There are 3 main types of recruitment offered to clients; Permanent Staff, Temporary Workers and Contractors. Contractors are skilled candidates willing to work for a client for a period of time often on a daily rate. Contract recruitment is very lucrative for recruiting professionals as the rates for these placements can be higher compared to temporary placements and are often for a significant amount of time.
With that said, there are elements to consider with contract recruitment. For instance, contractors need to be paid by the agency ahead of the client making payment for their services. This is when invoice finance, Pay & Bill providers and other means of funding must be considered to facilitate this requirement by the agency.
Below TBOS lists 10 tips to running a successful contract recruitment business:
- CREDIT CHECK THE CLIENT IMMEDIATELY
As soon as a client mentions they may need a contractor it is recommended to run a credit check to ensure you can receive funding against them. You don’t want to get to the point of making the placement to realise there is a potential risk of not being paid or being funded by the invoice finance company.
- CHECK TO SEE IF AN RPO IS PART OF THE PROCESS
Today many large companies use a Recruitment Process Outsourcing company (RPO) to manage the recruitment and invoicing process which can have an influence on how the contract is managed. Although you may be dealing directly with the client all of the paperwork and invoicing will go through the RPO which may mean you have to follow additional compliance requirements. The invoice finance company you are using may not be happy to fund them should their RPO contract have a pay-when-paid clause, so this is worth checking.
- REVIEW THE CLIENT CONTRACT THOROUGHLY
Most of the time your clients will be happy to sign your agency client contract template but others will insist that their own contract must be signed instead. You may decide to get someone with a legal background to review the contract to ensure you are not signing up to anything which may not be in your favour. Alternatively, it is best for you to review this yourself thoroughly to check payment terms, temp-to-perm fees, invoicing processes, termination procedures and that liabilities are fair on both parties.
- UNDERSTAND THE DIFFERENCE BETWEEN MARK-UP AND GROSS PROFIT
Whilst most clients will give you an hourly or daily rate that they are willing to pay for your candidate some will insist that they know the candidates pay rates and want you to minimise your profit to a specific mark-up of the candidate’s rate. You need to understand that the mark-up percentage is smaller than your typical gross profit as the percentage is based on the candidates rate not the client rate.
- ENSURE YOUR GROSS PROFIT % IS ABOVE YOUR INVOICE FINANCE PRE-PAYMENT
With every contract placement you will need to work out the gross profit percentage of the placement by dividing the profit by the charge rate. Using this margin, you need to ensure that it is above your invoice finance pre-payment to avoid you having to use your own funds to pay your contractors. An example of this is, if your pre-payment is only 85% but the margin on the deal is 12.5% then you will need to fund the 2.5% shortfall as the invoice finance company will not provide this.
- MATCH YOUR CANDIDATE PAYMENT CYCLE WITH YOUR CLIENT INVOICING CYCLE
As part of the contractual process your client will inform you of how often you can submit invoices for the work completed by your candidate. This often falls into weekly, monthly or a specific invoicing cycle. You need to ensure that your candidate is also on the same cycle to avoid any funding issues. An example of this would be your client only allowing monthly invoicing and you deciding to pay the contractor weekly. This shouldn’t happen unless you are happy to take the risk on paying the contractor ahead of your invoice being process and paid by the client.
- ENSURE YOU ARE PAYING THE CANDIDATE THROUGH THE CORRECT METHOD
There are three main ways of paying a contractor; on the agency’s PAYE scheme where you will deduct the tax and national insurance on behalf of the candidate, via an umbrella company or through the candidates own limited company. If the placement is in the public sector you will need to ensure you are paying in the correct way according to the IR35 legislation (this legislation is being extended to the private sector from April 2020). If you are paying to an umbrella company or to the candidates own limited company then you will also need to collect the relevant compliance documents showing the company is correctly registered.
- IF YOU ARE PAYING THE CONTRACTOR PAYE THEN ENSURE YOU UNDERSTAND YOUR RESPONSIBILITIES
If the candidate is being paid through the agency’s PAYE scheme then you need to ensure you are calculating the candidate cost correctly to cover all of the liabilities due. This will include the holiday pay, pension contributions, employer’s national insurance and in some cases the apprenticeship levy. You will also need to submit RTI submissions following each pay run and from April 2019 you also need to ensure their payslip has a full breakdown of each rate on their payslip.
- UNDERSTAND AND FOLLOW THE INVOICING PROCESS FULLY
As you need to pay the candidate ahead of the payment from your client, you need to ensure the invoices you raise to the client are correct and follow their payment process. Whilst many clients will want an invoice with an approved timesheet attached, some will have some complex processes that need to be followed in order for the invoices to be paid. This may involve online portals, PO numbers, cost codes, multiple sign offs to name a few, all of which will need to be strictly followed.
- ENSURE YOU PAY AND CHARGE IN THE SAME CURRENCY
As contract placements can also extend to international companies and can sometimes be in different currencies it is recommended that you negotiate the client charge rate and the candidate pay rate are in the same currency. This will hopefully reduce any currency losses you may incur by minimising the need to convert the currency on each payment.
HOW TBOS CAN HELP YOUR CONTRACT RECRUITMENT BUSINESS
Over 75% of TBOS clients are contract recruitment businesses, they work across several industries and place contractors here in the UK and internationally. They are fully supported by our specialist back-office team who manage the complete administration and funding of each contract placement they take on.
This includes everything from credit checks, contract administration, timesheet processing, currency invoicing, invoice finance management, candidate payments (PAYE/Umbrella/Limited Company) and credit control.
We work with our clients to ensure all contractors are processed compliantly, following their clients bespoke invoicing processes. This ensures all invoices are paid within payment terms and keeps the business running smoothly so the recruitment director can focus on more important things, like taking on more staff and growing their business. TBOS can also provide specialist advice and support to agencies who are looking to start contract placements and can arrange invoice finance even for new start up recruitment agencies.
For more information on how TBOS can help with administering and funding your contract placements please contact our office on 0345 504 6333.