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Embarking on the journey of starting a contract staffing business can be both exhilarating and challenging. The evolving nature of the workforce and the increasing demand for flexible employment solutions make it a lucrative venture. However, like any entrepreneurial pursuit, success hinges on careful planning, strategic considerations, and attention to critical back office functions. This is especially true if you plan to run your back office yourself instead of partnering with an Employer of Record (EOR) service to help. In this blog post, we will explore key factors, with a special emphasis on back office functions, to contemplate when venturing into the realm of contract staffing.

Benefits of Offering Contract Staffing

  1. Grow Enterprise Value: Many business owners eventually look to sell their business when they want to retire or do something new with their lives. However, running a direct hire business means that you will most likely never be able to sell your company, especially if you run a small team. Soloprenuers and other small recruiting firms can change that by offering contract staffing. In adding contract staffing you will be adding recurring revenue to your business, as outlined below. This recurring revenue can be more reliable for a future buyer of the business and would ultimately motivate them to be willing to spend money to acquire your business. Additionally they may even be willing to pay a higher price (multiple of EBITDA) if you can prove a history of generating consistent recurring revenue.
  2. Generate Recurring Revenue: Recurring revenue doesn’t only bring potential acquisition partners to the table, it also ensures your business stays afloat. Direct hire recruiting can be a feast or famine business. There may be many months in between checks from your clients. Those dry seasons can be mitigated by the consistent revenue that contract staffing brings to the table, which makes running your business less stressful and more profitable. 
  3. Avoid Vendor Consolidation: Many financial leaders across the business world try to reduce costs as much as possible. One method many CFOs and other finance leaders implement during cost cutting is vendor consolidation. They believe that sourcing services from too many vendors leads to wasted spend, and consolidation of these vendors allows for greater cost control. Unfortunately, this usually results in many smaller or boutique vendors to be consolidated because they cannot be sole source suppliers. By adding contract staffing to your direct hire business, you can lessen the likelihood of being consolidated out because you can offer more services to your clients.

Things to Consider When Starting a Contract Staffing Business

  1. Market Research and Niche Identification:Before diving in, conduct comprehensive market research to understand the demand for contract staffing services in your target industry and location. Identify a niche where your expertise aligns with market needs. Whether it’s IT, healthcare, finance, or other sectors, carving out a specialized niche can give you a competitive edge.
  2. Legal Framework and Compliance: Navigating the legal landscape is crucial in the staffing industry. Complying with employment laws, tax regulations, and industry-specific standards is non-negotiable. This is especially true if you plan to staff outside your local area, where you may see variances across different cities or states in how laws apply to your firm. Additionally, if you work in a highly regulated industry like healthcare or education, you may need special licensing to get started. Consider consulting with legal professionals who specialize in employment law to ensure your business is on solid legal ground.
  3. Build Strong Relationships: Success in the staffing industry often boils down to relationships. Cultivate strong connections with both clients and candidates. Establishing trust and reliability will be key to securing contracts and attracting top talent. This is especially true if you already run a direct hire recruiting business. The first step to building your contract staffing side of the business is to present these new services to your existing network of clients. Additionally, networking within your chosen niche and attending industry events can be instrumental in building a solid foundation.
  4. Effective Recruitment and Screening Processes: Recruitment for direct hire candidates and contract staffing candidates is very similar, but there are some key differences. First ensure the candidate is open to a contract job, from there you can vet them against your client’s requirements. You may also need to ensure they have the proper licensing or technical skills based on your client agreement. Remember, in contract staffing onboarding and employment are the responsibility of the staffing firm, not the client. So ensuring your candidate has the proper skills is key to avoiding a risk that might come with them not performing their duties properly while in the role. 
  5. Technology Integration and Back Office Functions: In the realm of back office functions for staffing firms, technology plays a pivotal role. You most likely already use an Applicant Tracking System (ATS) and/or a Customer relationship management (CRM) tool for your direct hire business. You will also need to add functionality for payroll, invoicing, time tracking and more if you want to run a contract staffing desk. Otherwise you may need to look into a back office partner with a platform like FoxHire that can be the EOR for your contract placements. These partners come with the benefit that you can spend all your time on revenue generating tasks like sales and recruiting, rather than back office requirements. 
  6. Financial Planning and Cash Flow Management: Like any business, a contract staffing agency requires a sound financial foundation. Develop a comprehensive business plan that outlines your revenue model, expenses, and projections. Pay meticulous attention to cash flow management, especially in handling back office functions like payroll, funding, and insurance, as the staffing industry often involves paying employees before receiving payment from clients.
  7. Marketing and Branding: Effectively marketing your contract staffing business is essential to stand out in a competitive landscape. Develop a strong brand identity, create a user-friendly website, and utilize digital marketing strategies. Social media platforms can be powerful tools for reaching both clients and potential candidates.
  8. Adaptability to Market Trends: The business landscape is dynamic, and the staffing industry is no exception. Stay informed about market trends, technological advancements, and changes in employment patterns. Being adaptable and proactive in response to these shifts will ensure the longevity and relevance of your business, encompassing both client-facing and back office functions.


Starting a contract staffing business can be a rewarding venture, provided you approach it with careful planning, a commitment to excellence, and a keen focus on the critical back office functions that underpin your operations. By incorporating efficient payroll management, insurance administration, and software automation, you can position your business for success in this dynamic and ever-evolving industry.

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