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Growth Stocks

Gainful Employment

By Elliott H. Gue, on Jan. 15, 2014

Hiring workers for skilled positions remains a challenge despite the headline unemployment number because the pool of available college graduates remains limited. Changing labor market regulations and business conditions have also made the hiring workers more difficult.

For example, the Affordable Care Act (ACA) mandates that companies with more than 50 employees start to offer health insurance in 2015. Employers that fail to comply with the law will incur a penalty of $2,000 to $3,000 per employee, resulting in significantly higher expenses for companies seeking to expand beyond this threshold.

Moreover, training workers for a new job entails additional time and expense; experience and know-how remain a valuable commodity in the labor market. In this environment, managers struggle to shrink or grow their skilled workforce to match economic conditions.

A Permanent Uptrend in Temporary Workers

Evolving labor market and employment regulation trends bode well for the $130 billion temporary-staffing industry.

Temporary-staffing firms place workers with companies to help on short-term projects or to address seasonal fluctuations in labor demand.

And tapping the temporary-labor pool eliminates expenses related to producing W-2 tax forms, as well as traditional hiring and severance costs. Temp workers also provide scalability without counting toward the 50-employee limit instituted by the Affordable Care Act.

Staffing agencies usually profit from the difference between the rate they charge customers for an employee with a particular skill set and the salary that worker receives.

Temporary workers fall into one of two categories: commercial or professional.

Commercial temps usually handle basic clerical and administrative tasks and light industrial duties. These generalist functions usually require a limited skill set; the size of this labor pool limits hourly billing rates and has led to fierce competition within this segment. Profit margins on the commercial side of the temporary-staffing market are relatively low.

We prefer names that provide professional staffing solutions and help to place a wide range of skilled workers–from information-technology specialists and lawyers to scientists, project managers and health care workers–in temporary positions.

These highly trained professionals garner much higher billing rates than temps that perform generalist or administrative work.

Given the tight labor market for these specialized workers, the companies that engage a professional staffing firm usually aims to obtain the best employee for the job–not the cheapest solution.

 

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