No Commitment Necessary

As the Economy Takes a Dive, Many High Tech Workers Find Themselves Stuck on the Temping Treadmill

Lynn Cochran, a former contract worker at Tivoli, says the experience she gained on the job helped her advance into her current position as a marketing analyst at NeTraverse.
Lynn Cochran, a former contract worker at Tivoli, says the experience she gained on the job helped her advance into her current position as a marketing analyst at NeTraverse. (Photo By John Anderson)

Over the last month, headlines have heralded more than 4,000 layoffs at tech companies in the Austin area. Of those, nearly 1,000 were temporary or contract workers. More layoffs appear to be inevitable; the only questions are where and when. So why is temporary recruiter Shirley Kaye smiling?

Sitting bolt upright at her desk in a nondescript cubicle at an even-less-descript office park in Northwest Austin, Kaye -- a recruiter for Manpower Professional, the professional and high tech division of the nation's largest staffing firm -- has the appearance of a woman utterly unfazed by the economic tumult that, by all appearances, currently threatens to rock Austin to its foundation. Kaye is confident because, by her account and those of other contract industry managers, the tech industry's short-term loss may be the contract industry's long-term gain. The reason: "Companies usually turn to contract workers when they've cut their permanent headcount and special projects need to be implemented or completed," Kaye says. Translation: Relatively speaking, temporary workers' jobs are safe from major cuts.

Here's how the contract industry is predicting it will work: As layoffs increase the pool of available workers, many of those individuals, unable to find permanent work, will seek recourse at temporary staffing agencies. Conversely, as high tech companies rebound from the latest blowout, they may rely more and more heavily on no-obligation contract labor, rather than permanent workers, to fill even their long-term needs.

Tim Brogan, senior public information manager for the American Staffing Association, the industry's primary trade group, confirms Kaye's sunny prognostication. Anecdotal evidence, Brogan says, suggests that "many individuals laid off by dot-coms are in fact finding good opportunities with staffing companies to either bridge into another permanent job or do long-term [temporary work]. Staffing companies are really playing a role in helping those individuals find work." Conversations with several other staffing service recruiters confirmed that, for now at least, the industry expects to benefit, not suffer, from the fallout of the dot-com implosion.

But, as anyone who's worked in the service industry can tell you, "a job is a job is a job" doesn't always hold true -- especially for those who, like dot-com survivors, are unaccustomed to making do with less. Temporary and contract jobs, despite recruiters' talk of "flexibility" and "options," are often lower-paying, rarely offer benefits, and tend to be less stable than permanent jobs even in the volatile high tech industry. If your boss decides he doesn't like you, your desk better be packed up by noon, because your "contract" is between the company you're working for and the employment agency that hired you. For companies and temps alike, temping is the ultimate no-strings-attached arrangement.

And perhaps more than ever, these are tough times to be a temp. Consider the 750 temporary employees whose jobs were eliminated by Applied Materials last month, or the 100 temps laid off at Motorola a few weeks before that. Even with unemployment numbers still below 5%, many temps are starting go home at night wondering if their jobs will be waiting for them in the morning. Take 39-year-old Lynn Cochran, until last month a contract worker with Burnett Personnel Services, who worked in Tivoli's marketing research department. A year ago, she started out at Tivoli, hoping to gain computer skills and a more well-rounded résumé; she also hoped the position would be, in Brogan's words, a "bridge to a permanent job." (Cochran's recruiter, Deborah Nicholas, says most high tech contract workers are looking for permanent work.) But when a permanent position failed to materialize, Cochran found herself worrying that she might not even make it to the end of her contract. With an on-demand position like her job at Tivoli, Cochran says, "there's no polite agreement about two weeks' notice, or 'We'll let you know if we're going to fire you.' Contracts say they can come in that day and say the contract ends now. It was very nerve-racking, especially as Tivoli was doing layoffs. They could walk in and say, 'Bye-bye.'"

In many ways, Cochran was lucky: Tivoli had already budgeted for her position, making it relatively safe during cutbacks. And she gained valuable skills on the job, learning about marketing intelligence and computer security. Ultimately, those skills helped her find a more stable, better-paying permanent job as a marketing analyst at NeTraverse, a company that makes software that allows Linux users to use Windows applications.

Others, however, learn few or no new skills in their temporary assignments. According to recruiter Nicholas, the vast majority of contract workers who come through Burnett's IT division already have the skills they need to fill the positions tech companies are looking for. Generally, "there will be no skills training" by Burnett, Nicholas says. That means those without a technical background will have a tough time convincing recruiters to give them a chance even at lower-paying jobs, much less highly skilled, long-term contracts.

Other problems with high tech temping abound. Often, the pay lags far behind that of full-time workers, although industry officials say that, on average, contract workers' pay is as much as one-third higher than permanent employees'. Chad Macy, a recruiter with Advanced Technical Resources, a high tech staffing firm in Austin, says contracts typically pay higher "because you eliminate the opportunity for company benefits and the security of having a permanent job ... You're taking a risk, knowing you might not have a job at any moment."

But others, including Preston Conner, founder of the National Alliance for Part-time and Temporary Workers -- formed when a group of Kansas City workers were laid off and rehired as temps for less than their previous pay -- say that's a gross overstatement of contract workers' wages. Contractors, Conner says, "ordinarily earn 80 cents on the dollar in straight pay. When you consider the fact that they don't qualify for benefits and pensions, that goes down to 60 cents on the dollar."

All of the recruiting firms contacted by the Chronicle offered benefits packages to some or all of their employees; some, including Manpower, also offer 401(k)s and other employee benefits. But most temporary workers -- around 97%, according to a study by the Employment Policy Institute -- choose to go without benefits rather than pay their often-steep portion of the insurance companies' premiums; 43% of those have insurance through other sources, such as a spouse. (In contrast, 73% of standard full-time workers have insurance through their employer, and another 15% have it through another source, according to the Bureau of Labor Statistics.) Although a 1999 report by the pro-business Employment Policy Foundation found it "interesting to note how few temporary help employees who are eligible for benefits actually choose to participate in the plans they are offered," what the report doesn't note is that, like most of the perks offered to temps and contract workers, health insurance comes at a steep, often prohibitive, price. In 1999, according to a report by the U.S. General Accounting Office, 46% of temp workers who chose not to participate in their employers' health plans did so because the plans were too expensive.

For Cochran, who was offered benefits by Burnett, the cost was simply too steep to justify. What drew Cochran to work at Tivoli was the possibility of permanent employment, not a fat benefits package. So, Cochran says, she chose to go without. "Part of the thing was I expected to get hired on, but then they just kept reorganizing."

Most people look at contract situations and say they want a permanent job or they want out, says Deborah Nicholas, a recruiter for Burnett Personnel Services.
"Most people look at contract situations and say they want a permanent job or they want out," says Deborah Nicholas, a recruiter for Burnett Personnel Services. (Photo By John Anderson)

Another temporary worker, who did not want his name or position used in this story, had a far different experience working for Spherion, Dell's on-site recruiting firm. Although the worker paid the company a premium for his benefits during his five months as a Dell contractor, he says the cost "wasn't too bad" overall. The only problem: "With Spherion, the main thing was that with sick days, you don't get paid." That policy cost the employee five days' pay last year. Although he and other contract workers (designated at Dell by red badges, to distinguish them from Dell employees, who wear blue) weren't allowed to participate in Dell contests or outings, he says the "only thing that really bugged me was, we couldn't use the workout room. That really annoyed me." (Steve Taylor, a spokesman for Applied Materials, which does offer contract workers many employee perks, says liability issues prevent companies like Applied Materials and Dell from letting temps into their fitness facilities).

But this temp worker's story does have a happy ending: Just last month, he was offered a permanent job at Dell, along with a hefty 25% raise. As a regular employee, the former temp also gets medical benefits, a retirement package, stock options, and a profit-sharing plan. Looking back on his experience as a contract worker, he compares it to a rite of passage: "It's not like you're lesser [as a contract worker] in any way; it's more like being a pledge in a fraternity."


Permanent Waive

If only every contract worker were so fortunate. As high tech firms have worked to reduce costs and satisfy an increasingly temperamental market, more and more of them have turned to temps to do the work that full-time permanent employees used to do. The temp boom has given rise to a phenomenon known as "permatemping" -- hiring employees through temporary or contract firms on indefinite or long-term contracts, without any guarantee that they will eventually be hired on at permanent, full-time status. In a 1998 article, Wired magazine traced the rise of permatemping to the early 1990s, when the IRS forced many companies to pay overdue taxes on workers they had misclassified as independent contractors. In response, the companies made their workers sign up with temporary agencies and reapply for their former jobs, at less pay and without company perks and benefits.

Since then, the number of long-term temps has mushroomed to at least a quarter of all temporary workers, according to the American Staffing Association's own estimates. Microsoft, in particular, became notorious for its open-ended contract policy, which spawned a lawsuit that was recently settled for $97 million. "I know of one person who was at Microsoft for 14 years" as a temp, NAPTE's Conner says. "A lot of companies have used temp agencies for permanent staffing, and temps become permatemps." Here in Austin, according to recruiters, typical contracts at companies like Applied Materials and IBM last one year, although recruiter Kaye says those are usually extended when the year is up. (The Dell employee, whose originalcontract was for 90 days, spent five months temping for Spherion before Dell hired him as a permanent employee.) The staffing industry, for its part, says long-term temps make up only a tiny percentage of the total temporary workforce. And those workers, the ASA's Brogan says, tend to be "more highly educated, more highly paid, and they largely tend to prefer the arrangement." Among high tech temps in general, Brogan says, "the vast majority ... 81%, said they would not want a permanent job."

According to the staffing industry, people take temporary jobs for many reasons, including family obligations, the need for flexibility, and the inability to get a permanent job. But by far the most common reason, most recruiters agree, is the desire to land a permanent job with a company. "Most people look at contract situations and say they want a permanent job or they want out," says Burnett recruiter Nicholas.

But increasingly, high tech temporary jobs aren't so much a bridge to permanent employment as a stairway to nowhere. According to a 2000 report by the American Staffing Association, most companies hire contract workers for four reasons: to boost staffing during cyclical business increases; as substitute workers for employees who are temporarily absent; for help on special short-term projects; and to save money on wages and benefits. None of which suggests the kind of stable, long-term positions people like Cochran -- and the approximately 64% of temporary workers who, like her, are looking for permanent jobs -- are hoping to secure. Macy, the recruiter with Advanced Technical Resources, agrees that companies' motives in hiring contract workers are far from altruistic. "First, there's the convenience of not having to go through all the work to find somebody," Macy says. "Then there's the risk factor -- you want to make sure you find the right employee." Finally, "a lot of times they'll hire people to staff up projects. If something has a definite ending date, you don't want to be hiring people permanently to do it."

In many ways, the boom in information technology that has created a need for more high tech workers has also led to the downsizing of the full-time, permanent workforce, says Sara Horowitz, executive director of Working Today, a nonprofit advocacy organization for independent and nontraditional workers. "Now we have changes in technology where employers have much more knowledge more quickly," Horowitz says. "So whereas once employers had to stockpile labor because they didn't know how many orders they were going to have, now they can increase and decrease labor as they need to."

And hiring through a staffing agency doesn't just decrease costs for employers; it also makes their jobs easier and less complicated. "We go through the trouble of screening, background checks, and recruiting up front," explains Manpower's Kaye. "We pay the person, issue their W-2 at the end of the year; there's no obligation on our client's part to that employee. They don't have to issue the check, they don't have to issue W-2s, they don't have to administer benefits." If contract agencies can do all that, advocates for temp workers worry, what incentive is there for companies to hire permanent, full-time workers in the first place?


Temporary Insanity

Adding to that problem is the burgeoning size of the temp industry -- and the enormous difficulty inherent in organizing and rallying such a large and mobile workforce to action. Currently, about three million workers (up 150% since 1990) are hired on any given day by the 7,000 temp agencies that have sprouted around the United States. In the Austin area, the number of staffing firms grew from 94 to 151 between 1996 and the first quarter of 2000, according to the Austin Business Journal; meanwhile, the number of people employed by those companies locally increased from 11,274 to 16,496, with most of that growth in computer-oriented positions.

Add to that the decline of unionization nationwide and a turnover rate in the staffing industry of over 400%, and organizing temp workers starts to resemble trying to hold onto an eel. "It's very difficult to get access to [temporary workers]," says Rick Levy, legal director of the Texas AFL-CIO. "They move around, they're divided by geography, they don't have an opportunity to build a community with the people with whom they work. ... It's hard enough to organize employees in Texas" who have permanent jobs, Levy says. "It's even more difficult to organize people that move from place to place."

In many cases, the law is also on the employer's side. For example, many temp workers are excluded from the Family and Medical Leave Act -- the federal law that allows workers to take unpaid leave for family and medical purposes -- because they fail to meet minimum job tenure requirements. In some states, contract workers find it hard to get unemployment benefits because they don't meet the minimum earnings requirement or because they left a staffing agency "without good cause" when their job conditions changed. And federal law conspires to keep most temps out of unions, requiring that temps obtain the approval of their employer (or employers, if the worker reports to both a temp agency and the client company) and demonstrate a sufficient "community of interest" with permanent workers before they can join a union. In theory, Levy says, protections for temporary workers do exist, "but workers are so marginalized in terms of what rights they have and who they work for. They're a very vulnerable section of the population."

A few efforts at unionization among contract workers -- mostly on the West Coast, where the high tech industry is large and well-established -- have met with modest success. The most prominent of these, WashTech in the state of Washington, filed the class-action lawsuit that resulted in Microsoft's $97 million settlement and an industrywide re-evaluation of what it means to be a "temporary" worker. Meanwhile, the National Alliance for Fair Employment has drafted codes of conduct that would pressure temporary agencies to provide their workers with detailed job descriptions, ensure they get the same safety equipment as permanent workers, allow them to register through several employment agencies, and allow those who work at unionized companies to join in collective bargaining agreements.

The monkey wrench in all this progress, of course, is the declining -- some would say collapsing -- economy, which threatens to push all efforts at unionizing temporary workers (not to mention improving their working conditions and wages) way, way onto the back burner of popular concern. Because the corollary to the presence of more workers in the marketplace is, of course, a reduction in the value of those workers. When supply outstrips demand, pay -- and job stability -- almost inevitably declines.

At Applied Materials, that lesson was made painfully material in February, when 750 temp workers -- half the company's temporary workforce -- came to work to find that their jobs had been "eliminated," in the words of Applied spokesman Steve Taylor. "In the past, sometimes the [economic] down cycle has been so bad that we've had to lay off permanent workers, but in general temporary workers will exit first," Taylor says. "It's hard to justify letting go of regular full-time workers when you have temporary workers still there." After all, Taylor says, firing permanent workers "doesn't build a strong company. ... As bad as it is to fire temporary workers, it's terrible to fire people who work for the company."

But don't feel too bad for those "eliminated" workers. Chances are they'll get other jobs soon enough -- perhaps with less stability, and perhaps at lower pay, but at least they'll be working. "Typically, as markets slow down, what slows down is the need for permanent employees," says recruiter Macy. "A lot of times you still have a need for contract employees, for that flexibility." As companies like Applied Materials quietly eliminate permanent positions through attrition -- a common practice among companies that are trying to scale back their workforce -- their need for temporary labor at crunch times can only soar, ensuring that agencies like Burnett, Manpower, and ATR will have a place in Austin's economy for a long time to come. end story

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KEYWORDS FOR THIS STORY

temporary workers, Manpower, Shirley Kaye, Applied Materials, Steve Taylor, Chad Macy, Advanced Technical Resources, Preston Conner, Sara Horowitz, Rick Levy, Burnett Personnel Services, Deborah Nicholas, Lynn Cochran, Vaughan Heilman, Dell, Spherion, Tivoli, temp workers

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