However, cost and efficacy issues aside, risk management is one of the most important (and perhaps least understood) value-adds of the RPO arrangement, especially when the definition of risk includes not just potential financial loss but also the potential downside in such areas as legal compliance, attracting and retaining talent, geographic and regional differences in recruitment practices, employee liability, and the company’s brand.
1. Legal compliance
In terms of mitigating risk in recruitment-related legal compliance (i.e., Form I-9, EEO, and background, and credit checks), RPOs are the experts. Not only can an RPO recommend and implement fully compliant sourcing, application, and interview and selection processes, but they are also adept at creating and maintaining all the required record-keeping and analysis.
In some instances, the RPO can even propose solutions for remediating past non-compliance (for example, if “applicant flow” has not been properly documented — or if it hasn’t been tracked at all — the RPO might be able to assist with recreating past applicant flow using existing data).
The potential risks associated with legal non-compliance are fairly significant. Liability can include monetary fines and other sanctions such as future monitoring of a company’s hiring practices by a governmental agency. In some areas (Form I-9 compliance, for instance), non-compliance can expose the company and/or its employees and officers to criminal prosecution.
2. Attracting and retaining talent
Many quality employed candidates are staying put until things pick up. They are not actively job hunting and thus are off the market; at the same time, quality candidates who are out of work find themselves heavily courted and scooped up fairly quickly. The talent war continues.
RPOs are positioned to have a pulse on the candidate market and niche recruitment, including tapping into the passive candidate pool of applicants (which is often where the “super stars” are found), thus helping ensure companies hire the right candidates.
The risk of hiring the wrong candidate goes beyond the overall replacement costs for an employee, which can range anywhere from one-third to one-half of an employee’s salary. Bad hires result in higher turnover, lower productivity, bad morale, and are a disruption to the operation.
3. Geographic and regional differences in recruitment practices
It’s often difficult for companies hiring staff in different U.S. regions or in other countries using internal resources to stay current — and compliant — with constantly evolving local employment trends and laws.
RPOs that do business in different regions have a working familiarity with local labor markets and help mitigate the risks associated with doing large-volume, multi-region, and multi-country recruitment.
Caution: some RPOs are not truly global but, instead, subcontract work when they don’t have a presence in a particular region or country. This can be fine, but employers must to do their due diligence in qualifying the sub as well as the RPO they retain.
“Some providers can exaggerate degrees of operational viability and maturity in regions, so be sure the true global presence and scope of the contract is well defined,” counsels D. Zachary Misko, Global Director at KellyOCG, a talent management solutions provider.
4. Employee liability
When hiring needs flex up, employers often augment internal recruitment resources with temporary employees versus hiring more in-house staff, which can be costly and risky, especially when hiring needs flex down and the company has to terminate them.
However, temporary employees and agencies come with risks of their own.
“Some employers count on temporary staffing firms, which could imply a co-employment situation. With the RPO model, there is always clarity regarding the employer and employee relationship,” explains Kathleen Quinn Votaw, CEO, TalenTrust LLC, an RPO specializing in the small to midsize market.
Indeed, some longer-term temps have successfully argued that they were, in fact, employees entitled to the same terms and benefits as regular employees.
The RPO arrangement helps mitigate against these kind of risks.
Poor recruitment practices not only make hiring and retention more difficult but, in the long run, can also result in the unintended consequence of harming a company’s overall brand (image).
Companies turn away more applicants than they hire. Declined candidates can be ambassadors for an employer (“I wish I had gotten that job; it seemed like a great company”) or an employer’s worst nightmare (imagine an applicant declined employment with your company tweeting “they treated me like garbage. Rude. Place looked dull as dishwasher. Wouldn’t take job if they begged me!”). This kind of buzz can make it difficult to attract top talent.
Such buzz can also bleed over and hurt a company’s overall brand. (Think WalMart and the negative PR caused by its well-publicized employee violations. Many shoppers boycott the chain because of these issues).
Not only can RPOs handle the nuts-and-bolts portion of recruitment but, by utilizing best practices and their real-time knowledge of what others in a client’s market, industry, or space are doing, they also can help better promote the client’s employee brand throughout the recruitment process.
Accordingly, when evaluating RPO or other recruitment options, companies are wise to look more broadly at the pros and cons of the various arrangements so they can include in their evaluation not just costs but also risk management and avoidance.