Hidden Costs: the dangers of going down the JV route for temporary staff recruitment

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Considering setting up a joint venture to save on temporary staff recruitment costs? Don’t do anything before reading this, writes Ian Middleton, Business Director, Matrix.

Rising interest rates, soaring inflation and a cost-of-living crisis; growing external pressures have consumers and businesses alike tightening their purse strings in an effort to weather the economic storm that’s brewing. Finance bosses in councils across the country are no exception – many left scratching their heads as they search for opportunities to make cost savings where they can. Don’t get swept up by the headlines, there are cost savings to be had when it comes to temporary staff recruitment – but joint ventures aren’t the solution.   

Back in October last year, York Council bosses were told to find cash savings as council finance manager Patrick Looker warned of “troublesome times” that should have everyone “worried”. He cited the use of agency staff in both children and adult social care as two of the biggest areas of overspend for the council, highlighting that the council “cannot afford to continue overspending at the rate we are in those particular service areas”. 

If it’s not broken, don’t fix it

The problem is that this model doesn’t work for the long-term and before councils consider taking a similar approach, it’s worth looking at the bigger picture first. With a model like this, it might seem like a quick fix to save costs in the short-term but there’s a bigger scenario at play. Agencies will soon catch on to the fact that they are just being used as a recruitment tool for this model and will ultimately stop supplying workers. When that happens, the council will have to go off-contract and direct to agencies to fill the spots. 

An arrangement like this is heavily weighted to one side, those who want to take agency workers away from the agencies – after a certain period of time, those workers are then required to sign over to the new JV agency without having a say in the matter. 

We’ve already seen it happen with other councils, who have ended up with massive amounts of off-contract spend, which isn’t strategic but ends up being the only way to get the workers to meet the demand for roles to fill. With the agency margin staying within the JV, it might look good on the profit sheet at the end of the financial year but if you look beyond that, what you’ll really see is that the council is being charged the same amount of money, negating the need for agency margin which effectively will be held as a surplus.  

A fair, transparent approach to recruitment

Going direct to the agencies contradicts the neutral vendor model, making even harder work for the councils trying to recruit. The beauty of a neutral vendor model is that it widens the talent pool by creating a fair and transparent marketplace that builds competitive advantage and allows councils to recruit temporary agency workers for the right cost. What’s more, by competing with one another on an open and transparent field, prices more accurately reflect the true value of each candidate’s skills and expertise. 

Moving away from a temporary staff recruitment model that was already working efficiently might at face value show profit in a good light – but it’s not actually saving any money. The end client (the council) will still be charged the same amount, the money will just be put in another place. The danger with this is the hidden costs that you can’t see. 

You might be using the agencies as a resource in the short-term but after a period of time, you’re then taking the workers off them and bringing them onto your own contract. That won’t go down well with the agencies, who won’t want to supply through it, effectively wiping out the entire supply chain that connects employers with the staff they need.  So, before you consider taking a different ‘strategic’ approach to recruitment through a joint venture, think about the bigger picture. Think about the supply chain you’re about to wipe out, the ineffective route to market and the hidden costs that you don’t immediately see.

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