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Recruiting in today’s economy can be challenging, to say the least. As a recruiter, your livelihood is largely at the mercy of the economy. At times, it can feel like you are traveling down a winding road with no street signs or road map. However, if you look at recent statistics, it seems that all signs are pointing straight toward contract staffing regardless of the economy.

Earlier this year, 42% of employers told CareerBuilder that they planned to hire contractors in 2014. This is the fifth straight year that statistic has increased. It appears employers are following through with their plans. “Temporary help services” continues to add jobs to the economy and break records for penetration rate. That rate, which calculates the number of contract jobs as a percentage of total employment, has risen for 19 of the past 20 months, according to Bloomberg.

Historically, it was normal for contract staffing to increase immediately after a recession as employers tested the hiring waters and then decline again when the overall job market improved. That is not the case with the most recent recession. Contract placements are increasing continually despite solid overall job growth.

This illustrates a fundamental shift in the employment landscape as employers embrace a new blended workforce model in which companies utilize both direct hires and contractors as part of a long-term business strategy.  Let’s take a closer look at what is driving this shift.

Bump in the Road: Rising Healthcare Insurance Costs

The full-impact of the healthcare reform law known as the Affordable Care Act (ACA or Obamacare) will not be felt until the employer mandate provision of the law kicks in, which is a moving target. When it finally does become effective, employers with 50 or more full-time employees will have to offer them health insurance. For now, employers can only guess how and when the provision will affect their bottom line. Some are reducing employee hours and holding off hiring to stay under the 50-employee threshold.

Companies of ALL sizes are grappling with the ever-increasing cost of healthcare. This year, annual premium increases were in the double digits nationwide. For example, some companies in Ohio received premium hikes exceeding 60%.  No one knows how high premiums will get or how providing employee coverage will change in the coming years, making strategic planning nearly impossible.

The money to cover healthcare costs has to come from somewhere. Contract staffing provides a preferable alternative to cutting employee hours or reducing staff.  Because contractors are the legal employees of a third party (recruiting firm or contract staffing back-office), that third party takes on the costs and administrative burden of providing healthcare insurance for those contractors. Companies near the 50-employee threshold can even escape the employer mandate because contractors don’t count toward the threshold.

Detour: Increasing Regulatory Burden

Besides Obamacare, a number of other employment laws are being passed on the federal, state, and even local level, making it increasingly more difficult to employ workers. A prime example is the paid sick leave laws that are being passed by several states and localities.  California is current considering a state-wide paid sick leave law. Not only do employers have to grapple with the cost of providing the paid leave, the tracking and administration is complex and time-consuming.

Contract staffing offers a solution. The third party employing the contractors assumes all of the responsibility and liability for legal compliance, relieving companies of the burden.  In addition, the third party assumes the costs of financial contributions to employee benefits, Workers’ Comp and Unemployment claims, and various administrative costs.

Blind Curve: Political Unrest

Meanwhile, many employers are keeping a cautious eye on Washington as Congress continues to dispute issues that impact employment (spending debates, tax code, immigration reform, etc.). Add to that the fact that all of the House of Representative seats and a third of the Senate seats will be contested in the November election, it is anyone’s guess what will happen in the coming year.

The recession and rocky recovery taught employers that contractors can provide an extremely valuable skill set and a level of flexibility that is vital in this volatile economy.  They allow companies to quickly add staff when they have the business to support it and just as quickly reduce staff to respond to economic changes.

Narrow Lane: Getting the Right Fit

While recent jobs reports shows companies are finally warming up to hiring, it seems they only want to do so if they can find the perfect candidate. The Washington Post recently reported that it takes 25 working days for companies to fill the average job opening, the longest delay recorded since tracking of this statistic began in 2001.  It only took companies 16 days to fill the average position just 5 years ago. Bridging the skills gap seems to be harder than ever.

To ensure the perfect fit, more companies are turning to contract-to-direct arrangements where a candidate is brought in on a contract basis so the company can evaluate their skills on the job.  If the company likes what they see, they then extend a direct hire offer. If not, they can end the contract and try someone new.  Some companies have made it a regular practice to start ALL new hires on a contract-to-direct basis.

Shifting Gears: Candidates Forge New Path

As candidates continue to struggle with “work-life balance,” they are increasingly adopting contract staffing as a lifestyle to gain needed flexibility. Due to their project-based nature, contract positions typically allow a greater array of scheduling options. Because contractors are typically paid on an hourly basis, they also have higher earning potential as they are paid for every hour they work. Additionally, workers enjoy the variety contract assignments offer, allowing them to work for different companies and on different projects.

Take the Wheel

While the economy may be improving, the issues described above are not going away anytime soon, so we can only expect contract staffing to continue to grow. In fact, experts predict that contractors could comprise 40-50% of the American workforce by 2020.

With that in mind, contract staffing should be a key component of your strategic planning. Contracting can help ensure your future success in a number of ways:

  1. Smooth peaks and valleys. You are paid for every hour your contractors work. This provides steady, predictable income to sustain your business between direct hire placements.
  2. Secure client loyalty. Having loyal clients is essential to your continued success. There is no better way to strengthen client relationships than being able to satisfy ALL their staffing needs (direct hire AND contract staffing).
  3. Close more placements. As explained above, contract-to-direct arrangements help you speed along the hiring process when your clients drag their feet waiting for the perfect candidate.  Incidentally, this solution solves a lot of other issues that can kill placements, such as hiring freezes, placement fee objections, and more.
  4. Exit strategy. Eventually you will want or need to sell your business, whether it is to retire, do something different, or other reasons. Contract staffing makes your firm more valuable due to the consistent income your contractors are generating for it.

Your Map to Success

The best part about contract staffing is that it is an investment you can make in your future without any upfront cash outlay or additional overhead. When you utilize a contract staffing back-office service, you can start placing contractors in a matter of hours. The back-office should become the legal employer of your contractors, handling all of the legal, financial, and administrative details of your contract placements.

Yes, the economy can play a huge role in your success as a recruiter but you have options.  By adding contract staffing to your business model you can take the wheel of your future and establish a map to success!

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