Expectations for Staffing Firms
Staff augmentation companies are a great place for buying commodity skills, such as testers. Their turnaround time for finding resources is quick and their rates are very aggressive. For specialized skills, they can provide board search capabilities and find resources that are otherwise difficult to locate. Specialized skills take longer and require that the desired person's attributes be well defined.
Headhunter or Direct, a Cost Issue
Using headhunters will add between twenty-five and fifty percent to the cost of the resource. Good placement firms you can trust will provide value in screening potential resources. However, multiple vendors should be used in order to have a complete inventory of qualified candidates. Do not let a single poor list of potential candidates disqualify a vendor, sometimes their inventories are biased to a specific set of skills.
For many high-end resources with specific skill requirements, such as program and project managers, the cost of using a placement company is prohibitive. Additionally, the type of resource needed, are usually part of consulting companies that do not use placement firms.
General economic conditions drastically affect rates. In slow times, headhunter fees will decrease since fewer people are being hired. Many companies stop using them because they want to save the staffing fees, this makes the placement firms even more competitive. The reciprocal is also true. In good times, companies have money to spent and rely on placement firms; rates go up. As resources become scarce, companies cannot find the correct resource themselves and turn to headhunters even more. Rates go up further. This is simple supply and demand.
Assignment and Level of Protection
The assignment for the resource should be clearly defined. Many contract positions drag on over multiple assignments and the resource starts to qualify as an employee. Insure new statements of work are created for each assignment. In the US, the length of the engagement raises concerns for the company's liability with the Internal Revenue Service (IRS), the primary funding source for the US government. After too long a tenure, the IRS will rule a contractor an employee. For this reason, many companies have an eleven- to fifteen-month automatic termination clause in contracts. Make certain either the placement firm or the consultant a) provides government forms (a W9 in the US) to show that they are properly registered to pay taxes; b) is responsible for all taxes; c) has proper liability insurance.
When to Convert a Contractor to an Employee
All contracts should clearly define the intentions, requirements, and obligations to convert a contractor to an employee. If the intent of the placement is to determine if the contractor is an appropriate fit to be an employee, the contract should indicate that. Many contractors prefer being contractors; they have no intention of becoming anyone's employee. If the resource does not want to be considered to be hired, that should be identified at the beginning of the engagement. As mentioned in other articles, setting expectation is critical.
Hiring temporary labor from a placement company almost always incurs a finder's fee based annual salary. The contract should have both the requirements, such as when to notify of intent or non-intent to hire, and the obligations, how much the hiring fee will be. These should be boilerplate statements in all contracts. Always leave the options open to hiring a contractor.
As opposed to common belief, not all contractors are hourly. The same options are available for paying resources as there are for projects—time and materials, fixed price, fixed price incentive, cost plus, etc. These should be used to match the type of work required. The most common is to have people working on an hourly basis. However, nothing says that programmers could not be paid a low hourly rate, with an incentive for early release of a tested product. This will incentivize them to test properly, refrain from adding non-essential features, and meet the schedule. Project manager rates could be fixed price with incentives for on-time completion. Recovery managers could be paid for how much money they return from a project recovery. The correct payment options can drastically change the project's performance.
All contacts need a clause for termination without cause. Temporary resources need to be a good fit. If for any reason they do not work out, replace them quickly. There should be a two-week notice condition—they should be treated honorably. If, on the rare case, there is a reason for termination (i.e. the contractor breaks the law or company policies) immediate termination without any financial obligations is appropriate.
What Are Your Experiences?
What have you experienced? If you are a contractor, or have hired contractors, tell us what you have found:
- Have you had a horrible experience?
- Do you have a trick to ensure you get the right people?
- How do you know when to turn down an engagement?
Note: This is the first in a series of articles on outsourcing that will appear over the summer of 2010. If you are interested in an in-depth study of the subject, Todd will be teaching a class at various universities and colleges. For more information check out the course description and find a college or university near you.