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Making the Transition from Direct to Contract Placements
By Gaby Mergenthal, Executive Vice President
It's no secret that companies everywhere are looking to cut costs and get by with a leaner workforce - a situation that's creating an increasingly tough reality for the recruiting industry. For forward-thinking recruiters and staffing firms, however, it doesn't have to mean a drop in business or profit. In fact, now may be a better time than ever to expand your services to include a new, lucrative source of additional revenue: contract placements.
These days, hiring contract workers for project-based employment is one of the ways businesses are cutting costs while still maintaining a productive workforce. Recruiters and staffing firms who are noticing a slowdown in direct hire assignments may be able to regain some momentum (and profit) by filling the gap with contract placements across a range of industries - particularly among those that handle long-term, knowledge-based projects and contracts such as the defense, technology, biotechnology, pharmaceutical, security, and engineering sectors.
According to the staffing industry experts from online job board Net-Temps, "Contract hire work is often times a different line item on a company's budget than a direct hire employee." Companies can hire contractors without having to pay unemployment insurance, holiday & vacation pay, or 401k contributions, and can sometimes negotiate a slightly higher pay rate in lieu of benefits, factors which make hiring contractors "a relatively easy and painless task for a company going through a slowdown."
For direct recruiters, adding contract recruiting to your service offerings - or, in some cases, transitioning your business to focus specifically on contract recruiting - is a great way to add both short- and long-term value to your business, increase your revenue flow, and gain a critical competitive edge in the current economy. You'll be able to offer current clients a wider range of services, as well as attract new clients who are interested specifically in contract placements.
Getting Past the Excuses
Despite the benefits of growing your recruiting business to include contract placements, many direct-hire recruiters still share some common concerns that keep them from branching into this new, lucrative territory. Below are some commonly-heard excuses, some of which simply aren't true and others that have simple solutions:
- "I can't afford to fund the payroll:" Smaller staffing companies and independent recruiters may fear they lack the financial ability to fund payroll for contract workers, and that the lapse between paying 1099 employees and receiving client payments may leave them scrambling to cover expenses in the meantime. However, this issue can be quickly and easily overcome by utilizing the services of a 3rd party employer of record organization. Companies offering payroll as employer of record will be happy to take over the responsibility of paying your employees for a small percentage of your hourly markup.
- "The administrative burdens for contract hires are a bigger hassle than direct placements:" Skeptical recruiters and staffing companies may assume that contract hires require more administrative hassles, which isn't necessarily true. Many companies seek contractors for longer-term assignments that can last for months or even years. Choosing to focus on these long-term assignments means you'll be doing much less work per placement, making the return on your time investment comparable to that of a direct hire. And once again, recruiting networks and third party payrolling/employer of record companies can be a great solution to handling the non-recruiting aspects of hiring contractors: tasks such such as on-boarding, payroll, benefits administration, background checks, and even client invoicing.
- "It's not worth my time:" Think managing contract recruits is too time- and energy-consuming? Think again: most recruiters who begin to explore contract assignments find that in the end they actually spend less time focused on their contract placements, for about the same reward. By focusing on high-level, longer-term positions within specialized industries (such as engineering or healthcare), you won't need a high volume of candidates to generate a worthwhile profit. Plus, unlike direct placements who eventually become regular employees of your client company, a great contractor can be re-sourced for multiple assignments.
- "I don't know how to run a contract business:" If you're nervous about branching into contract recruiting, start by testing the waters within your network of current clients by letting them know you can now accept their contract job orders. Partner with a recruiter network or payrolling company who will be happy to guide you through the process of pricing, negotiation, client and candidate management, and other topics that may be vary from the way you've always done things with direct recruitment. In no time at all and with minimal effort, you'll be on your way to a lucrative contract placement business.
Bottom line: contract placements are no more difficult than direct recruiting, don't need to be an administrative hassle, and provide a great way to add value and long-term revenue to your business. Don't let intimidation or fear of the unknown keep you from exploring a highly profitable way to grow your company - especially if your competitors are already beating you to it.
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