Many new agencies start by deciding to make a number of permanent placements first. This provides a much needed cash injection to the business and permanent placements are much easier to manage than contract placements.
Of course, when the time is right (or a client comes knocking), moving into contract placements can be extremely rewarding as it generates increased turnover and a steady additional profit, as that each day the candidates work, the agency is making money; the more contractors on your books the more profit you can make.
However, making contract placements involves a bit more planning and organising relative to permanent placements.
Below are six questions you need answers for when deciding to start a contract desk:-
HOW WILL YOU FUND THE CONTRACT PLACEMENT?
The main difference between contract placements and permanent placements is that funding is often required. Contractors will need to be paid within 7-10 days of submitting timesheets but clients usually pay within 30-45 days, leaving you to balance the books. There are many different ways to fund contract placements but the majority of agencies use invoice finance (factoring or invoice discounting), essentially borrowing funds against the invoices raised.
WHAT COMPLIANCE IS REQUIRED FOR EACH SPECIFIC CONTRACT PLACEMENT?
Sometimes contract placements require additional compliance documents to be collated to ensure the candidate is suitable. This includes documentation ensuring that the method of paying the contractor is registered and correct. Documents like Certificates of Incorporation, VAT Certificates, and insurance documents should be collected for limited/umbrella contractors. In some industries you may also need references, DBS checks, immunisations, and training/qualification certificates in order to ensure the candidate is suitable.
HOW IMPORTANT ARE CONTRACTS FOR A PLACEMENT?
Having secure and up to date contracts is the most important part of a contract placement. Ensuring that the contracts cover issues like AWR, liability, confidentiality, temp to perm fees, termination and payment terms makes the contract run smoothly and with little chance of non-payment. If the client insists on their own contract for the placement, read it thoroughly and, if necessary, take legal advice to avoid signing up to a contract which would leave you exposed.
WHAT ADDITIONAL REPORTING IS NEEDED TO COMPLETE A CONTRACT PLACEMENT?
In April 2015, HMRC introduced Onshore Intermediary Reporting, meaning that recruitment agencies have to inform HMRC on a quarterly basis of payments made to contractors who are not paid via PAYE. This needs to be completed each quarter to avoid fines and covers payments to umbrella or limited companies or sole traders. PAYE candidates’ payments are handled using RTI submissions once the PAYE payroll has been completed.
WHAT SHOULD YOU CONSIDER BEFORE PAYING THE CONTRACTOR?
It’s important to do some due diligence before a payment is made to any contractor to ensure that there are no comebacks on your agency. Check that the company being paid is correctly registered and that payment is made to the company bank account. Take care when making payments to self-employed companies – you could end up paying the contractors’ tax if they don’t pay it themselves.
WHEN IS A CONTRACT DEAL NOT A GOOD PLACEMENT?
As with any deal you should make sure the placement is a good one. Watch out for pitfalls such as extended payment terms, pay-when-paid clauses, clients absolving AWR liability, payment discounts and reducing margins as these can put the agency at risk or lead to making a loss.
TBOS has helped a number of permanent agencies move into the contract market by either using our TBOS Freedom model to provide short term funding when an agency starts making placements or using our TBOS Complete model to set up a full invoice finance arrangement and manage all the administration for larger contract books.