Competitive Sourcing on an Individual Basis

Regular readers of Mackinac Center publications know that school districts use competitive contracting with private firms to fill their food service and student transportation needs. In this arrangement, a company provides the employees, who then provide the service.

But can that model be used for even more specialized skills that require a single individual? Recent experience suggests that it can.

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Following the example of the private sector, schools are starting to rely on people who come to the district to work as individuals, but who are actually employees of a third-party employee‑leasing firm.

In Michigan, four major companies serve the education market. Three of these organizations are headed by people with extensive experience in education administration: ContractED of Ann Arbor, with nearly 25 schools on its client roster; Professional Contract Management of Marine City, with more than 80 school districts and intermediate school districts as customers; and Thumb Educational Services of Kinde, which also boasts clients across the state. All offer a wide range of professional employees to school districts, including building managers, curriculum directors and a variety of central office employees.

The fourth company is Kelly Educational Staffing, a division of Troy-based Kelly Services. The firm provides substitute teachers, administrative assistants and custodians on an individual basis. It screens and trains its own employees, freeing districts from those burdens. Since 1999, it has placed more than 8,000 substitute teachers worldwide.

School districts benefit in several ways, both financial and nonfinancial, from employee leasing.

The most obvious advantage to the school is cost savings. For example, with contracted employees, schools do not have to make pension contributions; for district employees, they do. In the 2003-2004 school year, according to the Port Huron Times Herald, school districts paid an amount equivalent to 12.99 percent of an employee’s salary into the state pension fund. Contracting with a private firm that year could therefore have saved a district up to that amount of an employee’s salary by shifting the pension costs from the district to the firm. And the potential savings are rising: Currently the school’s pension payment rate is 14.7 percent, and it is slated to increase to 18.7 percent in the 2005-2006 school year.

Schools also save money because they are no longer responsible for employee health insurance premiums, which can easily exceed $10,000 per year. Employee contract organizations, not schools, also shoulder the burden for unemployment taxes, workers compensation payments and many other fees.

It’s little wonder then, that schools find this an attractive arrangement. Money not spent in these areas can be used in the classroom. Cass Cities schools, for example, estimated that it will save $32,000 per year by using an outside employer to fill secretary positions.

But the benefits to schools extend beyond cost savings. Obtaining employees through an outside organization saves the school the trouble of a talent search. Some searches, such as those for an assistant superintendent, can be stressful even if they are infrequent. Routine needs, such as those for substitute teachers, can snowball unexpectedly.

Moreover, employee paperwork normally handled by the school district becomes the responsibility of the contract organization. The school district also gains the flexibility of having employees in an at-will employment status, making it easier to dismiss poor performers. Relying on an outside vendor to provide personnel can help schools concentrate on their main mission: educating kids.

Anecdotal evidence suggests that many people who choose this arrangement work as contract employees at a school district from which they retired. The chief benefit to employees is that they can start collecting retirement income and still draw a paycheck, which is a perfectly legal option.

Employees can also find the arrangement a way to serve a district they have worked in for a long time, while benefiting both themselves and the district. Lavonne McCallum, after working for over 23 years as an employee of the Sandusky Community Schools, is now an employee of Thumb Educational Services, according to the Port Huron Times Herald. McCallum told the paper, “I'm not really ready to retire, and I felt this was a way to save the district some money.”

Throughout the business world, companies are focusing on what they do best and relying on other businesses to provide specialized services. Schools had sometimes followed this example by outsourcing entire departments — but now, by hiring on an individual basis, they are taking the logic of specialization to the next level.


John R. LaPlante is an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.