Temp Staffing vs On-Demand Staffing Platforms
This article talks about the difference between Temp Staffing vs On-Demand Staffing Services
To learn more about the different types of online on-demand staffing platforms please read our newer article here
In Traditional Temp Staffing, a client has a requirement to bring in temporary help in the form of a freelancer, contractor or consultant to help them complete a project. In this model, the client doesn’t have the resources or time to source the talent and engages a temp staffing company. The temp staffing company then goes into the labor market and sources, curates and submits some candidates to the client. The client then selects the contractor and pays the temp staffing agency an amount that includes payment to the contractor and a markup to take care of their overhead and profit.
Temp Staffing hasn’t changed in decades and it is now poised to encounter major disruptions from new technologies and business models. A host of new style of staffing companies have started attacking the contingent staffing space offering more convenience, curation of talent, faster speeds and even compliance. We at OnContracting try to help explain it all.
How is On-Demand Staffing different than Temp Staffing
Isn’t all temp staffing on-demand? After all, a client needs a temp worker- calls up his agency- the agency sends them a worker. On-demand right?
No. The main difference is ‘Instantaneous gratification’. Customers today don’t care about the logistics you run in the background- they just want what they want and they want it now. The new On-Demand staffing is meant to describe the experience when you use Uber to get a ride. Open an app- click on your requirement- which broadcasts the requirement out to workers directly and as soon as someone accepts the task, customer gets a confirmation and the worker arrives immediately. However, given the fact that staffing often involves a variety of skills and different levels of skills- it’s not that simple- but that is the essence of on-demand staffing.
Two types of On-Demand Staffing
There are 2 types of On-demand staffing models . The major difference between them is the level of control the marketplace wields in talent matching and delivery of the service.
Matching- Who selects the Contractor- Buyer (upWork) or Platform Determined (Uber).·
Rates- Who decides the rates- Contractor (UpWork) or Platform dictated (Uber)·
Ownership of transaction- Who’s responsible for the delivery- Contractor (UpWork) or Platform (Uber)
In addition to the above factors there are variables that get affected by those choices, such as - Time to match, Difficulty to match, Variety of Services, Quality of Service, Customer Satisfaction, Cost. For example the time to match customer and supplier in an open platform like Upwork may be high, but the variety of services is also high. On the other hand the time to match for a service like Uber is short but the variety of services is limited to just rides.
So the two major types of on-demand staffing marketplaces are as follows
1. Freelancer Marketplace Platform - with little/no curation from the platform
· Contractor and Client Matching- Self
· Rates- Negotiable
· Pros- Wide variety, negotiable rates, custom projects
· Cons- Hard to manage project, time consuming
While this is still more on-demand than temp staffing – it is not at instantaneous gratification level yet. These on-demand marketplaces are open/freelance marketplaces like TaskRabbit or upWork, where customers can directly request and get contractors to work for them. In this model the customer (usually a consumer) posts a job and what they are willing to pay- but is responsible for evaluating and selecting a worker. The worker can quote and negotiate their own rate. If a worker doesn’t respond or doesn’t provide the service- the customer can provide a negative rating, but is at the mercy of the worker. The platform doesn’t really do much more than provide the platform for the transaction to occur. If a customer doesn’t find their need met in one marketplace they may go try another- and so on. In some platforms like Upwork, if a customer is already working with an offshore contractor, it is possible to continuously keep the person under contract but use them only as required on-demand.
While these kind of marketplaces work better for a wide variety of services, they still only work well for common job categories like Handymen, Errand runners, Delivery services, Movers, etc. On-demand startup TaskRabbit for example has moved away from being a free/open marketplace to a more controlled one by limiting the kind of activities and instituting somewhat fixed rates. Thumbtack that is another on-demand service tries to offer many services but ensures some kind of control/monitoring on the responses to customer requests.
· Contractor and Client Matching- Platform
· Rates- Fixed
· Pros- Easy
· Cons- No variety, Take it or leave it rates, multiple apps needed for multiple services
These are controlled/vetted/managed on-demand marketplaces where the on-demand staffing platform actually provide micro-staffing on-demand as a service, but they don’t offer it as traditional staffing but as a specific service or outcome (ride/delivery). Not many people think of Uber as a staffing company but as a taxi company that provides rides. What they don’t realize is they are actually hiring a small portion of the driver’s time in a temp staffing model.
These work better where a customer can’t afford/doesn’t want to be at the mercy of a provider, doesn’t want to search for or negotiate, or worry about security, payments, etc. By taking over some of the responsibilities of the customer and provider- for example- making sure a driver shows up instantly, Uber ensures every customer’s demand is met and they feel like a service rather than a marketplace. They do this through closely managing their driver partners with a mix of penalties and incentives. They also enhance the user demand and experience and influence behavior with standardized pricing, surge pricing, reverse rating from drivers, etc. The result is a better experience for the customer and provider.
Examples of these kind of on-demand companies are - Uber, DoorDash food delivery, Instacart grocery delivery, etc.
Downside of a On-Demand Services Marketplace: Co-employment and Worker Misclassification Risk
There is however a risk that these marketplaces take on by controlling the experience and that is they can be targeted by the IRS and their drivers as employers of the drivers- instead of the independent contractors. This could drastically increase their costs (by a min of 10% for employer taxes), and liabilities like having to offer drivers mandatory benefits dictated by law, following hiring practices, etc. and the drivers too start getting taxed as employees and having employment taxes (~10%) being withheld from their pay. This would ruin the business model and the edge such companies have over current service providers. Already some startups that followed this model like Homejoy and Zirtual have folded quoting these as problems. Many other startups in this space have moved to converting the workers to W2 employees (Managed by Q, Instacart), but it remains to be seen if they continue to grow as fast with these overheads.