Labor Reserves an Issue, but Temping Growing as a Flexible Alternative

BBJ: What differentiates temp agencies from recruitment agencies?

Péter Berta: The point of both services is to find the right employee, whether it is temporary work or recruitment. The difference is whether the client then employs the worker on a temporary basis or hires them to its own staff. I see it as more important to differentiate between blue- and white-collar recruitment and selection processes, as they are determined by different criteria, and we specialize our services in these two areas. At WHC, a separate team of experts is dedicated to recruiting and employing blue- and white-collar staff.

István Bojó: Each type of agency serves different needs within the employment market and offers distinct services to clients and candidates. Temp agencies specialize in providing flexible solutions to employers and job seekers. For employers, we offer quick access to workers, allowing them to adjust workforce levels according to fluctuating demand. Additionally, we handle recruitment, screening, payroll administration and everything else in a complex package, saving employers time and resources.

Gergely Gáspár: To serve the market properly, it is not a question of defining the differences but rather integrating the strengths of the two areas. Both competencies and skills must be present in the portfolio of a 360° HR service provider.

István Bojó

Csongor Juhász: Prohuman operates in both the temporary staffing and recruitment markets, so we are well experienced in those areas. As a provider of complex HR services, we can find tailor-made solutions for any staffing needs of any company. As a temp agency, we can provide flexible staffing solutions, accommodating the fluctuations of business demands seamlessly. In the realm of recruitment, we can match companies with talented professionals, leveraging our expertise in candidate selection.

Balázs G. Nagy: At recruitment, the focus is on finding, screening, interviewing, selecting suitable candidates and advising our client to make the right decision. Temp agencies provide shared employment responsibilities, finance the salary of the temporary employees and provide various administrative, payroll and sometimes workforce management support services. Recruitment in case of demand could be integrated into temporary workforce services.

Dominika Tóth: Temp agencies offer dynamic, short-term staffing solutions, especially for lower to mid-level positions, providing flexibility and rapid deployment of workers for seasonal or project-based needs. Recruitment agencies, meanwhile, focus on strategically placing candidates into permanent roles across various industries and levels, ensuring a perfect match for long-term employment. Our services cater to both these needs, recognizing that companies often require a mix of temporary and permanent staffing solutions.

Péter Berta

BBJ: What is the greatest challenge in the temp agency market in Hungary right now?

PB: For years, recruitment has been the biggest challenge in Hungary. The Hungarian labor market has finite reserves, and demand has been consistently high, thanks to company expansions and new investments. For this reason, where local Hungarian labor is no longer available, we are filling the staffing needs with foreign workers, mainly from Asia. We currently employ 6,000 temporary workers in Hungary, half of whom are foreign workers.

IB: Finding the workforce with the right skills and in sufficient quantity is a common challenge. There is a natural decline in the available pool of skilled workers, resulting in increased competition to secure talent. The mismatch between the skills demanded by employers and those possessed by available workers further compounds the issue. For example, more and more manufacturing companies require talent skilled in servicing automated industrial processes instead of manual labor.

GG: The extremely turbulent environment, including the transformation of economic structure, volatile market trends and new regulations. For companies, it is crucial to provide simultaneously stable and flexible, cost-effective, yet fully personalized services, adapting to the new regulatory environment. Additionally, digitalization and ESG considerations have become indispensable to establishing efficient and sustainable operations.

Dominika Tóth

Tímea Varjuné Horváth: The demands on the labor market have changed significantly in recent years, and employers have new tools to address them. Hiring agencies are playing an increasingly important role in this. The current economic downturn is being felt in the decline in partner orders, which is one of the current challenges for temporary agency work. According to KSH [Central Statistical Office] data, employment is at a very high level nationally, resulting in a shortage of workers moving freely in the labor market, making it difficult to fulfill high-demand orders. Employers’ expectations are becoming increasingly more demanding, so, in many cases, it takes months to fill a position at certain levels. The changing regulatory environment, increasing expectations of different jobs and the need to ensure a high quality of life for workers are complex challenges for temporary work agencies.

CsJ: It might sound like an old story, but finding and retaining employees with the necessary skills remains the most significant challenge. A distinct but closely related challenge is the activation of the labor reserve due to inactivity and the skills gap. We are launching programs to solve this, including initiatives targeting mothers, retirees, students, and people with disabilities. However, there is still a need for more retraining programs to facilitate the transition required to meet market demands.

Péter Laczi: The interpretation and implementation of the new rules related to the employment of third-country workers (the entry and residence conditions) and making the actors understand the changes in the law and the executive decrees are big tasks these days, at Pannon-Work too. In recent years, the profession has undergone numerous legislative changes, so I am sure that we will cope with this as well, but it is essential to remember that this is one of the most complicated of them all. Both the authorities and the newly created platform support our work, which has been an integral part of this activity until now.

Gergely Gáspár

BGN: The complex and apparent contradiction of labor shortages and economic recession. The extended payment terms are also challenging because the temp agency market, in general, is a low-margin, large-volume business. Clients request long payment terms, but they do not acknowledge the costs related to this. AI and robotization are considered the most significant future threats, but right now, they aren’t visible (with some isolated exceptions).

DT: Currently, the most significant challenge in the temp agency market in Hungary is the scarcity of candidates. Compared to the previous years, there has been a noticeable decrease in the number of applicants. This issue is particularly acute in the white-collar sector, where finding suitable candidates for positions has become increasingly difficult. The gap between the wage expectations of candidates and the salaries employers offer is widening, further complicating the recruitment process. This challenge is exacerbated by inflation.

Csongor Juhász

BBJ: How supportive is the legal environment for the temp market? What changes would you like to see?

PB: In my opinion, the Hungarian legislation on temporary agency work is good and goes a long way in helping companies in the recruitment process. We have always advocated that temporary agency work should be a regulated form of employment with strict conditions and free from abuse. This is in the interest of our employees, our clients and us.

GG: Alongside the demand for unskilled workers, there is an increasing need for skilled or highly skilled (domestic and foreign) temps. Regulatory support will also be required in these areas for the successful operation of the economy.

PL: Labor outsourcing as a service is a flexible, atypical form of employment that helps users respond quickly and efficiently to their labor shortage. The regulation has been through several decades of revisions. It would be nice to reach an agreement with a handshake to which both parties adhere, but I think this can only be a very distant vision. For now, the current legal framework and rules that protect the interests of the parties are necessary and must be observed.

Balázs Langó

Balázs Langó: In our view, the Hungarian regulatory environment rightly prioritizes local workers (and those who will hopefully return to Hungary) but also provides supplementary recruitment opportunities from third countries under strict immigration and labor inspectorate safeguards. The elevated headcount and professional requirements for qualified agencies further support compliance across the board. Thus, the workforce needs of clients can be fulfilled with a high degree of certainty and reliability in a compliant manner, and Hungary does not risk that future FDIs or existing investors’ expansion plans might flow elsewhere. The number of FDIs choosing Hungary is a testament to the viability of the regulatory environment.

BGN: It supports long-term temp engagements (five years). There is an easier process to employ third-country employees, but the current duty for this is uncompetitive. The government is initiating significant developments to enable digital administration. I would limit the payment terms for temp services to 15 days. In the case of insolvency of a client, the cost of the temp workforce should be considered in the same way as internal wages. When clients are contracting temp agencies on a fee that does not cover the wages and taxes of temp employees, in case of non-compliance, they should face the same consequence as the agency.

Péter Laczi

BBJ: Has the labor shortage changed? Can you easily find all the temps you need to serve the market?

PB: The recent economic downturn and stagnation have given companies some breathing space in terms of labor, as there is not that high demand for workers in the market. Nevertheless, the available Hungarian workforce remains limited, and when the economy starts to pick up in the second half of the year, there will be renewed competition for workers.

IB: The labor shortage persists, notably in sectors such as manufacturing, logistics, retail, and tourism. This is true not only for new investments or newly established plants but also for existing businesses, including expanding Hungarian-owned companies. Overall, new entrants into the labor market, such as young people, and the utilization of skilled non-EU labor in a controlled, limited and regulated fashion, have helped meet demand in various industries, albeit not always immediately or to the fullest extent.

GG: Although statistics indicate a loosening of the labor market, in reality, this can be considered a transitional period: classical sectors are still underperforming, while emerging industries are just about to take off. Furthermore, there is a growing interest in temporary work, attributed not only to third-country employment but also to the increasing demand for flexibility. The Hungarian labor reserve has gained value in the eyes of companies, yet reaching out to these people and activating them requires a strongly integrated recruitment adaptable to local conditions. Significant expansions in the workforce are unimaginable without foreign labor, whose importance will only increase further. Future success will require both stable Hungarian recruitment and flexible services providing third-country nationals.

Tímea Varjuné Horváth

TVH: Labor shortages vary nationally and by region. When a major investment is made somewhere, acute labor shortages occur relatively quickly in that area. Larger firms tend to siphon off the workforce of firms already operating there, affecting all labor market players. However, in many cases, the expectations of employers are not fully matched to the position, so after a while, much more energy and money are required to meet the market players’ needs. The increased investments also place greater labor demands on service providers, which cannot be met in a short time and with the expected quality by Hungarian workers alone.

CsJ: The labor shortage persists, particularly in regions where unemployment rates remain low, resulting in fierce competition for candidates. However, there’s a shift towards prioritizing skilled candidates, such as technicians and professionals with higher qualifications. On the employee side, there’s a noticeable trend towards more cautious job switching, driven by the uncertainty of global economics, with fewer individuals expressing intent to change jobs, opting for stability.

PL: Based on experience, it can be said that there are currently applicants for each advertisement, and there is no significant oversupply; surprisingly, depending on the position, it is even possible to choose from among candidates. It depends on the job, salary and working conditions. How long will this trend last? It is difficult to predict; based on feedback from our partners, it is conceivable this will change from the third quarter, but slowly. It will also be a decades-long roller coaster to which we have learned to adapt.

BL: Labor shortages are a complex issue. Manpower reserves do exist statistically, but there are significantly fewer workers who are able and willing to work. That said, as a qualified agency, we have a duty to prioritize the mobilization of the local labor reserve in partnership with our clients. A strict but investor-friendly labor and immigration environment effectively complements these efforts, so overall, we see no problem filling open positions for our clients.

BGN: Currently, there is a weird situation where the labor shortage and unemployment exist alongside each other. It creates a clear separation between more and less developed geographies and deepens the gap between the experienced, skilled, educated workforce and disadvantaged members of society. Activating or reactivating workforce reserves and developing education to match market needs better are critical to survival.

DT: Hungary’s labor shortage has not improved, making it difficult to find sufficient temporary workers to meet market demands. Despite the opportunity to employ skilled workers from third countries on specific projects for up to three years, this issue continues to pose a significant challenge. Moreover, the fundamental problem of a decreasing and aging population remains critical. Relying on foreign labor and employing students both underscore the need for a multifaceted approach to address the labor shortage effectively. This situation underscores the necessity for agencies to explore various solutions, including incorporating international workers, to meet the labor demands of the Hungarian market sustainably.

Balázs G. Nagy

BBJ: What will be the most significant change in how temp agencies work in the next few years?

PB: I believe recruitment will remain the biggest challenge in the labor market in the coming years. Another important factor is employee retention, and we place particular emphasis on care and people management to help our clients manage their human resources efficiently.

IB: The most significant change in how temp agencies operate could be the increasing focus on talent retention and development. With competition for skilled workers intensifying, temp agencies may invest more resources in nurturing relationships with employees, offering training programs, career advancement opportunities, and incentives to encourage loyalty and performance. Additionally, technological advancements, such as AI, may streamline recruitment processes.

GG: Our experience indicates that companies increasingly view us as partners rather than mere executors. In the evolving labor market, complex solutions will be needed, where temp agencies are responsible for implementing cost-effective and sustainable workforce strategies. Data-driven services will be essential, significantly emphasizing the role of digitalization and automation. The importance of retraining will be reassessed due to structural changes, for which agencies need to develop their own solutions.

TVH: The introduction of qualified temporary agency status for service providers has brought many opportunities to the market. The biggest change will probably come when the current rules on third-country employment are clarified and the resulting practical anomalies are resolved following consultations with market players. Legislative changes are a constant challenge for service providers, as even a small change can significantly alter established processes, either at a system or operational level. Additional manual tasks are being transferred to digital platforms due to increased administrative tasks for certified temporary agencies and public authorities.

CsJ: The most significant change will likely stem from the increasing integration of artificial intelligence. With AI potentially transforming up to 50% of work-related expertise and skills within five years, we aim to develop innovative solutions to leverage those capabilities in serving clients. Additionally, there is a growing emphasis on competency assessment and development, reflecting a shift towards more complex, digitally supported business solutions and addressing the rising demand for skilled workers.

PL: Economic development and growth, new investments, especially if they are numerous (and based on current forecasts, they are), always move the labor market. This will undoubtedly be the case in 2025 and can be predicted in the following years as well. I think there will be a big fight to keep a high-quality workforce, activate the hidden Hungarian labor reserve, and bring it back to the market in some cases. “Industry 4.0” is also taking place in the service sector, which wants to remain competitive, develop, rethink its processes, develop and automate them to maintain its efficiency, customer-friendly service and the commitment of colleagues working in the organization at a high level.

BL: Hungary is already one of the most significant players in the new energy industry globally and plays an important geopolitical role as a gateway for investors from the West and the East. This hard-earned position generates an unprecedented volume of investment in Hungary that will be realized in the coming years and will give a significant role to qualified agencies, such as HR Direkt Kft. Fine-tuning and scaling operational processes to cater to the large spike in demand will be key.

BGN: We must develop our services towards higher value add, digitize our processes to be more efficient, and increase the market understanding to generate more resilience against change. I expect growing demand for outsourcing, white-collar temps, high value-added HR administration, and advisory services supplemented by some targeted educational activity. We must understand much better how AI and robotization can develop processes and products to offset the expected negative labor market effects of technology.

Temp Recruiting Market Talk Panel 2024

• Péter Berta, CEO, WHC Group

• István Bojó, managing director, Service Flow

• Gergely Gáspár, head of sales and marketing, Work Force Group

• Tímea Varjuné Horváth, operational manager, Menton Jobs

• Csongor Juhász, member of the board, Prohuman

• Péter Laczi, COO, Pannon-Work

• Balázs Langó, head of sales, HR Direkt 

• Balázs G. Nagy, managing director, Trenkwalder Hungary

• Dominika Tóth, director of labor leasing department, euJobs HR-Group

This article was first published in the Budapest Business Journal print issue of April 19, 2024.