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Contracting Could Be Your New Best Friend

Direct (perm) placement recruiters typically have a core group of client companies that support their business. It’s a good feeling for recruiters to be able to count on their “regulars.” The recruiters and clients have built a rock-solid working relationship. Sometimes this process has taken years to jell. Ultimately, both sides do business with each other because they like each other and have built trust. It’s like a good, solid marriage, and they can count on each other.

A large percentage of the business between recruiters and clients is direct (perm) placements. Recruiters earn large fees as a result. But what can recruiters do to weather those lean times between direct (perm) placements? Contracting is the answer. Contracting allows recruiters to control their future. They don’t have to let the future control them.

Contracting could easily be a part of a recruiter’s blended business model along with direct (perm) placements and temp-to-direct (temp-to-perm) placements. There is nothing to lose and everything to gain with contracting. Once a contractor is placed, basically all a recruiter has to do is cash the checks that keep coming in the mail. Recruiters who embrace contracting might just think of it as their new best friend.

Contracting’s key advantages

Recruiters can enjoy the advantages provided by contracting. They can make more money, they can build value into their business so they can retire and sell it in the future, they can meet all of their clients’ staffing needs (resulting in repeat business), and it’s virtually recession-proof. There is practically no downside to contracting.

Just one contractor can start a steady stream of income into a recruiter’s pocket. This money can help recruiters cover their business and personal expenses every month. The money recruiters make by having several contractors adds up nicely. For example, if a recruiter has 10 contractors working on assignments, and the recruiter is earning an average of $7.51 per hour for each one, that’s $75.10 per hour of recruiter income/profit. That equals $12,992.30 per month (173 hours). If those contractors continued working for nine months, that’s $116,930 that the recruiter would be putting in his or her pocket, not including overtime.

Riding out economic storms

It’s said that the only guarantees in life are death and taxes. Well, you can add a third one: The economy is going to go up and down like a rollercoaster. There will be good times and bad times. Economic peaks are great, but the valleys can wreak havoc on a recruiter’s bottom line – especially if he or she relies solely on direct (perm) placement fees to make a living.

As you read this article are you reminded of the last recession? How many of your friends or competitors went out of business? Is the next recession around the corner? Nobody knows, and it’s a difficult thing to predict because economic indicators can vary.

Contracting is an excellent way to help recruiters protect themselves from the possibility of a financial beating during a recession. One reason for this is clients always have deadlines to meet and projects to finish, regardless of what the economy is doing. Clients actually INCREASE their contracting during a bad economy because they don’t have the budget to bring on direct (perm) hires when times are tough.

Contracting offers lifestyle flexibility

Contracting income lets recruiters enjoy a flexible lifestyle. They don’t have to be stuck in their office all day generating that next direct (perm) placement fee. Recruiters with contracting income have the financial freedom to do whatever they want, whenever they want, any time of year. If they want to take the day off and sit on the beach, play a round of golf, go fishing, or hit the ski slopes, they can!

Also, if recruiters want or need to step away from their business for an extended period, perhaps due to a personal illness or accident or an illness or accident in their family, they can take comfort in the financial stability provided by contracting. They don’t have to worry about keeping their business afloat while dealing with personal or family issues.

Contracting is NOT hard to do!

I know what many recruiters are thinking right now: “I don’t know how to do contracting. It’s too hard, and it takes too much time to learn. I can’t afford to spend time on it.” The most common thing we hear once a recruiter makes his or her first placement is, “I should have done contracting years ago. It is so easy.” Don’t miss out on a huge opportunity. There is a lot of money out there to be made. The process of recruiting direct (perm) candidates and contract candidates is basically the same. Plus recruiters already have a relationship with their clients.

Contract placements occur quickly. If a client needs a contractor, they need one right now. A contractor can be on the job within a few days. Like magic, the client’s staffing problem is solved, and the recruiter is making money while the contractor is working! Remember: Recruiters make money for every hour the contractor works, including overtime! The lengths of contract assignments vary, but it’s not unusual for them to last for several months.

Statistics have shown that between 70% and 80% of U.S. businesses use contracting. It’s now a standard practice for businesses. The majority of contracting placements come from recruiters’ existing direct (perm) clients. Recruiters can breathe a sigh of relief. They don’t even have to develop a separate contracting client base! Contracting becomes a smooth, money-making routine for recruiters, and they’ll wonder why they didn’t jump in earlier.

Clients, candidates, and marketing

Marketing contracting is easy. Recruiters already have the relationships with their clients based on direct (perm) placements, so it makes sense to expand that trust and apply it to contracting. Take it from recruiters Robert Liken, CPC, CTS, of Liken Services, Inc., in Houston, TX, and Maria Hemminger, CSP, of MJ Recruiters, LLC, in Tiffin, OH. They know that clients want to build on their relationships with recruiters, so clients will be happy to hear the recruiters’ ideas.

Liken says, “Clients want a vendor, a partner. They want somebody who’s going to work with them, who understands them, who’s going to help them solve problems, and who’s going to keep their cost of operation down.” Consequently recruiters need to be open to contract staffing in addition to traditional direct (perm) placements.

Hemminger says, “I like to start building a long-term working relationship with clients by first meeting with them face-to-face. I believe that people work with who they like and who they enjoy spending time with. It’s a customer-service thing, whether it’s perm, contracting, or temp-to-perm.”

The most important thing recruiters can do is simply let their existing clients know that they offer contracting as another way to help them solve their staffing problems. There’s no need to wait for a client to make the first move and bring up contracting.

Many technical and professional candidates are open to contract assignments. Contracting provides them with a flexible lifestyle. Contractors love the fact that they get paid for every hour they work. They often get the opportunity to travel. They can learn many different skills by working for a variety of companies, and that kind of experience is highly valued these days. They also get their foot in the door, which could lead to a direct (perm) position if they really want to work for a specific company.

Outsourcing the headaches

There is one big difference between direct (perm) placements and contract placements: time-consuming paperwork. The good news is recruiters don’t have to worry about contracting paperwork at all when they outsource all of the administrative, financial, and legal tasks to a contract staffing service provider like Top Echelon Contracting, Inc. (Contract staffing service provider is another way of saying “back office” or “employer of record.”) A contract staffing service provider should become the legal employer of the recruiters’ contract candidates and take care of the following: payroll funding, payroll processing, contract generation, timesheet collection, tax withholding, workers’ compensation, unemployment, invoicing and collections, background checks, and offer benefits like medical, dental, vision, and 401(k).

When recruiters outsource the paperwork hassles to a contract staffing service provider, they don’t have to take time away from what they do best: recruiting and placing candidates to fill their clients’ job orders. The clients aren’t weighed down by paperwork either. Once they sign off on a client services agreement all clients have to do is authorize the contractor’s weekly timesheet and pay an invoice. No muss, no fuss.

Don’t want to outsource?

Some recruiters who do contracting handle the paperwork and take on the administrative, legal, and financial tasks themselves. To be honest, that could be risky unless they have direct access to an Accountant, Attorney, Human Resources Specialist . . . and a Banker. For example, one trouble spot is worker classification for tax purposes. Is the worker properly classified as a W-2 employee or a 1099 independent contractor? The IRS does not take this issue lightly, and they are cracking down on companies that improperly classify workers as 1099 independent contractors instead of W-2 employees. It is estimated that the U.S. government has lost billions of tax dollars due to these misclassifications. Fines will include the back taxes, penalties, and interest.

There are a few more key tasks to consider. Recruiters who don’t outsource need to be sure their contracts will hold up in court. Both on the client and candidate side. Workers’ compensation is another critical component. First they have to make sure the workers are coded correctly, and then they need to manage the risk factor from an exposure point of view. One major claim could have a dramatic impact on their future ratings and cost.

Today’s candidates want a quality benefits package, so these recruiters need to have a great plan at a low cost. Plus someone needs to manage the benefits to assure that they are in compliance with state and federal laws. COBRA regulations alone can be mind-boggling.

One last thing that is absolutely critical is a line of credit. Recruiters need to pay the weekly payroll, expenses, reimbursements, and taxes. The float can go on for weeks or even months while they are waiting on clients to pay their invoices. Unfortunately this could make or break a smaller recruiting firm if they are trying to float everything themselves.

Bottom line

Is contracting going to become your new best friend? Recruiters can have all the advantages that contract staffing has to offer, but they don’t have to deal with all of the headaches, legal or financial issues. They can outsource it.

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