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The direct hire recruiting business has boomed over the last 4 years due to a growing US economy and an extremely low unemployment rate. Many recruiting and staffing firms were generating tremendous growth and were doubling down on expansion efforts in late 2019 and early 2020. However, since the discovery of COVID-19 and the sudden downturn of the economy many firms are re-evaluating how to weather this economic storm. Many firms are exploring contract or temporary staffing in order to recoup lost revenues. Others are simply trying to prepare for a down economy and are hoping that the recurring revenue generated by contract and temporary staffing will allow them to become more resilient. 

The Corona virus, and its economic impact on the US, has caused many organizations to lay off employees. Other organizations are having to cut budgets and costs. Some industries are experiencing massive demand caused by the pressure this pandemic has put on their line of work. This is currently happening in healthcare, packaging, and supply chain dependent businesses.

Direct Hire Placements Slowing Down

Navigating these waters can be difficult, but one thing is for certain, direct hire placements are going to slow down. Companies are not going to have the budget or approval to hire new head count during this time. This could be due to uncertainty and risk, or simply not having enough dollars to add another person to the organization. This is projected to persist even after the epidemic peaks and businesses start to recover. Recruiting firms that cannot offer a different way to meet client needs, such as contract staffing, will unfortunately be feeling the effects of this economic downturn as well. The good news is that there are many benefits to building a contract staffing business for both you and your client base.

BENEFITS for the recruiter:

  • Generate recurring revenue
  • Become a sole-source provider to your clients.
  • Contract placements can convert to full time direct hires.

BENEFITS for the client:

  • Reduce the cost of talent acquisition
  • Reduce the risk of full time employment
  • Allow access to talent through other budget line items

Additionally, there is going to be a heavier demand for contract staffing on both sides of the market. Companies are going to be more interested in hiring on a contract basis because it’s less expensive and less risky. Candidates will also be more likely to take a contract position because it will be more difficult to find full time work. Each of these dynamics creates an opportunity for recruiting firms to fill the gap. 

Contract Staffing for the First Time

Building a contract staffing business will require you to have certain capabilities. In order to place contract candidates you, or a back office partner, will need to become the legal W2 employer for each candidate. Doing so would require you to be a registered employer in each state you want to place candidates in. From there, you must ensure you have the below capabilities covered.

  • Payroll Funding
  • Payroll administration
  • Insurance
    • Workers Compensation
    • General Liability
    • Professional Liability
  • Time and Attendance tracker or “time sheets”
  • Invoicing and Collecting
  • I-9 and eVerify 
  • Drug Testing
  • Background checks
  • Credentialing

Many recruiting firms find that preparing all of the above capabilities is time consuming and cash intensive. Payroll funding alone could cost thousands of dollars just to get started. That type of cash isn’t something most firms have readily available during a rescission. Gaining access to cash like that through lines of credit or loans could be risky. These types of barriers have held back many recruiting firms from building recurring revenue through contract staffing. However, there are partners that can help.

An Employer of Record Can Help

If you have concerns about building a back office function by yourself, partners such as FoxHire can handle the back office for you. FoxHire is a turnkey solution and handles everything listed above and more, so that you can simply focus on recruiting the best talent. However you go about accomplishing this, developing a contract staffing business will only make your recruiting firm more profitable, less volatile, and more resilient in downward economic times. 

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