As a contract staffing back-office service, we get calls every day from recruiters who want to add contract staffing services to their business model. For other recruiters who may be interested in contract staffing, here are the “Top 5” questions we receive and our answers to them:
1—How do I get started in contracting?
This definitely our top question. The most difficult part of getting started is handling the initial set-up and ongoing employment of the contractors. If you outsource this part to a third-party back-office service, you are only left with the front-office recruiting tasks. This means your biggest job is just spreading the word about your new service. Statistics show that 80% of contract job orders come from a recruiter’s current client base, so start by notifying all your direct hire clients that you now offer contract staffing. Also, ask current candidates if they are willing to work on contract. This will help you build a pool of contract candidates. Finally, make sure your existing marketing vehicles (website, social media profiles, business cards, marketing documents, etc.) contain your contract staffing message.
2—How do I figure out the bill rate and pay rate?
Negotiating rates can seem daunting, but it’s not as hard as it sounds. First, note that most contractors are paid on an hourly basis, so the bill rate charged to the client and the contractor pay rate will both be hourly. We recommend obtaining a range of bill rates the client would be willing to pay up front so that you can negotiate with confidence. Then, you will need to determine the contractor pay rate. Start by taking the annual salary for a comparable direct hire position and dividing it by 2,080 (the average number of full-time hours per year). You can then multiply that pay rate by a markup to get the hourly bill rate. The average markup for professional, technical, and healthcare nationwide is currently 1.63, but that can vary based on industry, location, demand for the position, and other factors. The spread between the bill rate and the pay rate covers taxes, unemployment, Workers’ Compensation, professional liability, administrative costs, and your recruiter profit.
Still confused? Don’t worry. A quality back-office provider will help you through it. For instance, by asking some simple questions, FoxHire, LLC. can generate a recruiter “Quote” that includes a matrix to help you negotiate the bill rate and pay rate. It covers a $20 bill rate spread and $11 pay rate spread, so if the client or contractor try to negotiate a different rate, you can see how that will impact your recruiter profit (which is also hourly).
3—What if a client doesn’t pay the invoice for hours already paid to the contractor?
If you run your own back-office, this is one of the biggest risks you take on. Collecting on unpaid invoices will be your responsibility, and if they prove uncollectible, you will have to take the loss. If you are outsourcing, be sure to ask the back-office about their collection practices. Some service providers involve the recruiter in the process and may hold you responsible for all or a portion of unpaid invoices. This is one area where it pays to do your homework when selecting a back-office – in this case, it all comes down to the money.
4—Do I have to sign a contract with a back-office?
That depends on which back-office you select. This should be one of the main questions you ask, because a contract could tie you into using their services exclusively or for a certain length of time. You could also be opening yourself up to potential co-employment liability, depending on how the terms are phrased. You need to be very certain which entity is functioning as the legal W-2 employer of record for your contractors.
5—How should I explain why I have outsourced the back-office?
Simply tell your client that you have outsourced the administrative tasks so you can focus on the recruiting aspects of the placement. Depending on the back-office, they will become the contractors’ legal W-2 employer, handling payroll, legal compliance, Workers’ Compensation, unemployment insurance, and all the employment tasks, and giving the contractor access to group benefits that you could not provide on your own. Most importantly, assure your client that YOU will still be their main contact.