The recruitment agency employees most vulnerable to cost cutting

Over the past four weeks I have spoken to a large range of recruitment agency owners and executives, ranging from those who have no employees to those who leading some of the biggest agencies in the country.

The general mood, perhaps surprisingly, is quite upbeat.

I put that down to six factors:

• leaders of recruitment agencies are, almost always, chronic optimists
• the state-by-state COVID-19 infection and mortality rates are declining at a rate faster than predicted and as a result some states have started easing restrictions.
• the combined state and Federal government financial support is providing some immediate financial relief
• although perm recruitment has been stopped in its tracks, the contingent workforce numbers have held up encouragingly well. Temps and contractors have been transitioned to work-from-home relatively easily and labour hire numbers have been robust due to strong food and grocery demand and the surge in online purchasing
• the partnership approach adopted by some industry suppliers (eg rare kudos, from me at least, to SEEK for their pro-active and flexible response to existing contracts)
• the rapid transition to work-from-home that, almost all, recruiters have been able to make.

Balancing this out has been the slowdown in payment times for existing invoices and a slight nervousness about the financial stability of some, otherwise good, clients who are prominent in the debtors’ ledger.

There has been a significant variation in how owners and executives have addressed their cost base.

Some owners, typically those with a majority perm business, have quickly reduced salaries. Some of these salary cuts have been commensurate with the requested reduction in employee working hours. Other owners are expecting the normal hours of work for the reduced salary.

Permanent cuts to headcount are relatively easy to identify, although not necessarily easy to execute.

The five types of recruitment agency employee that are immediately in the sights of an owner or CEO looking to cut their costs are:

1. Underperforming recruiters – if a recruiter can’t hit their targets in a strong jobs market what hope have they got in a terrible one?
2. Rookies – although costing the least, in salary terms, all rookies are vulnerable to the axe because they have the fewest existing relationships to leverage. Attempting to initiate relationships in the current climate is difficult for an experienced recruiter; it’s almost impossible for a rookie.
3. Para-consultants or candidate managers – when demand dries, up the small number of jobs that remain can, for the most part, be competently worked by a 360 degree recruiter in the time available. What work does that leave for the para-consultant to do; work that’s going to lead to an invoice being issued in the short term?
4. Non fee-earning employees – these types of employees fall into two categories: firstly the non-billing manager/GM and, secondly, the corporate services employee (eg those in IT, accounting, marketing, HR etc). The non-billing manager/GM is especially vulnerable as they will be paid a high base salary compared to other employees. The existence of non-fee earning manager/GM is relatively easily to justify in a growth market, it’s also, unfortunately, relatively easy to justify its removal in a market where survival is the main focus for the foreseeable future. The corporate services employee, with less specialised knowledge to protect them, is vulnerable to being outsourced, offshored or simply done without.
5. Perm recruiters – not only have perm recruitment volumes dropped like a stone, they will be sluggish, and patchy, in returning. This is due to temp/contract being an easier first step for clients when needing to add head count and the temptation for clients to attempt more perm hiring themselves, due to cost pressures.

Clearly the relative vulnerability of each of the above employee categories will depend on a range of factors. Currently, I see the three most important factors being:

i) The current job pipeline.

When the job pipeline is better than expected, then life is good so owners are of the mood “let’s carry on as usual”. When it’s weaker than expected, then life is not good so owners are of the mood “let’s look at our costs”.

ii) The financial position (and philosophy) of the company’s shareholder(s).

For example, if the company’s retained earnings (ie cash) are healthy and the shareholders are willing to break even, or even run a small loss, in order to retain as many staff as possible, ready to take advantage of the anticipated market rebound, then staff cuts will be slow, considered and conservative.

Alternatively if the shareholders have a weak cash position and/or want to make a profit in the short term, regardless of the perceived risk to the long term positioning of the business, then the staff cuts are more likely to be immediate, reactive and aggressive.

iii) The economic prospects of the sector(s) the agency makes it money in.

Unlike other economic slowdowns and recessions it is clear where the greatest pain is now and where there will be a slow return to anything like normal economic activity. The existing jobs data tell us that the hardest-hit sectors are tourism, hospitality, higher education, sport & events, real estate and advertising/media.

All the existing commentary around these sectors would suggest that a return to pre-COVId-19 employment levels will take years, not months.

At the other end of the scale the least-affected sectors are mining & resources, healthcare, community services, government and primary industries (farming).

Just like the broader economy the economic impact of COVID-19 will have a huge impact across some sectors and a neutral or only slightly negative impact across other sectors.

The billion dollar questions that nobody can answer, the questions that have the greatest impact on any recruitment agency owner’s decision about staffing levels are: “How long will this recession last?” and “Then what happens?”

 

Related blogs

Covid-19 winners and losers in the Australian recruitment sector

Covid-19 winners and losers in the Australian recruitment sector

How recruitment agency owners become “yesterday’s hero”