Two Major Barriers That Can Hinder Contract-Recruiting Revenue Streams

Two Major Barriers That Can Hinder Contract-Recruiting Revenue Streams

With the rise of the gig economy, it is evident that adding contract recruiting to your staffing and recruiting firm’s capabilities can prove extremely lucrative. However, unlike permanent placements, placing contingent workers has several nuances that can trip you up, and get in the way of realizing certain profit potential.

As such, here are two major obstacles that keep some staffing firms and recruiters from contract staffing.

 

Financing

Of all the roadblocks that stop recruiters from taking advantage of contract staffing’s revenue potential, financing is the biggest. Many staffing firm owners who consider contract staffing are stopped in their tracks when they see that they must finance weekly or biweekly payroll while waiting for payments from their clients—a gap that can be as long as 45 to 60 days. Some staffing agencies address this challenge by waiting to pay the contractor until the client pays the invoice, but this practice can make it difficult to attract the best contractors.

Bank lines of credit or factoring services may on the surface appear to offer a solution, but these sources of financing can be expensive and can fall short of fully meeting the need. For instance, factoring companies may require the recruiting firm to share in the receivables risk, which could cut dangerously into a recruiting firm’s profit margin or erase it altogether. And the maximum credit limits assigned by the banks may be insufficient to cover on-going payroll obligations. Also, banks and factoring companies do not provide credit-checking services, leaving it up to the recruiting firm to ensure the creditworthiness of new clients.

Administration

Once a recruiting firm has identified an affordable source of adequate financing, the next step to unblocking the contract-staffing revenue stream involves the myriad of administrative tasks involved in hiring and paying a contract workforce. These administrative tasks typically include:

  • Contracts Administration. The terms of every independent contractor engagement must be accurately detailed in each contract, and in language that will stand up in court, if need be. If the contract worker is an employee, then the staffing firm will be operating as Employer of Record. The paper- work for both classifications of worker must not only comply with government regulations, but also meet both the worker’s and staffing firm’s needs.
  • Payroll Calculation and Administration. In addition to calculating payroll, mailing checks and/or coordinating direct deposit, firms that place contract workers must manage all government remittances paperwork, all while maintaining a comprehensive audit trail.
  • Preparing Year-End Filings and Other Documentation. Recruiting firms must generate and mail the appropriate tax records for all contract workers.
  • Issuing Invoices. In addition to time spent printing and mailing invoices and making collection calls, recruiting firms will need to apply for and set up facilities to process credit card payments from clients.
  • Tracking. Contract-staffing agencies need software that provides detailed reporting on hours, projects status, status of invoices and pay history.
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    Depending on the size of the contingent workforce, these tasks can eat up a sizeable chunk of time in the schedule of the firm’s payroll clerk, bookkeeper, IT administrator, and even its recruiters.

     

    While these two major roadblocks can prove complex and hard to manage, with the right resources and advanced planning, they shouldn’t keep a staffing or recruiting firm owner from taking advantage of the revenue potential of contract staffing. By partnering with the right back-office provider, you can receive resources to manage all of our administrative burdens, as well as financing options to best help you grow your business and fund payroll.

    Interested in learning how a back-office solution could benefit your staffing or recruiting company? Contact us today!