By Paul Wiseman
There are many degrees of outsourcing, from using a service to vet and hire employees for the end user, to sending all work for a department such as Human Resources to another company. Some of those are doing better than others in this economy. Companies who handle the outsourcing of HR are doing better than most, even acquiring new clients. But that success is due as much to the increasing complexities of the Affordable Care Act as to the economic impact.
With employee leasing and hiring, times are tough. At least one Permian Basin staffing company has shut down its staffing department due to clients who stopped hiring and, in too many cases, went out of business.
Downturns push businesses to evaluate costs
Houston-based G&A Partners, an HR outsourcing company, has had their share of clients close their doors since the start of 2015. But the same bust that has sunk some ships has made those still afloat look more closely at ways to cut costs, and one of those ways is often the offboarding of the Human Resources department, said John W. Allen, G&A cofounder and President/COO.
G&A’s client list includes small, medium and large businesses that have outsourced their HR functions in order to concentrate on their core business—which, in very many cases, is oil and gas. A typical scenario involves G&A placing a small number of employees at the client site, with the rest of the client’s work being done by people at the G&A office. Allen pointed out that this cuts costs by keeping the client from having so many staff dedicated to one task. At G&A, employees can work as long as needed for client A, then shift their attention to client B or C in order to stay productive.
“A lot of companies are downsizing,” he said, recalling one Houston client who has reduced its workforce from 165 to 100 and another in the Permian Basin that has had to lay off half its workforce.
“I just made a proposal to a large oil and gas company that’s downsizing considerably. They were at 5,000, now they’re at 1,500. They’ve already cut a lot of employees, and now what they’re doing—they had a 20-person HR department and they wanted to get rid of everybody who had anything to do with HR, and just do what they absolutely had to do from a transactional perspective to comply with the law. It’s all really about survival at this point.”
And it is precisely at “this point” that other companies begin looking at HR outsourcing for the same reason. “When the economy is rocking along, people are much more reluctant to abandon the status quo. It’s not until things go south, and people begin to struggle, that they take a good hard look at, ‘How can we do things better?’ So, as strange as it sounds, difficult times can actually be good for us.” He quickly added, “On the one hand we’ll lose clients that struggle in this economy and go out of business, but on the other hand we’ll bring on new clients who finally see the value in outsourcing their HR, both in cost and from a focus perspective.”
Allen gladly admits to following his own philosophy, saying, “We’ve outsourced our CFO for the past two years. My partner (co-founder and Chairman/CEO Antonio R. Grijalva) and I are both CPAs. So, while we could do the CFO’s work, that’s not the role we need to play in the organization, so we outsource it.”
The Affordable Care Act overwhelms smaller HRs
Looking to the future, Allen mused, “As government regulations become more and more complex—as owning and operating a business becomes more and more difficult—I think the demand for our services will increase.”
This is actually already happening. “The Affordable Care Act has had a tremendous impact on the growth of our business over the last three or four years.” The fact that companies do not know how to comply with the complex ACA regulations—Allen said he had heard that as many as 100 pages of new regulations are being written every day—G&A is contacted by many companies who would never before have even thought about outsourcing HR.
“So, sadly—because, individually, I’m opposed to more and more regulations—oddly, it’s actually good for my business.”
Also sadly, this hasn’t been all that great for everybody’s business.
Retrenching in the Bust
After providing oilfield staff in a number of fields for six-plus years (she’s been in the staffing business herself for 15 years), Absolute Professionals owner Tamara Powers had to shut down the staffing portion of her business in 2015 in order to concentrate on employee recruitment—ironically, the only part of her business that’s still doing well.
“This economy drove us out of the temp business,” she said, acknowledging that the change was due to several factors. Many of her clients shut their doors and others couldn’t reimburse her when she paid their workers’ salaries and benefits, so that was one huge set of hits. One client called and cancelled 50 workers in one day.
Then, in order to try to keep or gain other business, Powers had to reduce her rates. But the rates she paid for unemployment and worker’s comp remained the same, so her profits were squeezed. Whereas employee leasing had been 70 percent of Absolute’s business—she had locations in Odessa and in Houston—it withered away until the sector that had been just 30 percent of her business, recruiting, was all that was left.
The news is not all bad, she said. “There are companies hiring now, but it’s kind of hit-or-miss in the Permian Basin. I’m very busy with my direct hiring recruiting—which is unusual because, usually, when the economy’s like this, people don’t want to hire.”
“Another thing is, companies can’t afford the insurance they have to provide for employees—especially the smaller companies.” Those companies deal with that by hiring through a temp agency, she said, but in much smaller numbers and at lower salaries than during the boom.
As with most supply-and-demand issues in the Oil Patch, the number of jobs rarely matches exactly with the number of qualified applicants. Two years ago, it was difficult to find qualified workers to fill all the positions. Now, there are extremely qualified and well-experienced people looking for new opportunities and finding few.
Powers sees the stress on families that were used to the father and/or mother getting hours and hours of overtime, but now are barely working 24-32 hours a week just to keep a job, if they have one at all. Many are taking lower-wage jobs.
Leasing vs Staffing
Midland’s Staffing Resources provides employment help in another way—through staffing. The company’s Fran Hawke explained the difference between leasing and staffing.
“What we do in the staffing market, is, we have clients that will ask us to ‘payroll’ their employees. Employee leasing involves supervising their employees—maybe it gets into co-employment when you say employee leasing. We don’t supervise their employees. We simply payroll them. We provide a paycheck, we withhold taxes, all the employer-related responsibilities.”
Employee leasing companies typically cover all employees at a company, or, in the case of G&A, all those in one department.
What jobs are still out there are in narrowly focused areas. There are more requests for back-office jobs like production accounting than engineers, geologists, and others who are focused on the field.
As for the types of employers, Hawke and Staffing’s Debbie Court said that service companies were the first to lay off workers. But production companies are the ones hiring for accounting departments. Hawke and Court are co-owners of Staffing Resources along with company founder Patricia Gomez.
And while some small-to-mid size companies are hiring, many have taken those hiring processes in-house rather than use a service like Staffing Resources because there are now so many qualified candidates looking for jobs. Plus, with the slowdown, companies have more time to do their own hiring than in 2014 when everyone was working hours of overtime.
And while salaries are indeed on the downswing, Hawke and Court are surprised at how small the decreases are—so far. They’re seeing reductions in the 14-15 percent range, which is less than expected.
Danos provides now, looks to future
Louisiana-based Danos has been active in employee leasing in the Permian Basin for about four years, and is finding there’s still a demand for I&E (Instrumentation and Electrical), mechanics, and lease operators in the area, according to Heather Lott, the Permian office’s senior recruiter. While they currently concentrate on upstream jobs, the company is looking into coating and other midstream-related jobs.
“We’re being affected a little bit by the price of oil, but I’m still hiring, I’m still looking for more candidates out in this area, that meet the criteria of our clients,” she said. “We still need folks to operate oil and gas production out here. It’s good business for us.”
Before starting with Danos in 2015, Lott herself was a production manager, “So I’ve done the job I’m hiring for,” she said. It’s a plus for her in that it helps her significantly in qualifying potential hires.
Painting and coating and I&E are areas in which there seems to be job growth, she said, along with electricians. “That’s a pretty hot item out here. It’s pretty difficult to find skilled employees that have an I&E and electrical background,” Lott said.
Finding good applicants is easier because employers are letting go of “some pretty good people,” but those that have been let go are having trouble adjusting to the reality of lower salaries and/or fewer hours at their next job. Still, finding the candidate with the right experience and who can pass the background check is not a slam-dunk, even in this economy.
Production for many companies continues to grow, but at low commodity prices, they can’t hire the number of people needed to get the work done. Firms are reorganizing and trying to get creative to manage. “It’s kind of a balancing act out here right now… That’s where Danos comes in—we help where we can with our clients, and I know our account managers work hard to help our clients in that regard, to have the manpower that they need and still meet their budget.”
She noted that one reason companies turn to Danos is that, as a company operating in multiple regions, Danos can bring candidates in from other areas, expanding the pool of workers significantly.
Hiring doesn’t just come from the existing pool of experienced workers in Lott’s view. Noting the fact that previous oil busts have created a gap in age between those about to retire and those who are just now coming into the industry, she has spent significant time at college campuses and military bases, recruiting alumni from both systems.
“I expect as we see the price of oil going back up—we all are praying for oil to go back up—there’ll be greater expansion into the types of positions so that we can hire more entry-level people and get them trained and moved into upper-level positions eventually,” she said.
That’s because, right now, college graduates are competing for jobs with people who have years of experience—and while the recent graduates command lower salaries, they usually provide much less value to employers until they gain experience.
It would appear that outsourcing in one form or another is gaining ground due not just to the hopefully temporary situation of low oil prices, although that is a significant factor. The growing reach and complexity of government requirements in the area of health care and elsewhere puts significant pressure on companies in the small-to-medium range, that often can’t afford the staff needed to track and implement those regulations.
They also offer the flexibility to hire and fire in coordination with the expansion and contraction of oil prices. In the realm of coping mechanisms, outsourcing is moving higher and higher on the list of priorities.
Paul Wiseman is a freelance writer based in Midland and a regular contributor to