Why Contract Staffing?
At first glance, contract staffing may seem quite complicated in comparison to perm staffing. Recruiters are often intimidated by the complexities surrounding contract staffing. From negotiating pay rates, bill rates, timesheets and payrolling, to ensuring compliance in all aspects.
You’ve probably got a headache from merely thinking about it; however, according to the ASA, over 3 million contract employees work for America’s staffing companies during an average week and during the course of a year over 14 million contract employees are hired. Recruiters today are discovering just how profitable and easy contract staffing can be.Contract staffing’s profitability is tied directly to the need for temporary staffing and the ultimate need to reduce overhead costs.
According to CareerBuilder’s annual job forecast, while 36% of companies plan to add permanent employees in 2016, 47% plan to hire temp/contract workers. This is up from 46% last year. Let’s keep in mind that on average, the US has added 200,000 jobs each month over the last two years and the same is projected for this year.
While permanent staffing might seem easier, most recruiters know that it can often be a roller coaster. Contract Staffing is completely different and provides a steady cash flow since contractors will get paid at a steady rate and schedule for a period of time, therefore you will subsequently be paid on a steady rate and schedule.
Take, for example, a recruiter that has a bill rate of about $160 per hour and a contractor pay rate of $100 per hour. Taking into account most employer burdens, this recruiter will earn his agency on average about $70,000 for a 12-month assignment and consistently receive about $6,000 per month.
Add more contractors like this into the mix and there is no wonder why contract staffing has become quite lucrative. Now, what about the aspects of contract staffing that seem daunting? Depending on their needs and capacity, staffing companies often choose to outsource their back office. This is a great way for recruiters to focus on the sales component of their business, and not worry about the employment aspects, which are very complicated.
Outsourcing the back office often means that their partner will ensure their compliance in all aspects and take care of everything from onboarding to payrolling, benefits, taxation, invoicing, and even legal counsel. It may seem like this can all be done independently; however, to tackle this in-house may become the headache we were talking about earlier.
In order to do so, you would have to register in every state, obtain all necessary insurances, offer an ACA compliant medical plan, and potentially deal with the issues of misclassification, state by state employment regulations, and avoiding any legal action.
This is not taking into account the in-house team you would need to facilitate all of this that typically includes Accounting, Legal, Payroll, HR/Operations, and more. All in all, for an employer with approximately 50 employees you are looking at a total setup cost of about $470,000.
Contract staffing’s popularity only continues to increase year to year. In fact, there are many recruitment companies that probably would not have survived the last recession without the benefits that contract staffing provides.
Being that the economy can be quite volatile, it is essential you take the necessary steps to ensure you are resilient in times of difficulty. Contract staffing can be a significant way to not only provide high profitability but also stability.
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.