9/52: Covid-19 and on-hire contracting
Updated: Feb 26, 2020
If you haven't spotted it yet, COVID-19 (or the Coronavirus Disease 2019), is going to create enormous global economic uncertainty. Last week I attended a property and construction economic briefing and over a period of 3 hours, as much as half of the discussion was focussed on the potential impacts of Coronavirus.
I'm not an alarmist and I don't like the idea of perpetuating a negative news cycle, however, I am a realist and I think it's likely there's going to be some significant effects on our local economy. For many industries, such as travel, this cost is already being calculated with Qantas forecasting a reduction in flights to Asia will have up to $150m impact on their business (20/02/20).
Affects on supply chains and the Australian construction industry, however, may not be so easy to predict. Mark Dingley, CEO of Matthews Australasia says in his recent article on this issue: "The reality is, parts of your supply chain may take place in, or pass through, Wuhan for manufacturing, assembly or finishing. That means major disruptions for an unknown length of time." Ratings agency Moody’s reported:
“Complicated supply chains and just-in-time production could mean that production outages in Wuhan factories have broader spill-over effects.”
With COVID-19 itself being hard to predict, it seems that it's just too early to know exactly what these spill-over effects might be to the broader economy and for how long they will last.
A bright light on the horizon
It's not all doom and gloom though. Many cashed-up investors will see this as a period to capitalise on lower stock values. Fortune favours the brave, but not the stupid. In addition, some Australian economists are cautiously predicting a positive economic correction once the Coronovirus emergency is over. When this happens (that's the question driving the uncertainty), production in China will likely ramp up driven by factors such as Government stimulus via infrastructure spending and strong demand for components in the manufacturing and tech sectors. Stock values have the potential to rebound quickly and in turn, sections of the Australian economy may quickly benefit in ways that put pressure back on staffing and resources. If the SARS virus of 2003 is a good gauge, economic tables can turn quickly. Google this topic and you'll find economic predictions that both support, and contradict this 'quick recovery' view, so what to do?
Contract staff popular in times of uncertainty
As a business owner or Senior Manager, how do you respond to the challenges of maintaining your workforce when periods of economic uncertainty linger? Britain has been through an extensive period of uncertainty in relation to Brexit and as a result, there has been a rise in the number of staff engaged on temporary and casual contracts. It was a similar story back in 2009-14 as a result of the GFC.
Having consulted to Melbourne's construction and technical industries on staffing issues since 2004, I've seen a variety of upturns and downturns including the GFC, the end of the mining boom and various impacts of local property cycles. One of the most effective staffing strategies to offset the risk of economic uncertainty is the use of on-hire contractors. Why?
Flexibility around demand: On-hiring contractors (agency staff) is an effective strategy to match the workflow of your business. If work picks up you can offer staff more hours and longer-term contracts or hire additional workers. If work decreases, you can decrease hours, contractor numbers or reduce the length of contracts.
Pay for the hours worked: Whilst hourly rates are typically higher than permanent rates to offset leave entitlements, businesses pay only for the time worked.
Engage temp staff permanently: As economic conditions improve (or workers prove their contribution is critical to the long-term needs of the business), individuals can be engaged as permanent employees of the business. During times of economic recovery, the ability to quickly engage well-trained, proven temps as staff members can be a key to winning market share and expanding services.
Many clients ask me why skilled employees would consider working as a contractor. The answer can be varied but often includes exposure to: higher rates of short-term pay; a variety of project/work experiences; a variety of organisations and ways of working; opportunities for flexibility such as taking extended breaks between contracts to travel and study. Benefits can go both ways.
Partner with a trusted recruiter
Australia's workplace laws in relation to engaging on-hire employees have become more complex over the last few years. If you decide that employing temporary staff is a strategy you'd like to pursue, please ensure your recruitment partner is well-versed in the Fair Work Act and is able to understand and apply the following:
Labour Hire Licencing: New State laws to regulate the ‘labour hire’ industry in Australia are broad and invasive. If a recruitment firm provides any form of on-hire employee or contractor service, whether it is professional contracting, white collar temp, nursing agency or blue collar labour hire, then they will need a licence in certain states to do so. Partner with an organisation that has a Labour Hire Licence in your state.
Fair Work Act Amendment to offer casual conversion: Some awards require employers to notify a casual employee that they can elect to convert to full-time or part-time employment after a set period. Ensure your recruitment partner's contracts reflect these changes and that they know how to apply them.
While COVID-19 threatens to blow strong economic headwinds our way, it will also offer some opportunities for your business to prosper, diversify and potentially gain market share.
If you'd like to discuss how you might engage on-hire employees in your business, please get in touch today: Jason Downes on 0423 593 692 or email jason@stratacon.com.au