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Should You Outsource Your Contracting Back-Office?

When asking yourself this question, you may want to consider the tangibles as well as the intangibles. Recruiters are realizing the benefits of adding contracting services to their business models. The number one reason for this is the fact that contract staffing gives recruiters a steady cash flow. Basically, contracting and a steady cash flow go hand-in-hand. In good economic times and bad, drawing steady income from contract employees is a great way to keep your books comfortably in the black. In addition, offering contracting to employers is a solid, value-added service which can cement relationships and bring in new business.

Of course, offering contract staffing to employers as a no-hassle hiring solution means all the financial and administrative hassles must be handled by someone, or more specifically, a "back-office." Someone has to stay on top of payroll issues, taxes, workers’ compensation, governmental regulations, benefits, etc. After working in the contract staffing arena for over a decade, my advice to recruiters offering this service is simple: Arm yourself with the facts before deciding whether to run your own back-office, or choosing to outsource this aspect of your business.

Consider these important points when weighing your choice:

Time - Your time is money; realize time spent on clerical duties is time away from your core business – making placements.

Exposure - The more employees you have, the bigger the chance of becoming a target due to accidents, bad data, errors in work, etc. When you run your own back-office, the buck stops with you, and you’ll be the target for subsequent legal issues, so make sure you dot every "I" and cross every "t" along the way. And make sure you have a top-flight legal staff reviewing all of your decisions.

Liability - Issues such as discrimination, sexual harassment, age discrimination, ADA noncompliance and dozens of other technical matters can sink a small recruiting firm. How prepared are you to wrestle with these prickly legal matters?

Financial - You have to pay your contractors no matter what. And we all know clients aren’t always known for speedy payment of fees. With ten contractors on your payroll and a slow-paying client, you could find yourself deep into debt or even out of business.

Insurance - Is your coverage adequate? Have you planned for every possible contingency or curveball that may come your way? Being under-insured is easy to do, so review your plans and be sure to incorporate all the coverage required by your clients.

Legal - How much money do you have to pay legal counsel, considering just one poorly worded or incorrect sentence in a contract could be enough to put you out of business? Be prepared to fully master the legal contracts, or to devote significant resources to your law firm.

Benefits - How competitive are your benefits? Benefits are extremely important to contract professionals and they will jump ship for the chance at better health, dental, 401(k), disability and other benefits. So be prepared to offer highly competitive benefits or you could lose talent fast.

Audits - If you’re running your own back-office, you should be conducting internal audits on an ongoing basis. Chances are you will be audited eventually, and if ill-prepared, you could face stiff penalties and fines. These aren’t speeding tickets, and any negative audit findings won’t sit well with government authorities.

Flexibility - As your contracting staff grows and expands, so will your needs in terms of space, administrative staff, costs of business, capital equipment, etc. Are you prepared to turn on a dime, in order to keep getting and filling those contract job orders from your clients?

After a close examination of your resources, skill sets, and knowledge, does handling these details seem like cake - or at least highly doable - to you? If so, then you’re on the right track to successfully managing your own back-office and providing both your clients and contractors with timely service they need and deserve.

If you’re concerned at the thought of mastering the details of employment and contract law, benefits and governmental regulations, cautious about liability risks and not too eager to spend hours away from the phone handling clerical duties, then outsourcing your back-office is the route to go. Regardless of the choice you make, congratulations for choosing contracting as a great value-added, flexible hiring solution to offer your client companies.

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