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The Intricacies of Reducing Recruitment Agency Spend

19 April 2023

Managing temporary and contingent labour costs can be difficult, confusing and overwhelming. If you do not manage the entire process from start to finish, this can leave you lacking visibility of the hidden costs associated with this category of spend.

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Making budgets go further is crucial for procurement professionals because temporary recruitment seems to be rebounding stronger than permanent roles as the economy improves and as there is an increased need for flexibility. Some large businesses have a high level understanding of their total expenditure on temporary workers. However, it is much more challenging to understand how and where value for money can be achieved because very few people have easy access to a more detailed view of how total spend is distributed throughout their business. Hiring temporary workers comes with different expenses, such as their pay, statutory expenses like Employers' National Insurance, and the agency fee itself are just a few of the components that make up the total "charge" rate. 

Even when rates are formally agreed upon with recruitment agencies, they can vary greatly, be open to interpretation, and even be subject to opportunism. You may be overpaying if you are unaware of each element's application and do not fully comprehend how and why it is used. Here are a few very important areas to consider in order to uncover the specifics of your spending on temporary employees: 

1. Understand Recruitment Agency Charges-  Despite the fact that it appears simple, some businesses still do not understand how supplier margins are calculated. Knowing this information can result in "quick win" savings. You must insist on complete transparency from suppliers regarding their pricing strategy. Remember to ask about potential margin increases for specific roles. What would happen to the supplier margin, for example, if a temporary employee got paid double time or time and a half. Is the margin going to be applied to the higher rate or will it be fixed to a pounds and pence number?

2. Examine and standardise margins as much as you can- You should aim for a standard margin for each job category, whether you have a single recruitment agency or an entire supply chain. This method simplifies procurement while reducing overspending on supplier fees. Communicating with your suppliers and re-purchasing at standardised margins will result in some 'quick-win' savings.

3. Check your temporary and permanent worker pay rates at the same time- It is now more important than ever to align temporary worker and permanent worker pay rate reviews in order to remain in compliance with Agency Worker Regulations (AWR). AWR seeks to ensure that temporary workers are paid at a rate comparable to permanent workers performing the same or similar tasks.




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