Interim Management’s Flexibility Baby and the Bath Water of Tax-Avoidance

Amid the current outrage over contractual and pay arrangements for some civil servants (see here and here for today’s tale), it is important not to lose sight of the value that genuine interim managers bring to their client organisations in both the private and public sectors: we must not throw the baby of flexibility out with any tax-avoidance bath water.

Across the economy, organisations are dealing with uncertainty and change. Some are restructuring and dealing with the need to scale down their operations; others are innovating their way out of recession. All are, necessarily, seeking greater agility in their operations.

Interim management provides that agility.

Interim managers are independent professionals each running their own small business and providing expert services to client organisations, as required: expertise on demand.

The typical interim works full-time on a project for an average of six or seven months (although projects can be both shorter and much longer) before moving on to look for their next assignment. Interims are often over-skilled for the project in hand. They are hired to “hit the ground running” and to deliver agreed results quickly and effectively using valuable, specialist skills only for the period required. By the nature of their work, interim managers bring breadth and depth of experience to a project and they transfer valuable skills into the organisation as part of the assignment. According to the IIM’s latest annual survey, 74 per cent of interim managers are hired for their specific skills.

Interim managers also bring flexibility. Using flexible resources means that organisations can innovate more easily; able quickly to kick-off a pilot project or a new venture and then to “off hire” those resources when the project comes to an end. Valuable permanent staff are not distracted from core activities or put in jeopardy on high-risk projects.

What interims offer, then, is different in important respects from a traditional, “permanent” employee. The way they are paid is also different. The amount on their invoice is not salary but revenue out of which the interim must meet the costs of running their business: insurances, training, professional memberships, computer and other equipment, marketing, bookkeeping, travel and all of the costs that employees experience as benefits: healthcare, life assurance, pension etc.

Interims must also fund their own holiday, training and sick time along with the time spent seeking new assignments. As an independent small business, an interim manager shoulders a degree of business risk that employees are shielded from.

A comparable employee cost, as any Finance Director will tell you, is not simply the employee’s annual salary divided by the days of the year. The cost of placing an employee at their desk is easily between 60 and 100 per cent higher than the individual’s salary. The employer has to bear additional costs for: pension contributions, life assurance, healthcare, annual bonus, car costs, employers’ National Insurance, other employee benefits, training and equipment costs.

This significantly higher, true cost then needs to be divided not by 365 but by the actual number of working days available; i.e. net of weekends, public holidays, annual vacation, an average of eight sick days per year and a similar amount of training days. The resulting availability is around only 212 days, some 42 per cent lower.

Taking the true cost per available day of an employee gives a more realistic comparison with the cost of an On Demand interim manager. Even without allowing any premium for getting the exact skills required for the exact period needed, the true cost of a ready-skilled and equipped interim manager, on the job “right here, right now” compares extremely favourably with that of an employee.

Interim management is a very different proposition from traditional employment. It offers precisely targeted expertise on demand, enabling innovation and flexibility across the economy to the benefit of tax-payers and shareholders everywhere. We must not lose sight of this difference nor of the value it represents.

[NB: this is an edited version of an original statement that I wrote with my Institute of Interim Management hat on.  The original is available here.]