Developing a sound business case for using an external recruiting agency

Benefits of using Agency

Developing a business case for external third-party recruitment- when to use a recruiting agency

Are you struggling to fill your job vacancies and the talent is just nowhere to be found?  You are not alone. According to a SHRM research report, 83 percent of HR professionals reported having difficulty recruiting suitable job candidates in the past 12 months. Every business needs to concern itself with recruiting—whether to fill a vacancy, staff a new position or plan for succession of management. Therefore, companies are often partnering with Agencies to find the top talent.

Economic conditions, site expansions, mergers, and competitive activity all affect hiring decisions. In developing a business case for recruitment, an employer must consider the primary purpose of the position, the financial and operational reasons for creating or refilling a vacant position, and whether the duties of the job could be absorbed within the existing staff. If a position is not created or refilled, the employer may experience financial losses as a result.  Hiring managers must be prepared to communicate this impact.

Interview Mistake to avoid
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Organizations must give careful consideration to whether they recruit internally or externally. Many employers prefer to conduct internal recruitment efforts first and turn to external recruitment only if internal efforts are unsuccessful. A recruiting agency can provide a fresh perspective of recruiting sources to find you new talent for your positions. However, Managers typically want to see a strong business case for using a recruiting agency to justify the cost.

You may be wondering “what is the cost of using a recruiting agency?” This answer heavily depends on the employment situation. If you are hiring a temporary worker the cost is built into the hourly bill rate (paid by the company not the worker). If you are hiring a salaried employee, the agency typically gets a fee based on the first year’s salary. These fees are contingent on the hiring, so if you only pay them if their candidate is selected.

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Before the recruitment process begins, employers should first conduct a job analysis to determine the elements of the job and then develop a job description that defines the job responsibilities and skillsets needed to perform it. We suggest breaking down the requirements into 2 categories- needs and wants.

To best meet their hiring needs, effective HR professionals and Hiring managers seek out additional sources that can help them recruit candidates. Recruiting firms and staffing agencies make great partners to help fill those difficult positions in a timely manner. “Third-party recruiters”, “Recruitment agencies” or “headhunters,” have traditionally been used for filling hard-to-recruit positions, particularly upper management, technical and professional positions. They can go where you can’t go to reach talent. They are able to reach passive job seekers that are not posting resumes and applying on job boards.

Temporary firms/Staffing firms can help with contract or “temp to hire” hiring.  Some firms use the temporary role as a pipeline into regular employment, using the temporary employment process almost as a “trial/probationary” period. This method is often successful with entry-level roles. They are employed by the staffing agency so they are covered on workers’ compensation, and all drug tests, background checks, etc are covered by the agency.  However, this method limits the search to people that are unemployed as most people will not leave their employer for a temporary position.

Now hiring
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Most Recruiting agencies do both direct hire recruiting and staffing. Pay particular attention to their area of recruiting expertise. If they recruit for Medical, they typically are not the ones to call about your IT hiring needs.

Creating the business case for using a recruiting agency needs to include the market trends, cost per hire, compensation analysis on the role for your area, time constraints and cost of the vacancy on the business operations.

The cost-per-hire (CPH) metric measures the costs associated with sourcing, recruiting and staffing open positions in an organization. External costs are commonly defined as expenses paid to external vendors or individuals during recruiting; while internal costs are expenses related to the internal staff, capital and organizational costs of the recruitment/staffing function. Examples of these costs include:

External Costs

  • Advertising and marketing expenses
  • Background checks and eligibility to work expenses
  • Campus recruiting expenses
  • Contingency Recruiting fees/ Staffing fees
  • Drug-testing expenses
  • Employee referral awards/ payments
  • Immigration expenses
  • Job fair/recruiting event expenses
  • Pre-screening fees
  • Relocation fees
  • Sign-on bonuses
  • Sourcing costs
  • Travel and expenses, candidate
  • Technology costs

Internal Costs

  • Cost of recruiting staff
  • Cost of sourcing staff
  • Internal overhead for government compliance
  • Non-labor office costs
  • Recruiting learning and development
  • Secondary management cost of time for events
  • Secondary management cost of time for recruiting
Piggy Bank
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Partnerships with free recruiting sources are also beneficial, such as government and community-based programs and services, education counselors, teachers or connecting with companies that are downsizing or are relocating. By contacting a company’s human resource department, the organization can tap into needed talent. Some businesses directly contact outplacement firms (companies that help displaced employees find work) for qualified professional and technical candidates.

SHRM’s 2020 push is connecting with the historically underused talent in our market. Employers are becoming more open to considering previously overlooked talent such as persons with criminal histories, veterans, individuals without college degrees, older workers, etc. Expanding the talent pool in this manner is becoming a necessity in the competitive labor market.

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