Top 3 Reasons for Outsourcing Employer of Record Duties

It’s no secret that recruiters can receive huge benefits from offering contract staffing services. Recruiters who add contracting options to their existing direct-hire business can do the following:

  • Earn more money and enjoy steady income with fewer peaks and valleys.
  • Become a sole-source provider and no longer have to turn away contract requests.
  • Establish trust and build stronger relationships with clients.
  • Provide flexible solutions to clients’ common staffing problems.
  • Add value and increase the payout of selling their recruiting firm or retiring.

However, if not handled correctly, contract staffing can be a thorn in your side instead of an added benefit. If you take on the W-2 employer of record, or “back-office,” responsibilities in-house, you could find yourself overloaded with administrative, financial, and legal complications that you weren’t prepared for.

Best-case scenario: You step up to the plate and handle them well, but still find your time bogged down with non-recruiting tasks that don’t generate additional income.

And worst case? You get overwhelmed and simply can’t meet all of the requirements, and you find yourself hit with government audits, fines, back taxes and wages, and other livelihood-threatening penalties. This is particularly worrisome for smaller recruiting firms and “one-man shows,” as your bottom line may not be able to absorb the hit.

So what is the solution?

Outsourcing Employer of Record Duties

If you want to add contract staffing to your business model with a minimum of time, effort, and liability, your best option is outsourcing the W-2 employer of record duties to a contract staffing back-office service. Here are the top three reasons why outsourcing employer of record duties solves your dilemma:

  1. Lose the financial risk. If you take on the employer of record duties for contract employees, you must have the cash to pay them. This means either having enough money on hand, or taking out a line of credit to float payroll until your end client pays. How long does that take? Well, it depends on the client. It could be 30, 60, or 90 days… or you may never get paid. By outsourcing, you free yourself of these financial shackles. The W-2 employer of record service should carry the liability.
  2. Drop the legal liability. A W-2 employer of record has numerous legal responsibilities, and they are increasing all the time. For starters, they must:
    • Comply with federal, state, and local employment laws: Fair Labor Standards Act (FLSA), Immigration (I-9 and E-Verify), Equal Employment Opportunity Commission (EEOC), IRS, COBRA, paid sick leave, etc.
    • Pay the appropriate taxes and insurances (including Workers’ Compensation and unemployment insurance).
    • Carry a certificate of insurance (most clients require general liability limits between $6-10 million).
    • Offer contract employees ACA-compliant health insurance.
    • Process payroll in a timely, consistent manner.
  3. Shed the administrative burden. A good W-2 employer of record service will handle all of the back-office tasks involved with having employees. This includes dealing with human resources concerns (background checks are the tip of the iceberg!), administering benefits, tracking timecards and processing payroll, and invoicing and collecting on receivables.

Done right, outsourcing simplifies everything. If you choose a reputable W-2 employer of record service, you, your client, and your candidate should all have a smooth, pleasant experience. Your candidate will have professionals to go to for pressing human resources or benefits questions. Your client will get the additional workers they need. And you will enjoy the financial benefits of reliable income and the peace of mind that comes from knowing your contract placements are being handled correctly.