Why do Contract Recruitment vs Permanent in the US?
Recruiters everywhere are catching onto the advantages of temporary recruitment vs permanent, but many are scared off by the various risks that exist for both the staffing agency and the client, regarding how to manage and payroll the contractors once they’re onsite.
Thus, many recruitment agencies are simply avoiding contract recruitment altogether, and consequently could be missing out on a massive opportunity to establish excess revenue. Considering 88% of US staffing revenue is generated from recruitment agencies making contract placements (Towering over the revenue generated from permanent recruitment), if you’re not placing contract workers in the US, you’ll want to start soon to capture this revenue.
In this blog, we’ll look at some possible ways to eliminate the headaches of placing and paying contract workers in one easy step. Before we get to that, let’s review four key advantages of contractor recruitment over permanent in the US staffing market.
1. Higher Retention and Repeat Business
Contractors repeatedly seek new roles when temporary projects expire
For starters, recruitment agencies that focus on contract recruitment in the US often enjoy the benefit of high candidate retention, as contractors are routinely looking for new roles as their temporary assignments expire or terminate. Thus the opportunities for repeat business for recruiters is plentiful and frequent.
Whereas most permanent placements are just that – permanent. Once the candidate is placed with the client, you get your one-off fee, and that’s it. The candidate may only seek your recruitment services again in the far future, if they’re terminated from their job. An outcome that, however fair or unfair, could very well reflect poorly on the recruiter. This could then taint your recruitment agencies reputation with the candidate and client on future projects.
Save time building a new pipeline each month
If you work within contract recruitment in the US, both candidates and clients are likely to reuse your services once the temporary project ends. If you manage an already-existent contract talent pool, it is far less stressful than building an entirely new pipeline each month for permanent positions.
2. Short Notice Periods = US Clients Rely Heavily on Contract Recruitment
Repeat use of contract recruitment by businesses in the US is often generated from the requirement to fill gaps in teams quickly consequential to ‘at-will’ employment. In the US, employment is ‘at-will’, this means that an employer or employee can terminate their work relationship at any point, with or without notice. Generally, both employees and employers in the US default towards a two-week notice period to protect future relationships, but this is not required.
At-will employment benefits contract recruiters as the candidate will be available almost immediately to start a new role once their project ends, or if they fancy changing jobs when you have an attractive offer, they can seize it immediately. A win-win situation for both the candidate and your new client that needs a contractor for their project.
US clients require contract workers immediately if an employee quits
Clients in the US also rely heavily on contract recruitment as they frequently need temporary workers on-demand to fill job roles their previous employees may have left with little notice, to limit disruption to their existing team and project. As a result, contract recruiters can add much more value to US clients and build long-standing relationships, as they are likely to need their services often with quick-turnaround times. This bumps up the contract recruitment fees in the US because they are driven by a transient, fast-moving employment market.
At-will employment in the US is likely a main contributor to why contract recruitment makes up 88% of the entire US staffing market vs permanent recruitment. So if you’re not doing contract recruitment yet, what is stopping you?
3. More Money, More Frequently
Residual income is another perk to contract recruitment in the US. Many contractors are paid per hour or per day, and therefore the recruiter is able to generate ongoing margins in accordance with these terms.
Earn margins per hours worked by US contractors
For example, if a contractor works 40 hours in a week, at a pay rate of $80/hour, and the recruiter is billing $100/hour to the client, then that recruiter enjoys revenue of $800 for that week ($20 of pure margin for every hour worked by the contractor), for that candidate, for the life of the assignment.
Even better, if you have multiple contractors on your books placed with different clients throughout the US, you will be making that much or more for each contractor, per week! No need to wait for the end of the month for your commission.
Conversely, with permanent recruitment, the client often pays a one-time fee equal to a percentage of the candidate’s first year salary and will more often than not require a performance guarantee for the first 90 days (about 3 months). This guarantee will typically either enable the client to be refunded the commission or will oblige the recruiter to re-fill the role with another candidate. This often comes with no additional fee if the candidate is deemed inadequate by the client during the initial probationary period. So, you could be doing double the work within permanent vs contract recruitment, for less money.
There are exceptions to a refund for permanent roles with some clients, but the performance/replacement guarantee is a common practice in permanent recruitment in the US as there is an emphasis placed on service quality.
Higher margins in US contract recruitment vs permanent
If you work within contract recruitment in the US, getting paid quicker and more frequently over several months is simply the more secure method of compensation. PGC’s clients consist of international recruitment agencies entering the US market for the first time, who are pleasantly surprised at the margin sizes for contract recruitment in the US. We witness recruitment agencies making up to 25-35% in contract margins in the US, much higher than one-off permanent margins.
Often an objection to placing contractors over permanent roles in the US is lack of funding for contract roles. This is understandable, as the contractor is not going to be on the end clients' books, so the recruitment agency needs a way to afford the contractor’s wage every two weeks in the US, as the end client may be on 30-day payment terms. Luckily, there are funding options available to overcome this hurdle, allowing you to place contractors in the most lucrative contract recruitment market in the world (the US), immediately.
4. Contract Recruitment Strengthens Your Client Relationship
Offer flexible contract-to-hire solutions and make more money for it
Working within the contract recruitment in the US, enables you to offer your US client a more flexible service by providing a contract-to-hire solution. This solution allows the client to “try out” the contract worker for a temporary period before deciding on whether or not that worker is a candidate worthy of being brought on permanently.
In this scenario, recruiters often have the ability to collect both an ongoing margin for the term of the contract and a permanent placement fee at the point of temp-to-perm conversion. The more flexibility you can offer your US client, the more your client will look to you over your competitors.
The idea of transferring the employer responsibility to the client at the end of the temporary assignment is also highly appealing. If the client is outsourcing the staffing process to you, then they’ll probably also appreciate the fact that they can keep the responsibility and liability for that worker in your court as well.
Offering an all-in-one solution that includes both supplying and managing the talent for the client will most certainly strengthen the recruiter’s position of in the client’s eyes.
Sounds great, right? Less candidate turnover, better cash flow, and a more favorable client relationship. What’s not to like? Well…the onboarding and payroll side of contract recruitment. But... Don't worry PGC have got you sorted in one simple step.
5. US Contract Recruitment Onboarding and Payroll Sorted
How do you payroll a contract worker in the US?
In most cases, the temporary/contract recruitment agency employs the contractor and manages the contract of the individual, including payrolling them, administering benefits, managing timesheets, invoicing the client on a monthly, bi-weekly or even weekly basis. We haven’t even gotten into the risks.
After all, someone has to carry liability insurance, workers compensation, deduct and remit employer taxes AND the individual’s W2 personal taxes, and process unemployment claims, right?
It can’t be the individual, because they’re typically an employee, and it can’t be the client because the client isn’t the employer, which means it typically ends up being the recruitment agency that is ultimately responsible.
If you haven’t set up your own internal operations in the US yet, or want to place contractors in a different state (which has different employment laws), how do you manage these employment responsibilities that come with contract recruitment in the US? Let’s not even get into the different types of contract workers in the US you need to know just yet.
Use an Employer of Record With a Proven Reputation in Contractor Payroll
If you use an established US employer of record, with a track reputation of providing onboarding and payrolling services to agencies doing contract recruitment in the US, you don’t have to worry about the legal employment aspects.
Using our solution, you will be able to both supply and manage contract workers. You will also be able to transfer the administrative and employer risk off the shoulders of the client, putting yourself in a position to continually win business.
Communicating to potential US clients that the contractors onboarding, payroll, timesheets, HR queries, and much more will be covered, and keeping on top of employment laws (thanks to using a US EOR), is a huge selling point.
Additionally, the provision of this service will also strengthen the relationship with both with the client and candidate over time, and the structure begins to resemble more of a “consulting” model whereby the agency can establish a go-to pool of premier talent. Not to mention, the client is thrilled to not have to carry the administrative overhead and risk associated with carrying the contractor directly.
Ready to Get Started in US Contract Recruitment?
With agencies generating most of their revenue in the US staffing industry from contract recruitment, it’s time to get your slice of the revenue. Here at PGC we are to ‘go to’ for contractor payroll in the US. As an employer of record, we engage the candidate on your behalf, and are responsibility for payroll, timesheets, employment compliance, and much more. We even provide your US recruitment consultants with contract recruitment training to ensure they are equipped to win business in the US, including the provision of deal calculators.
If you’d like to learn more about the opportunities in contract recruitment in the US, give our podcast with Founder of Primis, Ben Broughton a listen. He talks through how he got started in the US contract market, the margins, how to price deals, win US business, and how PGC’s solution to payroll his contractors have helped supercharge his recruitment business growth.
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.