Debunking Myths: Contract vs Direct Staffing

If you can run a direct-hire search, you already have most of what it takes to make a contract placement. That was the message of the fifth and final post in our April 2010 Contracting Myths series, and it's still one of the most useful things a perm recruiter can hear before taking a first contract order.

What we said in 2010

The myth was that contract staffing is so different from direct (perm) placements that it requires different skills. Our answer was that the only real difference between direct and contract placements is the administrative work that comes with employing the candidate.

When you work with a partner that takes on that employment role, it handles those administrative details. The only thing you may need to do beyond your normal recruiting duties is complete setup forms, so your partner has the information it needs to employ the contractor. Today that partner is usually called an Employer of Record (EOR): the company that legally employs your contractor and runs payroll, taxes, and compliance while you keep the client relationship.

What stays the same

Most of a contract placement will feel familiar. You take the job order, learn what the hiring manager actually needs, source and screen candidates, submit the best ones, and help both sides get to a yes. Your relationships with the client and the candidate are still the reason the deal happens. And the instincts you've built on your perm desk, like sensing when a candidate is wavering or a manager is about to go quiet, matter just as much on a contract deal.

Even the candidate conversation is mostly the same. The main new piece is explaining how employment works: your contractor will be a W-2 employee of the EOR, will get paid on a regular schedule, and will know who to call with a payroll or benefits question. Candidates who have worked on contract before usually know the drill, and those who haven't tend to appreciate a clear explanation up front.

What's different and who handles it

There are a few real differences, and it helps to know them going in:

• How you price the deal. Instead of a one-time fee based on salary, you set a bill rate for the client and a pay rate for the contractor. Your margin is the spread after employer costs, and Contracting Myths 2 walks through that math.
• Your involvement continues after the start date. You'll check in during the assignment, talk about extensions, and watch for a chance to convert the contractor to a direct hire.
• Someone has to be the employer. A W-2 contractor needs payroll, tax withholding and filings, workers' comp, unemployment insurance, and I-9 verification, plus ACA tracking where it applies. This is the part an EOR takes off your plate.

One difference tends to work in your favor: contract hiring decisions often move faster. Because an assignment can end if the fit isn't right, clients see less risk in saying yes, so you usually spend less time waiting on a hiring manager's decision than you would on a perm search.

What the setup looks like now

The "setup forms" from 2010 have mostly moved online. With an EOR, you typically submit the placement details: the contractor, the client, the start date, the worksite, the pay rate, and the bill rate. The EOR then onboards the contractor, collects tax and employment forms, verifies work authorization, and gets them into payroll. From there, timesheets and pay run through the EOR every pay period.

At FoxHire, recruiters handle that submission through our Recruiter Portal, and our team takes it from there in all 50 states. You stay the face of the deal for your client and your contractor.

So if contracting has felt like a separate profession, it's probably closer to your current desk than you think. Pick a client you already know well and one role that suits a contract arrangement. If time is the bigger concern, Contracting Myths 1 covers how contract searches fit around direct-hire work. If you're unsure your clients want contractors at all, Contracting Myths 3 shows how to find out.