FAQs about Payroll for Contract Recruiters

FAQs about Payroll for Contract Recruiters

Published June 30, 2020

Contract recruiting is having a moment. With around a third of US employment having already shifted to contingent roles, the need for contract recruiters has never been higher. The current global climate has accelerated the rate of change, with employers seeking even more flexibility.

If you’ve been thinking about adding contract recruiting to your business or even starting your own contract recruiting firm, now is a good time. Before you get started, though, you’ll want to do your research.

One of the more complex aspects can be handling the payroll burden. We’ve dug deep into our expertise to answer some of the most common questions about payroll and contract recruiting for you.

Q: What Are “Pay Charges”?

Quite simply, the phrase pay charges refers to the cost of payroll. You may also hear this called the payroll burden.

Q: What Are the Components of Payroll Burdens?

When you hear payroll burden, you likely think of salary or wages. That’s just one component of payroll, though. There are many components that make up the cost of payroll, all of which must be properly calculated.

What are these components? You’ll need to consider:

  • Taxes and withholdings
  • Benefits and benefits administration
  • Workers’ compensation

Depending on your company, industry, and jurisdiction, there may be other considerations as well. In some US states, for example, you might also need to factor in unemployment insurance. In most Canadian provinces, you’d have to calculate and set aside for vacation pay and paid leaves.

If you’re working with an employer of record (EOR) or other partner, make sure your markup calculations take the totality of your payroll burden into account. Doing so means you’ll be able to cover all payroll commitments and still turn a profit on the placement of contract workers through your agency.

Q: Do You Need Workers’ Compensation Only for Your Home State?

If you want to employ contract workers in multiple states, then you’ll need workers’ compensation insurance for each state you plan to operate in.

This is because what’s covered by workers’ compensation will vary from state to state. Rates may also change between states, as well as between industries. You must also register to conduct business in each separate state.

If you plan to operate in multiple states, it can be beneficial to partner with a full-service EOR. With their help, you won’t have to manage multiple registrations. Instead, you can rest assured their team has all your back-office needs covered.

Q: What Other Types of Insurance Do You Need?

Workers’ compensation can help you protect your business and the contract workers you place, but it’s not the only type of insurance you should carry. At an absolute minimum, you should also have a general liability policy to safeguard the business.

Auto coverage may also make sense for some agencies. Others who specialize in the placement of certain kinds of professionals should investigate policies that specifically cover those jobs. Criminal risk and professional liability, as well as errors and omission policies, are good options to explore.

An umbrella policy is often the most economical solution, because it provides coverage in several areas. Since the policies come bundled together, it not only provides more coverage but cost-effectiveness as well.

Q: Should You Use Excel or Outlook for Applicant Tracking?

It can be tempting to use the technology you already have on hand to track applicants. If you’re using Microsoft Office, it’s easy to open up a new spreadsheet in Excel to manually record and update information about candidates. You might also look to freeware like Google Sheets.

The problem with this solution is it’s not the best one available to you. There are better solutions custom-made to serve the needs of the recruiting industry, which provide much more powerful tools to assist you in tracking candidates more efficiently. These tools can help you automate time-intensive data entry and updates, improve reporting and business intelligence, and may even offer connectivity with other software you’re using.

Any of these high-quality, easy-to-use, cloud-based systems can improve your procedures. In turn, they’ll help power your business’s growth.

Q: What Goes into Appropriate Time and Payroll Tracking?

You’ll want to be sure you track contract workers’ time and your payroll activities. Providing time cards or time-tracking software is often the first step. You’ll also want to create appropriate procedures to ensure time is recorded correctly. You should establish procedures with your clients, as well as with workers.

Payroll requires the accurate recording of time and the calculation of wages accrued. Then, you’ll need to calculate taxes, withholdings, and other costs. Finally, payroll must be managed in a timely way to ensure payroll remittances are made on time and workers are paid when they expect to be paid as per their contracts.

Q: How Is Paying Contract Workers Different than Permanent Placements?

The major difference between contract placements and permanent ones is that you’re required to front payroll and payroll taxes each week, for as long as the worker is working. If you have net 30–day payment terms with your clients, you’d need to front four weeks of payroll before you see any income from the client.

This can represent a large burden and even a risk, but strong credit approval practices can help you vet your clients. You should also issue invoices to them as due upon receipt to try and minimize potential cashflow issues.

You may have to consider credit facilities to help you fund payroll or working capital. Lines of credit, factoring, and full-service funding are all options you should think about.

Let the Experts Lend a Hand

Starting your own contract recruiting business or adding this service to your existing business is a smart move, but there are challenges along the way. Doing research and getting answers to common questions is a great first step.

Another great option is to partner with an experienced back-office provider. They can leverage their expertise to help your business grow.

Contact us today to learn more.