Recruiters who focus mostly on direct hire placements are the major force in the search and staffing industry. Making successful direct hire placements is very lucrative and has made possible a good living for many recruiters. Even if you have been very diligent in investing your direct hire earnings into income-generating assets, this article may be of interest to you. In recent years many recruiters have not managed to squirrel away a nice nest egg, and the ideas presented here may be of some help!

The big challenge as you start thinking about winding down your work career is what level of income can we expect to have every month? Or alternatively, what can you expect to sell your business for when you retire? Selling a thriving business that has been good to you is an attractive proposition. The big question then becomes: Can you sell your business? Does it have any intrinsic value?

If your business has a high proportion of direct hire placements versus contract placements, or worse, no contract placements at all, your business only has your good reputation as the re-sale value. Once you have made a direct hire placement and collected your fee, the deal is done until your client notifies you they have another direct hire position open. You undoubtedly have tremendous Goodwill value because of the excellent job that you have done for your clients in the past and your candidates no doubt esteem you for the help you have given them. Monetizing this Goodwill and high regard is likely to be difficult if you are not there.

To add intrinsic value to your firm I suggest you adjust the proportion of direct hire versus contract placements to add more emphasis on contract. The rationale for this is that contract hires generate a lucrative income stream. Some contract placements which may start out as a short 90-day assignment may last for much longer. And while each individual contract hire may pay you only a few dollars per hour, the total earned from a large contract book of business can be substantial…and on-going.

Another reason to consider this approach is that in the process of making a direct hire placement you have probably vetted many candidates, culling them out until the right match is found. You already have these people in your database, you already know about them, and by making contract placements you can put them to work for you. You can take advantage of the opportunity to offer contract personnel to your clients to fill a temporary need, to “test run” a candidate, or to help your client navigate uncertain times when they may be unwilling to make a direct hire commitment, but still need to get the work done. There is no risk to your client, in that the contract hires can be terminated at any time with no ramifications to their in-house unemployment rating.

Temp and contract hires can fill an employer’s immediate need until direct hires are found and may ultimately result in a direct hire if the candidate works out for the long term. You can earn a conversion fee if the temporary employee becomes a direct hire, so you win either way!  In the meantime, you earn an income stream while the candidate is on the assignment. You must include the conversion fee terms in your agreement with your client!

Be sure to make your clients aware of the temp and contract option as a means of getting people working quickly with minimum long-term risk. Contract placements can reduce overall labor costs and benefits burden, minimize the risk of maintaining direct hire staff, and provide the labor to move the client’s projects forward. All parties can benefit from this: the employee is working, the client’s labor needs are served, and you are receiving income.

And don’t worry about the hassle of dealing with all the fine details such as on-boarding, collecting time sheets, processing payroll, tax reporting, benefits, and the like: Employer of Record (EOR) service providers can do all of this for you! Typically, the EOR will do all the follow-on work for you and pay you your profit on a weekly basis after accounts receivable have cleared. Some providers actually pay your profit in advance, making the deal even sweeter.

Once you have established the habit of making contract placements whenever you can, you will find that you have an ever-growing income stream. Depending on your level of availability, over time this income can become significant. When it comes time to sell your business, it is this income stream that a potential buyer will be interested in. Since your book of contract business represents a series of payments over time, a buyer can do a Net Present Value (NPV) analysis of the income stream and attach a monetary value to your business along with the value of the Goodwill you have established. A potential buyer will then enjoy the on-going income stream and can continue growing it by making further contract placements. Periodically have your CPA do an NPV analysis for you to keep you appraised of how you are doing.

So how do you get started? I suggest you develop a marketing strategy to educate your clients and candidates about temp and contract placements. This strategy should spell out what benefits can be expected to accrue, what responsibilities you, as the recruiter working with an EOR, will have, and what is the role of the EOR. Temp and contract placements provide your clients with options to solve their labor needs. There may be opportunities for out-of-work applicants to be put back on the job. There is a huge source of potential business, both direct hire and contract. There is a large pool of applicants who have been laid off and are willing to go back to work on a contract basis. You, as a business partner, have a unique opportunity to match up these workers with new contract-friendly companies. Stay alert to these opportunities and help both your clients and candidates understand how they may benefit.

You should get set up in advance with an experienced and reputable EOR. Fully vet the EOR and ask for references. You are making a business decision that will reflect on you. Make sure in advance the EOR can cover certain work titles, has different mandatory state licenses, and is set up to be the employer in the states that you will be doing business in. After you have made the first couple of placements, you will feel more confident, and your clients will start to realize the benefits you offer them. 

Key to your marketing effort is staying in close touch with your clients and ensuring that they understand that you are here to help them with all their labor needs. Ask your EOR for a summary of the advantages to contract placements so you will have your talking points handy! Keeping communications open is vitally important. Pick up the phone and touch base with each of your clients. Keep your name in front of your clients so that they think of you as being on their team and vitally interested in their well-being. If you don’t call them, you may lose out to your competitors who do call. Remember that turmoil in the labor market can easily translate into the upset of many long-standing recruiter/client relationships. Get in front of this and take action to maintain your standing with your clients. Uncertain economic times are stressful for everyone. 

Get set up in advance with an EOR so that you are ready to fill a contract position as soon as the need arises. Once you have made a placement, your EOR will take up the burden in many ways. They will onboard the new employee, collect the employee’s time, get it approved, and make sure the employee is paid on time. The EOR’s payroll responsibilities include withholding taxes, making payroll tax deposits, covering workers’ compensation, and issuing the annual W-2.  Funding of payroll can be included, along with invoicing your client company at your direction. The EOR will monitor accounts receivable and aging of invoices, follow up on missed or skipped invoices, and will make sure you are aware of any collection issues. The EOR will offer benefits packages including medical insurance coverage to ensure you are ACA compliant. The EOR will provide workers’ comp (WC) for the employee, making sure the WC policy covers the workers’ comp class code in the state the employee is working in, and matches the job description. You can be ready to make placements in any state with this necessary information. This flexibility will enhance your utility to your clients and enable you to match up candidates and positions in the needed locations. Partnering with an EOR will relieve you of the administrative details of making a contract placement so that you can focus on what you do best: find the right candidate for the job!

Screen your applicants to determine if they would be interested in a contract position. Some former full-time workers who are now forced to return to work may prefer the more flexible lifestyle of a contract assignment. They may find themselves back in the candidate pool and looking for assignments that ensure them the desired flexible work arrangements. 

It is beneficial for your clients to utilize employees that are not concentrated in one geographical area. For companies being unsure about the future: concerns about limited budgets, projects being put on hold, and further mandated shutdowns and layoffs, contract staffing will minimize their risk.  Workers, tired of the burdens and safety concerns for themselves and their families imposed in high population-density cities may opt to pack up and join the exodus to the suburbs, smaller towns, or even rural locations. These folks present another recruiting opportunity when they get settled in their new location and rejoin the labor market. 

Finding the optimal direct hire often takes significant time. Temp and contract placements can fill the void and may even result in a good fit for a direct hire. A beneficial side-effect of the vetting process for direct hires is that you will develop an inventory of potential temp or contract candidates. Keep these candidates in mind and propose them when appropriate as alternatives to a direct hire.

So, get started today developing your new marketing strategy with a view to the ultimate sale of your firm. Integrate contract placements into your operation and start building an income stream. Give me a call if you have any questions on how to get started or how I may help you! Visit my new Website at www.jcsrllc.com for further information!

Read More By Judy Collins