Contracts of employmentCustomer focusEmployee relations & engagementProductivityRecruitment & SelectionSertvice quality improvementStrategyTerms of employment

Employing a Cost Effective Mix of Temporary Workers/Staff *

Deciding by Fact or Fiction

Do you have the right mix of temporary workers to meet your seasonal or fluctuating needs? Have you experienced a pressing need for temporary workers but none with the right skills/knowledge are to hand immediately? Over 54% of employers rely upon agency workers (1) for more than 12 week periods and that figure is much higher for temporary workers as a whole. However, senior managers have not considered a cost effective mix to respond to their needs across the year. Instead, they call an agency who may or may not have suitable, available staff.

Managers frequently believe that hiring agency staff will avoid being locked into longer term employment costs, employment law costs and save time in finding staff. The new agency worker regulations will reduce the cost advantage of using agencies and the hidden costs will still be experienced. Now is the time to consider whether a mix of temporary work arrangements will produce a more cost effective and service focused solution for your needs

This article summarises the range of options open to an employer for addressing temporary work needs First though, consider the nature of your dependence on temporary help and the additional costs you are likely to have incurred because you have not thought out a strategy for the role of temporary workers.

Temporary Staff – Lifestyle or Necessity for Both Parties

Some organisations depend on seasonal workers and a majority of the same staff return year after year. Such staff have adapted their working life to this pattern either by choice or necessity. Other staff seek temporary work to fit in with their sporting or their caring responsibilities.  For many though temporary work is a necessity as individuals seek to earn a regular income until a permanent job arises.  Recognizing this range of motives helps in optimizing the mix of temporary workers.

Some managers see temporary workers just a resource tap to turn on and off at will. However, many employers find the need for temporary workers arises regularly. Those employers are incurring unnecessary costs and frustration by not reviewing a more cost effective mix of temporary work arrangements.

Examine the Nature of Your Needs

  • Do your peak periods occur several times during the year or only for a particular season?
  • How long does the need last – days. weeks or months?
  • Is additional help required every week or at least once a week or less?
  • Is your need more often than not for more hours or more people?
  • Are your needs limited to covering the occasional absence?
  • Can the level of knowledge and skills required be learned quickly without loss of service or efficiency?
  • What costs do you incur when taking on temporary workers, for example?
    • loss of productivity in the familiarisation period?
    • higher reworking time?
    • more picking errors?
    • increases in order taking errors?

Your answers to the above points will help to identify the true cost of not having staff available with appropriate skills. You will be in a better position to minimise the hidden costs and gaps in availability by implementing a cost effective mix of temporary work arrangements for your business context (2)

Choosing an Appropriate Mix

To help you choose a mix of arrangements, a brief summary is given of each type of arrangement. The range we shall consider is:

  • zero hours (true casual) workers
  • agency workers
  • temporary employees
  • fixed term or fixed task employees
  • variable hours employees
  • contractors/self employed

The approach should be to seek the right mix for your needs (2)

Zero Hours

This is useful for situations of as and when required in which you need to call upon extra staff at short notice for a day or few days at a time. The cost can be minimal as noted below.

Zero hours contracts are simple to arrange. The general terms are agreed in advance and then, as it were, placed on the shelf until the need arises. The employer is not obliged to provide work and the employee is not obliged to accept work when it is offered. At the end of each period of employment, the terms are placed back on the shelf until the employee is contacted again for another offer of work.

If this notion of offer and acceptance is followed for each parcel of work, continuous service will be broken by any weeks in which no work is performed. However, service will not be broken if there is an understanding that the individual will remain available for work at the end of the break in service period. Zero hours contract arrangements will not lead to long term employee costs if breaks occur naturally. The advantage is that a pool of staff can be built up who are familiar with your operation and can fill in at short notice with minimal loss of productivity. Such familiarity can be ensured by asking zero hours staff to work say once month to maintain their knowledge and skills in your setting.

You may be surprised by how many staff are attracted by zero hours contracts. These suit their lifestyles and they like the idea of not being committed to accept every offer of work Many will accept work each time it is offered but they attach much importance to the thought that they are not obliged to accept work each time it is offered.

Variable/Average Hours

If maintenance of a high level of skills or knowledge is required, this arrangement may be preferable to zero hours. The contract is struck on the basis that the individual works a set number of hours each week or a variable number of hours per month/year. A relatively low number of set or variable number is agreed to contain on going costs. However, the contract contains an express term that the individual will be required to work additional hours when required. Discussions will be required beforehand to establish the number of hours to which each individual is willing to flex up.

As the individual is contracted to be available each week, continuous service will build up. However, as the number of contracted hours is kept low, the costs for the future are contained. Bear in mind that notice pay or any compensation due to the individual will be based on the average earnings in the months before termination or the issue in dispute.

Such contracts are useful if the need for additional help arises regularly and you need skilled people to hand immediately.

Fixed Term or Task Contracts

As the name implies, these are designed where a genuine need arises for help with a specific task or for a specified period. The contract will end on the expiry date or the task being completed. Separate notice is not required as notice is given at the outset of the contract. It is wise to include a clause for early termination by either party so that the contract can be ended early in case of necessity.

These contracts are useful to cover seasonal work, absence on maternity leave or for particular pieces of work where the start and end date is known or it is obvious when the task has been completed. You must be clear about the reason for the contract being for a particular period or task. The reason should be transparent and for an objective business need. Long term liabilities will not arise if the contract will expire well before the individual acquires two years service – the redundancy qualifying period. Service will be broken, in mot cases, by a break in employment of one complete week measured from the following Sunday after the end of the contract. The non renewal of a fixed term contract is deemed to be a dismissal, in many instances, and the presumption in law is that the reason for termination is redundancy. That can be disproved if there are objective reasons as noted above. The non renewal of a contract because a woman is pregnant is unlawful.

A common issues is when managers are tempted to renew fixed term contracts for a different reason that the original one. That can lead to loss of objectivity making the termination more difficult to justify. Employing an individual for a succession of fixed term contracts will attract permanent employee status if the employee obtains 4 or more years service. It is possible to exceed the 4 year period in some circumstances.

Head Teachers should note that if a teacher is made redundant while employed under a fixed term contract, he.she will not be eligible for premature retirement due to redundancy under the rules of the Teachers’ Pension Scheme.

Temporary contracts

Temporary contracts are more open ended and so useful where the period for which help is required is not certain. Even so the employee should be given an estimate of the period and the reasons for the work being temporary.

One drawback is the resik that managers will forget to serve notice to bring the contract to an end. So it is important to diary a date for termination discussions and the giving of formal notice. Managers can overlook this need with the result that you could end up paying slightly more salary than you need to

The choice between temporary or fixed term boils down to the degree of certainity in the period required and how effective your organisation is at remembering to give notice to temporary employees.

Contractors/Self Employed Help

Such help is effective if the work requirement is for a specific skills or knowledge. Provided such individuals are working for other employers besides your organisation and are genuinely self employed, they are not catgorised as employees and you will not have any on going costs when the task is complete. The risk of on going costs will tranfer to you if the individual is really just working for you and in effect an employee under a different label.

A self employed individual could be engaged several times in a year to help with specific needs, if the above points are borne in mind.

Care needs to be taken with casual workers. If such an arrangement is simply a label to evade the employer and individual paying National Insurance etc, the HMRC is likely to determine that the individual should be treated as an employee. One of the tests of genuine self employment is that another individual may substitute for the self employed person. Such a term is not usually compatible with an employer/employee relationship. Other tests include the degree to which the individual is placing their own capital at risk; the individual is not dependent on one employer for income.

Agency Workers

From 1st October 2011, if an agency worker has been employed in the same role for 12 weeks’ or more, he/she will be entitled to parity on basic pay and other terms with your permanent staff. For some employers, that will not be an issue as their use of agency staff is to secure sufficient skills to meet demands rather than hire at cheaper hourly rates. If the latter is your key aim then your costs will increase when the 12 week threshold has been reached. This will be particularly so for employers who hire agency workers for the medium term, for example in warehouse picking operations, to service customer contracts which are due for renewal and therefore at risk in the months ahead.

However, the regulations are not as all embracing as was first feared. Niether temp to perm arrangements nor employees of the agency are covered. You would be wise to check your agreements with agencies to ensure who is the employer and any changes to clauses in your agreement as a result of the new regulations.

Parity after 12 weeks does not extend to an occupational pension, contractual sick pay, notice pay, one-off discretionary (non contractual) bonuses and many benefits in kind. There are some other exceptions. Apart from basic pay rates the employer’s on costs will not increase at the same rate as a permanent employee. For employers who require agency help for many months, agency workers may still be a viable and effective solution rather than play the break in service game with the consequent internal drop in service levels that may arise.

The game is where an employer plans to prevent an agency worker securing parity by ensuring there is a gap of 6 weeks or more before hiring the individual again for the same type of role. Such a break is not necessary if you hire the individual in a completely different type of role. Many periods when the temp is away, such as periods of leave or sickness or shut-down, will be excluded from teh 12 week qualifying period.

Summary

As noted earlier, your mix of temporary work arrangements should be reviewed in the light of the type of needs you have to address. A mix of the above types of temporary help may be more cost effective when you add in the less obvious costs of errors and lower performance during familiarisation periods. The costs of the latter will increase for many employers who simply plan around breaks in service. Ask yourself what is more valuable to your company/service:

  • temporary help that is readily available and familiar with your operations and customer focus?
  • temporary help that is readily available but will require training and a familiarisation period?

The summary above does not cover all the points of detail which you can find at, for example, the ACAS site – http://www.acas.org.uk/index.aspx?articleid=1873

There are other means of controlling costs as well especially market rates – see our earlier article on Market Rates and Cost Control – (link to be revised).

If you would like advice on taking a strategic view of your employment arrangements follow this link to read how we can make a difference in advising and supporting you .

A mix of the options above could save your managers hassle and be more cost effective

© 2011  HR Management Dimensions Ltd

Web site:  www.hr-management-dimensions.co.uk

Visit the site to learn about focused hr management solutions

References

(1) Chartered Institute of Personnel and Development news article – http://www.peoplemanagement.co.uk/pm/articles/2011/09/half-a-million-agency-jobs-threatened-by-new-eu-regulations.htm

(2) http://www.hr-management-dimensions.co.uk/Effective-HR-Management.php  (link to be revised)

Leave a Reply

Your email address will not be published. Required fields are marked *