In the dynamic world of employment and workforce management, businesses are continually seeking flexible solutions to meet their staffing needs. One such solution that has gained popularity in recent years is contract staffing. In this blog post, we will explore the concept of contract staffing, its benefits, and how it is shaping the modern workforce.
Defining Contract Staffing
Contract staffing, often referred to as temporary staffing or contingent staffing, is a workforce strategy in which companies hire employees on a temporary or fixed-term basis to fulfill specific roles or projects. These contract workers are not permanent employees but are engaged for a predetermined period, which can range from a few weeks to several months or even years.
How Contract Staffing Works
The contract staffing process typically involves the following key steps:
- Engagement of a Staffing Agency: To source contract workers efficiently, many companies partner with staffing agencies or recruitment firms specializing in contract staffing. These agencies maintain a pool of pre-screened candidates with diverse skill sets.
- Candidate Selection: Good news for direct hire firms is that recruiting for contract candidates is very similar, if not identical, to recruiting candidates for permanent positions. The process to vet, present, and select candidates is pretty straightforward. The only difference is how the job is communicated to the candidate, as it’s not a permanent position.
- Contractual Arrangement: The selected candidates are hired on a contract basis. The terms of the contract typically include details such as the duration of the assignment, compensation, and any other relevant terms and conditions.
- Onboarding: Contract workers are onboarded, which may include orientation, training, and familiarization with the client’s workplace and culture. These tasks are typically the responsibility of the recruiting agency, rather than the client company, in a contract staffing relationship. This is because the candidates will be legal W2 employees of the agency, rather than the client, for the duration of the assignment.
- Work Assignment: Contract workers perform the assigned tasks or projects for the client company, working alongside permanent employees if necessary.
- Payroll and Benefits: The staffing agency or Employer of Record (EOR) partner, manages timesheets, payroll, benefits, and other HR-related functions for the contract workers. The client company pays the staffing agency, which, in turn, compensates the contract workers.
- Completion of Contract: Once the contract period expires or the project is completed, contract workers may either be hired on permanently, extended, replaced, or their services terminated, depending on the client’s needs.
Advantages of offering Contract Staffing
1. Increased closing percentage
Almost every recruiter has had a client that tries to stall a new hire placement at the last minute. There are many excuses clients come up with like reduced budgets, hiring freezes, or they just may not be sure about the candidate. Offering contract-to-hire services allows you to circumvent those problems and provide your client with a solution that gets your candidate’s foot in the door. Ultimately, if those excuses subside, the client can hire the candidate full-time and you can cash in on a conversion fee, which ultimately means you closed a deal you would otherwise not have closed.
Hiring contract workers can be cost-effective as it eliminates the long-term financial commitments associated with permanent employees. This can allow even more client organizations to engage your services, without the hefty direct hire price tag, but rather a “pay as you go” model.
3. Increased enterprise value
Offering contract staffing allows direct hire recruiters to build recurring revenue streams. This enables potential buyers of your business in the future to have a reliable source of income, and EBITDA, to base a valuation off of. Ultimately, most buyers want long term reliable income. Having this on your book of business typically drives the EBITDA multiplier up when you are looking to sell!
4. Consistent paychecks
Ever had a slump as a direct hire recruiter? Those can be tough on the wallet, and can leave you wishing you never got into recruitment to begin with! Contract staffing is typically billed on a weekly or monthly basis. So, once you have a few contractors on assignment you begin to generate weekly or monthly checks. Those consistent checks can make up for slumps and smooth out the uneven and unpredictable revenue cycles of direct hire recruitment.
No matter the client situation, contract staffing can be a great option to offer. Many recruiting firms face roadblocks when trying to place direct hire candidates such as budget cuts, hiring freezes, and unsure hiring managers. Contract staffing can offer alternatives to clients which allow recruiters to make more placements.
Is Contract Staffing Right for Your Firm?
While contract staffing offers numerous advantages, it may not be suitable for every firm’s situation. Many direct hire firms do not have the infrastructure or time necessary to employ temporary and contract employees. If you are missing key components like payroll, insurance, benefits, and compliance expertise, it may not be the right time. That said, if you are looking to start now, then using an Employer of Record (EOR) partner to run the back office could be key to you enabling your firm to offer contract staffing services.
In conclusion, contract staffing is a flexible and efficient approach to workforce management that empowers businesses to adapt to changing needs and access specialized skills. As the world of work continues to evolve, contract staffing is likely to remain a valuable tool for companies seeking a dynamic and adaptable workforce.