small town. We all have the same people in our databases. No one has immediate access to hundreds of CPAs or C programmers. Online networks are filled with people who logged on once, never to return again. The “nationwide company” spiel is old, useless, and very 1982. This means they’re locked in to using their branch in another state near your other facility, regardless of their presence or reputation in that town. Any good recruiter has contacts in other states, and if they don’t, they can get them quickly if their hands aren’t tied by their “company policies.” So how do you go about getting a handle on this situation? Call your high usage staffing firms immediately. This is going to be an interview. And yes, of course, it’s behavioral. Don’t worry about being nice. Don’t be swayed by the expensive dinners or the good-looking sales folks. Don’t be dazzled that they flew in their regional guy or that they just brought you tickets for the next Steelers game. Around the table sits all the decision-makers. Finance has their questions, purchasing has their own. Here are few of yours, for starters:

• How many contractors do you have working in this town right now?
• What is your turnover rate?
• How do you retain top talent, in terms of your contractors?
• How do you recruit minority talent?
• How do you measure quality of hire?
• How do you recruit your contractors?
• How have you handled contractors who demand pay increases?
• Do you provide insurance for your contractors?
• How do you recruit people who work as recruiters in your offices?
• Explain your organizational structure to us. Explain how your internal employees are compensated.
• Why would a contractor work for you rather than your competition?
• Who is your competition? What can you do better, as a company?
• What is your business strategy for next year?
• What is your placement rate with your sister offices in other towns?
• If your firm is selected, who will own the quality of hire for the entire company? (Insist on one person.)
• Give an example of handling a serious ER issue
• Have you ever said no to business? Why or why not?
• Tell us about the best example of partnering with a client that you have.
• Tell us about a time you dropped the ball.
• What is the background of your recruiters?

This is referred to as “thinning the herd.” Sweat rolls. The clearly sharp regional guy has no idea how his firm runs the business locally. Red power ties are loosened around necks as the questions drag on. (Who let her in here, anyway? Should’ve brought her a coffee cup…) As the recruiter at the table, it’s your job to point out that the quality and the cost of the contractor are equally important. All contractors, like all widgets, are not created equally. You’re bringing contractors into your business to help meet a deadline, beat a backlog, or for a variety of other reasons. Which of these firms really recruits the best contractors, and moreover, who is the best at convincing quality contractors to work for my company? How do I figure this out? I found myself asking these very questions. Then it hits me. Ask the contractors. Ask your line mangers for the names of their top-performing contractors. Schedule meetings with them, immediately. Ask them, they work for their specific firms. What is the word on the street about their competition? Who pays better? Is there any firm you would not work for? Would you leave your employer to go to another firm? The herd becomes even thinner. One of our most valued contractors educated me this way. Ah, the mind of a contractor! “It’s like this, Beth; I have a marketable skill and the firms are my mouthpiece. The way I see it, they sell me. I’ll work for the firm that can get me the best assignments in the best companies and that can increase my skill level, and thus my marketability.” Well said. Why didn’t I think of that? What I’ve learned: Staffing firms can be your friend. They can help your company achieve goals and deadlines, and improve quality of life for your workforce by lightening the workload. Find the right partners and the dance works. Cost isn’t everything. Expect that last part to be a tough sell to your finance and purchasing brethren. Quality is, at the end of the day, the most valuable metric. Pay for quality, both of contractors and their mouthpieces. Sending out a “bid” for a job cheapens the dance. I don’t want the cheapest computer, and I certainly don’t want the cheapest contractor. Purchasing and finance work under the impression that bidding on jobs produces competition, which must be good, right? Right, but a good recruiter competes with themselves. Don’t expect that your partners in finance or purchasing know that walking-on-the-edge rush of placing the perfect candidate. Local firms get the rush because they’re recruiters. They own the business. They have skin in the quality game, just as you do. If they sell you a bad contractor, they know you won’t use them again. And they don’t have a corporation that will send them a pay check, regardless. Don’t undervalue that motivation. Plus, they don’t bring coffee cups! I don’t know about you, but I have plenty.

1. Screen-Interview ratio. This metric is used by 40% of the companies who measure volume. This ratio improves with time. It should become clear very quickly after a few initial phone conversations whom you want to speak with further and who wants to work for your company just a little too much. Measure how many you like on the phone against the number you actually invite to interview. Eventually, (in high volume, about two days!) you’ll be able to determine skill fit by past behaviors.
2. Interview-Hire ratio. This volume metric is used by 78% of the companies who measure volume. Also a ratio that reduces with time, you should be able to attach a dollar figure to your managers “time off task” when they interview. If 90% of your candidates are hired, that can illustrate a substantial cost savings to your company (Cha-ching!).
3. Offer-Start ratio. This metric is used by all (100%) of the companies who measure volume. You can’t predict the spouse or the teenager who just CAN’T leave, after all, but you can control the rejection of the offer. If we’ve realistically set expectations, and been clear through the entire process, there should be no surprises on start day. Don’t sell the job! Measure this by comparing the declines last year to declines this year, assuming the candidate flavor is the same. Less time off task for hiring managers, and more time on task for you, conducting other candidate searches equals a clear financial gain for your company.

Time Eighty-five percent of respondents measured their recruiters with a form of time-related metrics. Two of these metrics stood out. The first, time-interview, is used by 15% of companies who measure time. Apparently, the speed we can herd the cattle when a hiring manager opens the gate is a measurable, and critical skill. (Does anyone hear a dog barking? Is that you, Spike?) Time-start, used by 100% of the those who track time. How quickly can you fill a job? Used extensively in high volume, or start-up situations, it’s not a metric that should be solely maintained in a functional work environment. This mind-set flies in the face of workforce planning and strategic development. If your company evaluates heavily with this metric, do two things: 1) Rely on referral programs. Managed well, they make recruiters look REALLY good. 2) Send me your resume. Cost Cost is measured, to some degree, by 100% of respondents. Some of us continue to repeat the mantra of CPH: “I hired them cheap and fast!” While few of us still use this metric alone (8%) as a measure of recruiter performance, most of us (92%) are partially evaluated on it. A few enlightened companies (12%) use it only as budgetary. Two companies measure all costs incurred against the compensation recruited. That formula takes into consideration common sense; it’s much tougher to find a $200K Sales VP than a sales rep, so it takes longer. Divide the compensation recruited by the number of jobs filled. Quality of Hire I very nearly got tarred and feathered over this one! Twenty-five percent of us look at this, to some degree. Few of us (6%) currently are held financially or professionally responsible for the quality (performance and attrition) of our hires. But one corporation actually bases their recruiters’ bonuses on the quality and performance of their hires! After a year’s tenure, if at least 40% of a recruiter’s hires are still with the company, that recruiter receives a 2%-5% bonus for each! A well-known industry leader, someone considered by many (including this author) to be the “Grand Poo-Bah” of recruiting, said to me on this topic, “Sure, I’d love to come to work everyday knowing I didn’t have to justify my quality.” Good point. Warm Fuzzies Politics, plain and simple. But useful. This metric measures your power, and 49% of our peers use it. It’s purpose is to indicate the way our business partners “feel” about our performance. Surveys are sent out to hiring managers, and to hired candidates. Can anyone say HALO? Thinking About the Results It quickly became clear to me that, no matter where we lie on the continuum of “business partnership,” we are all struggling to identify procedures and measures that will take us to the next level. One trend emerged from the data I wasn’t expecting, but is nonetheless, logical. (I love it when that happens!) Smaller, more progressive companies integrate the responsibilities of their recruiters, and are more apt to evaluate recruiters on the performance of hires. When recruiters have input into the management style of their hires, conduct monthly meetings with them, etc., they are much more prone to own candidate quality. These companies steered away from the solo, punitive-based metrics, like CPH. Recruiters, here, are absolutely regarded as partners. Mr. Coffees. Automatic drip. On the other hand, larger, more “siloed” companies that restrict the job responsibilities of recruiters to simply “recruiting” were a bit cautious about assigning ownership of performance to recruiters (and frankly, their recruiters weren’t too happy about the idea, either). Here, solo metrics were more likely to be employed. The metrics here seemed to be more geared toward “catch the recruiter screwing up” than actually determining their recruiter’s value-add. Mocha Java? If we hired consultants to evaluate our internal metrics, the first thing they would suggest is that we use a wide variety of measures. Anyone who still measures one single metric as an indicator of recruiter performance might as well not only bring the coffee but take orders for lattes as well. In other words, all these metrics have validity, but only when used in conjunction with the other. But if one metric is misused as a determinant of our performance, it’s cost per hire. For some of us, this has become the bane of our existence. Because we attached ourselves to that metric in the 1980s, many of us still cling to it. (How did that happen, anyway? I have a vision of an HR director tied up to a folding chair in a basement, circa 1982, being forced to explain how recruiters contribute to the company. Sweat, duct tape, and chloroform are involved. That’s all I’m going to say.) CPH is useful, yes, but not a deal-breaker. Ask yourself this: what do we do when we corporate recruiters can’t find the right fit? That’s right, our dirty little secret exposed: we call headhunters! Don’t look at me that way, you KNOW you have. Beware that we continue to shirk responsibility for our hires. If that is the path we choose, then we must own that it costs us our credibility as professionals. That a quality recruiter controls CPH should be assumed. No one asks our finance director if she can balance her checkbook. No one asks our safety director if he is measuring his OSHA reportables for the month. I’m not suggesting we should spend with wild abandon, but our days of politically aligning ourselves to ensure we keep our jobs should well be over. I take MY coffee strong, with extra cream, no sugar, thank you. A special thank you to the companies who participated in this survey: