Contracting workers to other businesses has been growing area for employment, and the competition is increasing. By JASON BAKER of IBISWorld
By Jason Baker
The contract staff employment industry in Australia has been performing well in the last five years. Industry revenue is estimated to have increased at an annual average rate of 2.3% in the five years to 2006-07, held back only by a shortage of labour.
In this industry, companies supply their own employees to other businesses on a fee or contract basis. Assignments are mainly short term and performed under the supervision of staff of the client.
About 96% of industry revenue is derived from the on-hiring of staff to private and public sector companies.
Competition in this industry is mainly price based, and competition is increasing. For the more successful companies, the key to their success has been their personal relationships which have been developed between their firm and their clients, the quality of service offered, and ensuring their client’s continued satisfaction with the service and the results achieved.
Operators have suggested that it is necessary to have good cash flow or cash reserves to operate successfully in this industry to cover the time period between paying contracted staff wages and on-costs and receiving payment from clients.
The major barrier to the growth of this industry is that it is tied to the overall demand and supply situation for labour.
However, the increasing flexibility of employment arrangements, increasing government and business sector outsourcing of non-core or short term activities and enterprise agreements, allowing for more flexible work arrangements to be negotiated between staff and a diverse group of skilled employees, will continue to assist the growth of this industry over the longer term.
In general, this industry will continue to enjoy the benefits resulting from the increasing need for a more flexible, but skilled, workforce and working arrangements by employers to undertake short term projects and to fill short term surges in demand for their products or services. The opposite is also true, however, as demand decreases and clients seek to lay off their excess labour requirements and the demand for the services of this industry decreases.
Revenue for the five years to 2011-12 is expected to increase at an average annual rate of 3.2% per year.
The industry will always remain very price competitive, mainly driven by competition and the demands of clients, and profit margins will always remain low.
State government and union interest in the activities of parts of this industry, with an emphasis on wages and conditions, including occupational health and safety, is increasing. There has been a call by the ACTU to licence industry operators.
In November 2006, a majority ruling by the High Court affirmed that the Federal Government has powers under the Corporations Powers in the Constitution to set wages and conditions for employees. This judgement could have significant implications for the employment of workers, including on a temporary basis directly by employees, instead of through agencies, and could have adverse impacts on this industry.
So the outlook is positive for the industry. Trends in employment and working conditions will ensure that demand is there, however heavy price-based competition will hinder very strong revenue growth.
For further Industry Trends stories, click here.