Why Contract Staffing Grows in a Recession

As inflation and layoffs continue to rise, many media corporations and leaders are using the term “recession” to describe our immediate future. The market has entered into “bear” territory, and many organizations are thinking about scaling back their hiring. This could be a scary time for a recruiting agency. You may think the recession is going to shrink my business, and sales opportunities may dry up. However, the good news is that one area of the recruiting market that typically grows through a recession is the contract staffing market.

What is Contract Staffing?

Contract staffing is a specific type of recruiting where agencies find specialists to work for employers on a contract basis. This allows clients to hire someone to do necessary work, but not have the responsibility of a normal employee/employer relationship. Employers can essentially leverage talent with lower risk. This is because contract employees are typically employed by the recruiting agency or through their own entity as a 1099. That distinction gives employers much more flexibility and much lower risk, which we dive into further below.

Why does Contract Staffing Grow in a Recession?

The interest in contract staffing grows once organizations realize they still need talent, but want flexibility. Simultaneously, recruiting agencies realize their job orders for direct hire roles are decreasing. This convergence creates a great market for contact staffing. Agencies have access to the same talent, and clients still need that talent. Some employers will need less of the talent, but they will still need talent. One more dynamic is that candidates are now faced with the reality that it’s harder to find a job. They then become more willing to accept a contract position versus a full time role. Those three facts enable employers and hiring organizations to offer contract roles rather than full time roles.

How does contracting help employers?

Once employers realize contract staffing is available, they start to see the benefits. There are three main benefits of contracting staffing for employers.

1. Increase flexibility: During a recession companies want to scale up and scale down with their needs. Project based work becomes more normal, and full time employees become more of a burden. Contract staffing enables project work without the burden of full time employees for hiring organizations.
2. Decreased risk: A number of risks come along with full time employees that many employers want to avoid or defer to someone else. Those risks include workers compensation, employment law, and more. Contract staffing allows employers to defer the risk to their recruiting agencies, or an Employer of Record (EOR) platform like FoxHire.
3. Decreased costs: On an annualized basis contract employees cost less as they are only employed for a defined period of time (i.e. 6 months). Additionally, in many cases full time employees are more costly due to their additional costs like health benefits and 401(K)s.

What should you do next?

Recruiting agencies

Agencies that do not currently offer contract staffing should start to evaluate how they can offer this to their clients and what the demand will be. This evaluation should include whether the firm should be the employer of record, or if they should use an EOR partner like FoxHire.

Employers

Hiring organizations should begin to evaluate their labor needs with project based work in mind. From there they should speak with agencies they already work with to see if they offer contract staffing. Additionally, if the employer is self sourcing employees, they should look into the benefits of using an EOR to defer risk and enable them to leverage contract staffing for self sourced candidates.