How Low Should You Keep Temporary Workers’ Wages?
by: Steve Schoeffler, SVP, Client Strategy, On Time Staffing, an Eclipse IA Company
December 10, 2020
By design, you should pay temporary workers less than your permanent staff. Your permanent employees have worked there longer and they’re more experienced — they deserve to earn more than a temporary worker earns. The question is, how much more should you pay your permanent staff?
Since both sets of workers are doing the same job, pay should at least be comparable. If your temporary employees feel that they’re being shortchanged, you’ll have a hard time keeping them for any length of time. High turnover among temporary workers can be just as significant as it is among your direct employees.
How Much Should You Pay a Temporary Employee?
At Eclipse IA, we recommend paying temporary workers five percent less than your permanent employees. A five percent difference shows that their work is valued, while incentivizing them to take a permanent position when one opens up.
The problem for some warehouses is the fee to the staffing agency. The market rate for staffing services is 40 percent. That means, if you’re paying permanent workers $15 per hour and temporary workers $14.25 per hour, the total cost for each temporary employee is nearly five dollars per hour greater than your permanent staff.
Some warehouses can’t justify paying more for temporary workers than for their own employees. Why not bump temporary wages down to $10 per hour, so that your total costs are still below permanent wages?
We get the temptation, but before you reduce temporary wages, you should see why it’s a short-sighted solution that could cause serious harm to your business.
The Fallout of Low Temporary Wages
When temporary workers see that their wages are far lower than the going rate, it doesn’t take long to affect your turnover rate. High turnover rates have several business impacts:
- The continual stream of new workers reduces productivity.
- More inexperienced workers creates more opportunity for workplace accidents.
- Lower wages encourage higher absenteeism.
- The best temporary workers are more likely to find better paying jobs, leaving you with the rest.
Most importantly, a high turnover rate makes it difficult to fill open jobs. When warehouses are understaffed, they increase overtime to boost production with less workforce. That leads to worker burnout, which creates a higher turnover rate and more jobs to fill. It’s a vicious cycle.
The remedy is simple: have a clear and defined career path for temporary workers. Provide higher earnings and implement retention strategies. Give them a reason to stay at your company — a two- to three-year plan for advancement. When you treat temporary employees as if they were integral members of your team, you’ll position your company to attract and retain top talent.
You’ve Heard This All Before, But…
You’ve heard this before. Staffing companies and HR personnel are constantly urging managers to raise their pay rates. After you’ve heard the drone long enough, you start tuning it out. We get it. That’s why we show our customers real data on their competition.
We can perform a wage summary of your area that reveals how your warehouse compares to other companies in your region. We’ll show you the going rate for various job types, and what others in your industry are paying on average.
We can also provide actual case studies that show the consequences of dipping down into the 25th percentile — and the positive business impacts other clients have had by making strategic wage adjustments.
For example, some clients saw their turnover percentage drop from nine percent weekly to 3.5 percent. In another case, the overtime usage shrunk from an unsustainable 17 percent to six percent.
We can help you understand what will work for your warehouse and what won’t, because we have deep expertise in this arena.
Eclipse IA for Supply Chain Staffing
Temporary workers expect to be paid less than permanent employees, but they also expect to be paid a fair wage for their work. Taking staffing fees out of a worker’s wages punishes the worker and confuses the costs of two separate services. When you pay within the band of a fair wage, you’ll avoid high turnovers, high job openings, and high overtime usage.
Many staffing agencies have their roots in several industries. Eclipse IA is exclusive to Supply Chain Staffing — it’s the only thing we do, and we do it throughout North America. Rely on us to help strengthen your business.