Now Hiring: Staffing Industry Rebuilds in New Labor Landscape
Despite a drastic rise in unemployment during the early stages of the COVID-19 pandemic, the staffing industry managed to hold on. Now that demand is rising once again, there will be plenty of opportunities for staffing companies, which means more business for the factors who support them, but factors like the growth of remote work will create a new playing field.
BY: DAMON DICKENS, SENIOR VICE PRESIDENT OF UNDERWRITING, SALLYPORT COMMERCIAL FINANCE
As we approach Q3/21, society is learning to live with COVID-19 and individuals and businesses have adapted to the current business environment. Vaccine roll outs are helping to reduce fatalities and cross border travel is re-opening. Although the pandemic isn’t in the rear-view window just yet, businesses and individuals are looking to the future and a potential post-COVID-19 business environment. One of the industries that has experienced significant activity in response to this sentiment is the staffing and recruitment industry. After a spike in unemployment in Q2/20, unemployment has fallen as businesses re-enter the labor markets as ‘normalcy’ returns and the uncertainty in the economy begins to dissipate.
Changes in Demand
All things considered, the staffing and recruitment sector has navigated the pandemic relatively well. As an industry with low fixed costs and overheads, staffing companies were able to batten down the hatches and weather the storm, and they are well positioned to bounce back. With the unemployment rate spiking at almost 15% in April 2020, a large swathe of the labor force became job seekers in a relatively short space of time. However, recently, the unemployment rate has decreased as the recently unemployed have found new positions. Some businesses are discovering that, having reduced their workforce in 2020, they are having to re-tool in order to meet returning demand. It is expected that the temporary staffing market will boom as businesses are desperate for employees but may be hesitant to commit to permanent hires. Temporary staff can provide a great short-term solution for almost all industries.
The necessity for working from home during 2020 has accelerated the already growing trend of remote work or hybrid work options for most office positions. For some employees, remote working has given them a much better work-life balance, reducing commute times and increasing productivity by reducing distractions. Employers, however, may disagree that employees have been more productive whilst working remotely and are very keen for employees to return to a traditional office environment. Employers are also finding that intangible qualities such as company culture are much more difficult to infuse when a workforce is dispersed across a city, state or even a country.
Ultimately, some employees will determine that remote work is their preferred option and they may look to leave their ‘fixed location’ positions in order to search for a remote role that fits their preferences. This frictional unemployment will create two different levels of demand for the staffing industry . First, employers requiring in-person attendance at an office will find a much more compressed candidate pool, therefore using a recruiter may be necessary in order to find the right candidate. Conversely, employers offering remote work or a hybrid approach may find a much wider candidate pool available to them without traditional restrictions such as commutability to a physical office location. A recent McKinsey study estimated that the pandemic has accelerated existing trends in remote work, e-commerce and automation, with up to 25% more workers than previously estimated needing to switch occupations. This displacement represents a big opportunity for staffing companies to assist with this supply shock in the labor market. In addition, the acceleration of automation and artificial intelligence adoption has the potential to eliminate or drastically reduce the demand for particular roles such as call center workers and warehouse staff. These displaced employees will need to be redeployed to other industries.
Also, as certain large corporations such as Google, Microsoft and Disney have mandated that employees must be fully vaccinated before they can return to the office, employees may need to make a personal choice as to whether they wish to get the vaccine and remain employed or seek alternative employment.
Sallyport’s Perspective
Sallyport Commercial Finance’s staffing clients operate across a variety of industries in both the U.S. and Canada, and the company has seen consistent trends across its staffing portfolio. Initially, just as the COVID-19 pandemic took hold, there was a sharp drop in sales volume, which did not fully recover until end of year. Conversely, there has been a large increase in volume in 2021 beyond levels experienced in 2019 and 2020. Sallyport’s staffing portfolio has experienced record sales volume and it appears that demand stored up from 2020 has been pushed down the pipeline into 2021.
Despite the drop in factored volumes in mid-2020, Sallyport’s staffing clients have weathered the pandemic well. DSO did not stretch beyond expected levels and no clients requested over-advances or any concessions. The majority of customers paid to terms and none of Sallyport’s staffing businesses failed. In fact, one of Sallyport’s staffing company clients with a focus in the energy sector has experienced a high increase in its U.S. business and it is looking to expand into Canada in 2021. This has been a challenge, as, due to the pandemic, the company’s principals have unable to enter Canada to set up the business, open a business bank account, etc. However, with borders re-opening and international travel becoming more accessible, the firm is pushing on with expansion plans along. With oil prices rising, the firm is expecting 2021 to end as a growth year and it is experiencing a large increase in demand for temporary workers.
A medical staffing client of Sallyport has also experienced significant growth in 2021. With COVID-19 cases unfortunately on the rise in some areas, this firm is experiencing consistent demand for locum travel nurses and care home staff. Hospitals and nursing homes are turning to temporary medical workers to provide a solution for their short-term staffing needs. For example, Greg Abbott, the governor of Texas, requested an additional 2,500 out of state nurses in order to help with the latest COVID-19 surge from the Delta variant, although Abbott has also opposed mask mandates and vaccine mandates. It is likely that medical staffing will be in high demand until vaccination rates significantly improve across the country.
Industry Challenges
Remote working options may become a deal-breaker for some candidates and the industry will need to adapt to this. For employers willing to allow remote work, there will be an expanded the candidate pool; however, workplace culture and day-to-day interactions with co-workers won’t be replicated in a remote work environment. There have been suggestions that a two-tier workforce may emerge, with employees preferring to work in the office being seen as more driven and productive versus workers who are working remote when it comes to management assessment and possible promotion opportunities. When the COVID-19 pandemic eventually fades into history, there will undoubtedly be a rebalancing between remote employees and the compensation and benefits they received. Some companies may even consider the possibility of reducing pay for workers who choose to remain fully remote, while some businesses may choose to downsize their physical office footprints and utilize the savings on business expenses.
Technology can be used by the staffing industry to help quickly screen and filter candidates. A remote video interview can be easily set-up and help to quickly narrow down candidates without the need for travel and the associated costs. Even with technology helping, reduced demand in 2020 meant a consolidation of existing relationships, so staffing companies were careful to preserve existing relationships because new relationships were more difficult to attain. Staffing companies can maintain their talent pool by reaching out to previous candidates who made it to the final stages of interviews and by keeping them engaged for the recruiting process.
The 2021 staffing market is heavily candidate driven, as companies are in desperate need for talented employees, and the very best can shape the agenda when it comes to changing roles or negotiating for a new role. Many candidates are also happier to accept short-term or contractual roles and move around from project to project, meaning flexibility can be a key factor in whether candidates accept or change roles.
Underwriting Staffing Deals
Despite the pandemic, the staffing industry remains one of the preferred industries for factoring and asset-based lending. The challenges are the same as they have always been:
High advance rates needed to fulfil payroll requirements
The need for quick turnarounds from invoice submission to funding
Asset-light businesses outside of accounts receivable
A heavy reliance on the individuals behind the business and their integrity and trustworthiness
The staffing industry remains resilient and has navigated the pandemic very well. However, as we have seen for all industries, staff has had to cope with unprecedented uncertainty over the past 18 months. For a lender, focusing on the fundamentals has never been more important. When dealing with such an asset-light business industry, factors and lenders want to see the owner back up their belief in the business. Ensuring both the lender and borrower have skin in the game remains the best way to have a mutually beneficial relationship.
Damon Dickens, CFA, is senior vice president of underwriting at Sallyport Commercial Finance. Dickens has more than 10 years of commercial finance experience, having worked in a variety of risk, underwriting and credit roles in both the UK and the U.S. Dickens is also a Chartered Financial Analyst (CFA) and a Certified Account Executive in Factoring (CAEF). Dickens can be reached at ddickens@sallyportcf.com.