There tends to be a huge fear factor involved with contract staffing, mainly due to the misconception that it is extremely complicated and too different from direct hire.  But as many recruiters take advantage of the growing popularity of contract staffing, they are finding that contract placements are really not that different from direct hire.

Here are the main steps of contract placements:

  1. Get the job order.
  2. Locate the candidate.
  3. Negotiate rates.
  4. Employ the contractor and handle the employment tasks. (Outsource)

Do those first three steps look familiar? They are same things you have to do for a direct hire, right? While the rates are a little different, it's easy once you understand the process for determining the hourly rate structures and markups that will be charged to the client company.

Therefore, the biggest difference between direct hire and contract placements is the "back-office" tasks associated with being the legal employer of the contractor.  Fortunately, those tasks can be outsourced to a contract staffing back-office. By outsourcing, you can concentrate on the tasks that you are already familiar with.

The other option is to take on those tasks yourself and become the employer of your contractors. In that case, you need to allow yourself plenty of ramp up time before you start taking contract placements. You will need to get set up to withhold taxes and obtain Workers' Compensation insurance in each state in which you plan to place contractors. You'll want to decide how you will fund payroll (by yourself or through a third party funding company).  You will need to decide if you are going to offer contractor benefits (or if you are required to under the Affordable Care Act) and get those benefits set up.  These are just a few things to consider if you want to be the legal employer. It is also important to line up sufficient administrative support (both human and electronic) to handle the day-to-day tasks, including:

  • Legal contracts with the contractor and the client
  • Payroll processing (on at least a biweekly basis)
  • Tax withholdings and filing
  • Background checks and drug screenings
  • Unemployment claims
  • Workers' Compensation
  • Invoicing clients and managing accounts receivables
  • Benefits administration, if applicable
  • Employee issues
  • Employee terminations
  • Keeping up with and complying with the complicated web of local, state, and federal employment laws

These tasks are often what scares many recruiters away from contract staffing.  But again, if you outsource them, you are left with the typical recruiting tasks.  If you do choose to outsource, be sure to select a FULL-SERVICE back-office that will become the legal employer of your contractors and handle ALL of the employment tasks and legal liability.  You don't want to have to wrangle with complicated contractor issues when you should be focusing on revenue-producing recruitment tasks.

Debbie Fledderjohann is the President of Top Echelon Contracting, Inc.

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