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8 tips to Manage Your Temporary Labour Spend

26 January 2022

Expenditure on temporary workers can soon add up and increase the costs of running a business. It is also an area in which cutting costs can significantly affect cost efficiencies and reduce unnecessary spend.

If you would like to dig deeper and identify where savings can be made, it is vital to understand how total spend on temporary workers is broken down across the whole of your business. There are many different aspects of a temporary employee’s total ‘charge’ rate such as; pay to the worker, National Insurance, any taxes as well as agency fees. 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 more than you should. You also run the risk of not being legally compliant if you haven’t done proper due diligence checks to ensure that temporary workers are legally allowed to work in the United Kingdom.

To understand exactly how you can manage your temporary labour spend, we look at 8 key points which will help you:

1.  Ask your suppliers to clarify all aspects in relation 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 all your suppliers on their approach to charging you employee and employer NI, and WTR. This 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.

2.  Make sure you know and understand how supplier margins are 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 employee worked overtime or shifts? Does the margin stay the same or is it applied to the increased pay rate?

3.  Review and standardise margins as far as possible

Whether you use a single recruitment agency or a multiple of suppliers, 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 fixing them to standardised margins will deliver some ‘quick-win’ savings which can be as high as 16%.

4.  Review and understand pay rates to workers

An important part of the charge rate that agencies make is the pay rate to the workers. To understand this, ensure that you have full disclosure with your agencies on what the worker is being paid. This will allow you to make sure temporary workers are hired at the appropriate market rate.

Having the right pay rates in place is even more important in the current candidate short marketplace. If you make savings on agency margins (as per point 3 above), you could consider increasing pay rates to the workers without it costing you anything more.

5.  Put authorisation processes in place for charge rate increases

There may be some instances where an increase in the charge rate is required, possibly because there is low candidate interest. 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. Benchmarking the marketplace would help to ensure that this is in line with your competitors.

6.   Consider temp-to-perm

Where temps are working for long periods it may be more cost-effective to employ them permanently. Consider the full costs of taking on permanent staff, including employee benefits, office space and equipment.

7.  Consider a neutral vendor managed service provider

A neutral vendor managed service provider (MSP) can help manage multiple agency relationships and negotiate with agencies to ensure costs are competitive and leverage your spend with theirs – thereby removing the need for you to regularly review agency mark-ups.

Furthermore, a MSP can also advise on opportunities, such as tenure reductions on margins and payrolling workers to make further cost savings.

8.  Put together a robust preferred supplier list

Putting together a list of preferred suppliers is the first step to give you control over your spend. Doing so is not always easy and there are many steps that you need to take to ensure that the list is fit for purpose and can also stand the test of time. We have another blog here that will give you all the pointers that you need.

Get in touch! We can help.

Datum RPO can help you to manage your agency providers, ensuring that the workers they provide are legally compliant, as well as deliver significant cost savings.


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