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Episode 33
371 Plays1 year ago
News for the week beginning 16 October 2023 and Question(s) of the Week : "Why are some recruitment companies and labour hire firms failing in the current market and what are the early warning signs of trouble?
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Transcript
Controversial Employment Course
00:00:08
Speaker
This is the news for the week beginning the 16th of October, 2023. A taxpayer funded course run by one of Australia's biggest employment service providers gives job seekers instructions on how to shower properly and asks them in a questionnaire if one of the reasons they are unemployed is because they are overweight or lazy, according to a report in The Guardian last Friday. Wise employment is among dozens of privatized job agencies contracted by the federal government
00:00:35
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to run the $500 million Employability Skills Training Program to help job seekers become job-ready by providing intensive pre-employment training. According to the course workbook, job seekers are initially asked to complete a questionnaire about their barriers to employment.
00:00:52
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Do you have barriers to employment you need to acknowledge and control? The job seeker is asked before being told to tick the ones that are applicable. The list of dozens of possible answers includes being overweight or underweight, being lazy, not wanting to come off welfare payments or having a bad attitude. Job seekers are then asked to write out solutions to how they will control and overcome these issues.
00:01:15
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In another section that advises job seekers on the importance of personal presentation in the workplace, job seekers are instructed on how to have proper hygiene and are given directions on showering, washing their hair and shaving on a daily basis.
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After being contacted by the Guardian, Wise Employment said the material was inappropriate and that it had suspended new referrals to the subcontractor Paramount Training. The Secretary of the Department of Employment and Workplace Relations issued a direct warning to job agencies about training earlier this year, saying, it fails the pub test. It does not meet community expectations and it does not meet my expectations. A department spokesperson declined to say,
00:01:56
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whether the materials in the wise course passed the pub test.
ANZ Fee Decline
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Hayes ANZ net fees for the quarter ended 30 September 2023 fell by 17% according to results released last week. Permanent placement fees were down 24% while temp net margin decreased by 13%. Private sector fees decreased by 20% with the public sector down 11%.
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On a state by state basis, New South Wales suffered the largest fall with a 22% decline. Western Australia was the most resilient state with an 8% fall. On a specialization level, Hayes ANZ's largest specialism, construction and property, decreased by 24% and IT the second largest specialism fell by 21%. ANZ consultant headcount at the end of September was 1,006, a decrease of 6% in the quarter,
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represents a 14% year on year 4.
Nobel Prize in Economics
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Claudia Golden, a professor at Harvard University, was awarded the Nobel Prize in Economics last Monday for her research into women's income and employment.
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The Royal Swedish Academy of Sciences said Golden had uncovered key drivers of gender differences in the labour market. After analysing more than 200 years of US data, Golden was able to demonstrate that much of the gender pay gap could historically be explained by differences in education and occupation. However, Golden has shown that the bulk of this earnings difference is now between men and women in the same occupation and that it largely arises with the birth of the first child, the Academy said.
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Born in 1946 in New York, Golden is the third woman to win the Nobel Economics Prize.
Recruitment Insolvency Crisis
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Public insolvency notices published by the Australian Securities and Investment Commission show a range of staffing companies such as the Nudge Group, Digital Guru's recruitment and multiple labour hire businesses have fallen into the hands of liquidators or administrators over the past four months, according to a report last week in the Sydney Morning Herald.
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National insolvency firm McKay Goodwin director Graham Ward, who is the administrator for digital gurus, said times were challenging for recruiters amid fierce competition for new candidates. A broader collapse in the construction industry, including high-profile businesses Porter Davis and Mayer Corp, has reverberated through labour hire companies such as Duet Recruitment, ARI Recruitment, Collarup Recruitment, GRB365 Recruitment and PG Labor Services.
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who have called in administrators as their work dries up. Insolvency Australia director Gareth Gammon observed that recruitment agencies were struggling with more vacancies than they could find qualified candidates for. I think the employee has got fear at the moment. They don't want to lose their job, their entitlements. So there isn't a lot of movement between roles at the moment. So the merry-go-round has almost stopped, Gammon said. In the 2023 financial year, nearly 8,000 Australian companies entered into external administration.
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an increase of nearly 50% on the previous year, prompting some experts to describe the situation as an insolvency Armageddon.
Robert Walters & Page Group Challenges
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In its trading update for the third quarter ended 30 September 2023, Robert Walters ANZ reported that net fee income declined 23% in constant currency. Global net fee income for the third quarter was down 13% in constant currency when compared to the same period a year ago.
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Across the group, Robert Welter's headcount was down 2% quarter on quarter to 4,200. Page Group reported their group's profit declined 7.9% in constant currency in the third quarter of 2023 compared to the same period last year. Gross profit from permanent placements declined 12.1%, while gross profit from temps rose 5.8%.
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Total page group headcount of 8140 is now 10.7% lower than at the end of the third quarter last year. Productivity as measured by gross profit per fee earner was up 4% compared to the third quarter of 2022. Page group Australia's gross profit declined 11% compared to a decline of 4% in the June quarter.
ComBank Job Cuts
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The Financial Sector Union said that it had been told by the Commonwealth Bank that another 192 jobs would be lost in back office operations in Sydney, Melbourne and Perth due to an automation initiative. Earlier this week, the FSU said the jobs to go included 47 in consumer finance, 21 in everyday banking, 87 in home buying operations and 9 in lending at subsidiary Bankwest.
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It said the latest cutbacks brought job losses at the Commonwealth in the past year to 1,085. The union said that between them, the four big banks had cut more than 2,000 jobs in the past 12 months. ComBank has told the union that automation initiatives in retail banking and home lending had to simplify processes, triggering the latest staffing cuts.
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Late last year, the traffic project led by 60 Minutes the Age in the Sydney Morning Herald reported allegations of visa rorts, sex trafficking and foreign worker exploitation. As a result, the Minister for Home Affairs established the rapid review into the exploitation of Australia's visa system led by former Victoria Police Commissioner Christine Nixon. The declassified version of Ms Nixon's report was released two weeks ago, and one of the five findings specifically addressed the employment of residents on a temporary visa.
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Amongst the report's 34 recommendations, there were six directly pertaining to the employment of temporary migrants. In the federal government's response to the report, it agreed with three of these recommendations, including strengthening powers to enable visa cancellation, or a visa holder is found to be exploiting temporary migrants.
Visa Exploitation Review
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It disagreed with two recommendations, including the recommendations to prohibit temporary migrants working in the sex industry, including as business owner operators.
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and it agreed in part with one recommendation. Home Affairs Minister Claire O'Neill said the government was committed to spending an additional $50 million to create a new division in the Department of Home Affairs to increase immigration compliance.
New Zealand Salary Increase
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The average salary in New Zealand rose by 8% in the third quarter of 2023, when compared to the same period a year ago, according to data from TradeMeJobs.
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The 8% increase was slightly higher than the latest inflation figures from Statistics New Zealand at 6%. Pharmacists took the top spot seeing the largest average salary increase of any role at 20%, estimators in construction and roading jumped 19%, and psychologists and counsellors experienced the third highest bump in average pay at 18%. Job listings were down 7.9% in the third quarter of 2023 when compared to the previous quarter.
AI Replaces Support Staff at Dukan
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The CEO of an Indian e-commerce firm has replaced 90% of his company's support staff with a chatbot named Lena, amid debates on the impact of AI on the labor market. The layoffs at e-commerce firm Dukan took place earlier this year as revealed by its CEO, Sumit Shah on X, formerly Twitter. We had to lay off 90% of our support team because of this AI chatbot, Shah said in July. Tough, yes, necessary, absolutely.
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The AI chat bot can replace almost all common questions about DuCan instantly and accurately. With Sha adding, it was also able to answer account-specific questions. According to Sha, resolution time was reduced from more than two hours to around three minutes, while the time to first response went from less than two minutes to an instant. It was a no-brainer for me to replace the entire team with a bot, which is like 100 times smarter and who cost me like 100th of what I used to pay the support team, Sha told the Washington Post.
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And now your recruitment news is up to date for week commencing 16th of October, 2023.
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00:10:07
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Recruitment Industry Struggles
00:10:24
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And thanks for listening.
00:10:33
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Question of the week this week is prompted by a recent article in the Sydney Morning Herald entitled, Recruitment. Labour hire companies collapse amid worker reluctance to swap jobs. The article opens. The spate of recruitment and labour hire companies have crumbled recently as the slowing economy makes employers more reluctant to fork out money to external recruitment firms who are struggling to fill job vacancies with qualified candidates. Public insolvency notices published by ASIC
00:11:03
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a range of staffing companies such as the Nudge Group, Digital Guru's recruitment and multiple labour high businesses have fallen into the hands of liquidators or administrators over the past four months. So part one in our question of the week is why is this happening Adil? Yeah, according to that article, it sort of makes it sound like it does occur in larger numbers in our industry, in the recruitment industry.
00:11:32
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And I think we have to obviously acknowledge that it starts with the fact that there's very low barriers to start up, low barriers to entry into our industry. You can virtually decide to create a recruitment firm and overnight start up the next day. So it's very easy to start, which doesn't necessarily mean that you're going to be successful and therefore perhaps the result is more firms closing up. But there are a number of factors that go into
00:11:58
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the kinds of businesses that start up, right, Russ? Like I think it kind of falls into two categories. Yeah, it does. I mean, in my experience, you've got the people who are currently employees of recruitment or labour high businesses, they look at what their boss or bosses are doing, and they think I could do it better or I want to do it better. And so they start up their own business. And then of course, you've got the second category, those external to the recruitment industry,
00:12:29
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who work inside a sector. So for example, a nurse looks at their experience in working with a recruitment agency or recruitment agencies or a nursing manager, and they go, you know what? I've never worked in a recruitment business, but I reckon I can do this better than the businesses that I'm dealing with. And they decide to set up a recruitment business. Yeah, I would agree with those two categories. Certainly in people that I speak to that are startup, they do seem to fall into one of those two. And what is common between the two is that
00:12:59
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They have a very high optimism for success. They think that they're going to do really well because they either have years of recruitment experience and I know how to do it better, or I've got that industry knowledge and I can go out and do it better than other agencies that are out there. But they miss a few things, right, Ross? It's a lot more complex than people realize.
00:13:19
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Yes, optimism absolutely is there, but the understanding of business, because understanding recruitment is one thing. Understanding how to take in a job and fill a job, like that's not that complex really, but it's everything that underpins a business. So a very simple example would be cashflow.
00:13:44
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Now, what I've heard business advisors say about cash flow is you really need six months cash flow as your fallback. In other words, budget for six months of costs and no income.
00:14:01
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And that's the amount of money you need. Whereas I think many people look at the actual immediate costs of setting up a recruitment agency. They don't necessarily need an office. And they just go, oh, well, I can fund my own salary for two or three months. And they think that's enough. And they completely underestimate all of the additional costs that they need to invest to set the business up.
00:14:26
Speaker
Yeah, absolutely. There's definite complexity to things as we know, such as compliance requirements like labour hire licenses and safety requirements and even just having the right contracts in place and legal documentation to make sure you're protected. So the complexity of the setup I think is something that people really underestimate. And then the competition as well, I think people do
00:14:55
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think that they've got a brand new idea. I've certainly been really surprised to speak to a startup agency owner who thought that they were the first person coming up with the idea to create a nursing recruitment agency as if no one had done it before, you know, they really haven't done their research. Yeah, I think people just have no sense of competition and how tight the margins are in some sectors. They think
00:15:22
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Oh, you know, nursing or labor hire, there's lots of work, but also there's lots of competition. So I think we could summarize that why in
Recruitment Business Red Flags
00:15:31
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three Cs it's cashflow, it's complexity slash compliance, and it's also competition. All right, well, let's move on to part two of the question. What are the things to look out for? What's the canary in the coal mine, Adil?
00:15:50
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the early warning signs that things may be on a slippery slope. There's a number of things to watch out for here. I think the first one's got to be around working on jobs that you're not filling. If you are working harder for less money, that's got to be a huge indicator. If you've got a low fill rate, jobs are coming in and you're not filling them, that's got to be the first one for me. Yeah.
00:16:18
Speaker
And to me, this is one of the critical things to be monitoring your fill rate, because this is critical. If your fill rate is declining, that means you are working on more jobs that you are not getting paid for. Second, I would say is your ratio or percentage of your gross profit that's going to salaries, wages and commissions. So if you're
00:16:47
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Up above 55% of gross profit and it's heading towards 60 and it's continuing to increase. To me, that is a big red flashing light because if you're overpaying people in terms of commission or salaries, then that is something that is very hard to turn around. And that's something that again, you should be looking at every month with a P&L percentage of staff salaries.
00:17:17
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remuneration commission that's being paid out as a percentage of gross profit. What other indicators Ross? Average debtor days, again, if the money that is owed to you is being paid more slowly, that is a big red flashing light. So just using example, if your average debtor days were 28 in May and July they're 33 and in August they're 34 and September they're 37,
00:17:47
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and October the 39th, it's like, okay, that is clearly an indicator that your customers who owe you money are finding it difficult to get the money from their customers and they're slowing down payments. It's all well and good to look at your P&L and go, well, broadly, the business is profitable, but you can't pay bills out of a P&L statement. You pay bills out of cash. So the cash has got to be coming in. Hmm.
00:18:16
Speaker
I think also looking at new business and conversions, that's the hot topic at the moment around business development and building relationships and enforcing client relationships so that they're strong. I think that is a really good key indicator as well. If your new business flow is reducing, i.e. the number of new clients coming on board or your ability to convert clients has dwindled as well, I think that's definitely something to watch in this current market.
00:18:44
Speaker
Without doubt, and this is something, again, you should be monitoring on a monthly or quarterly basis. So if your business is typically bringing in 20 new customers per quarter and then in the most recent quarter, that was down to 11. And in the quarter to date, you've only got two. Again, that would be quite a significant factor to be concerned with. And I think probably the final one is time to fill.
00:19:09
Speaker
Because as we all know in the recruitment industry, we don't receive a bigger fee or we can't charge a higher margin for taking longer to fill a job. It simply becomes less profitable the longer we take to fill a job. So keeping a very close eye on time to fill, time to fill for temp and contract roles and time to fill for permanent roles. Okay. So as a quick summary on that second part of this question, what we're saying is
00:19:35
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Monitor your debtor days really closely. Make sure that you're watching the money that's in the bank. Any time when the cash is dwindling in the bank is a bad sign. So watch those debtor days. Watch your time to fill. How long is it taking you to fill jobs? And watch your fill rate of the jobs that you're getting in. How many are you actually converting into a sale? And all of those things have even more importance as we head into Christmas New Year.
00:20:03
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where it can be even more difficult from a cashflow and job flow point of view. So that's it, Adele. Let's hope that everyone listening is not in the boat of having sweaty palms about the long-term future of their business at the moment. And now you're up to date with your recruitment news.
00:20:29
Speaker
And for all previous episodes, visit our website at recruitmentnewsaustralia.com.au. And connect with us on LinkedIn, Ross Clannett and Adele Last.