When an agency starts trading they will often start by making permanent placements to bring in some early profit to the business. However, as the business grows and develops the business plan may require a change to allow the company to start making temp/contract placements to increase turnover and generate daily profitability, whilst being less reliant on single placements. When starting a temp/contract desk, it’s unfortunately not as simple as just making placements – there are a host of internal processes that need to be taken and completed before the first candidate steps on site.
An agency may decide to outsource some of the tasks to a back office provider or a pay-and-bill company but there are still other considerations that need to be taken into account, especially if the agency wants to manage the process completely in-house. We’ve explored these below:-
- Funding in Place
The main difference between running a permanent desk and a contract/temp desk is the requirement for funding. Temp/contractors usually need to be paid before clients make payments for the invoices so there is a requirement on the company cash-flow which needs to be filled. This can either be by using internal funds, a bank loan or the most commonly with invoice finance. Using internal funds can be risky and a bank loan can be restrictive which is why invoice finance is often the ideal choice.
- Check in With Your Bank
Even though every company has their own bank account, it is important to check with your bank if they can cope with an increase in bank transactions and if your daily transfer limit is sufficient. If not, this may need increasing. If you are looking to make contract placements with international clients, ensure that you have the correct currency bank accounts set up before anything is paid in or out in order to avoid any currency losses.
- Client and Candidate Contracts
Whereas contracts for permanent placements rely on one main document for terms and conditions, contract/temp placements require a contract for the client/ agency and the candidate/ agency. These contracts ensure that both parties know their responsibilities and liabilities during the placement, provides any necessary protection and details how payment will be made.
- Compliance Checks
An increase in necessary compliance checks is also a larger part of temp/contract placements. Collating ID documents, references, Certificates of Incorporations, VAT Certificates and PI documents is standard but depending on the industry and specific placement there may be additional documents required like DBS checks, qualification documents, immunisations, training, credit checks, etc. that need to be collated and verified.
Timesheets are one of the most important documents in the temp/contract process as they confirm the days/hours worked by the candidate and form the basis of the client invoice and pay for the candidate. It is important to have a robust system and process to ensure that each timesheet is correct and has been authorised to ensure payment from the client. This may be in the form of signed paper timesheets, using an online timesheet portal or using a client’s own preferred timesheet system.
- Invoicing System
Whereas a permanent placement would only require a permanent invoice to be raised based on a fixed fee or percentage of salary, a contract/temp placement invoice is based on days/hours worked and is raised on a weekly/monthly basis for the duration of the contract so it is important to have a robust invoicing system. A good invoicing system will not only raise the client invoice and include the timesheet but also calculate the amount due to the candidate depending on if they are PAYE or using an Umbrella/Limited Company.
- Payroll Software
Should the candidates need to be paid through via a PAYE scheme, it is important to have a payroll software that can calculate the correct tax and national insurance deductions and produce payslips for the candidates. HMRC requires each payroll to be submitted via RTI uploads so that HMRC are informed of the deductions made, therefore you need to ensure this is possible to avoid fines and investigations.
- Credit Control Process
As the payment to the candidates is made before the client makes payment, it is important to ensure that the credit control processes are robust so that the clients make payment within terms to reduce any cash-flow pressures. Some invoice finance companies will provide their services to chase payment on your agency’s behalf but they will not do the same concise job that you could do internally; they have little interest to collect the funds in a timely manner as they can continue to charge your agency interest.
- Reporting Processes
One of the main differences between permanent and contract/temp placements is the reporting required by HMRC. PAYE candidates payroll data needs to be submitted via RTI submissions and Umbrella/Limited candidate payments need to be submitted via quarterly intermediary reporting submissions. If these submissions are not done correctly or on time then there can be fines imposed and possible investigations undertaken by HMRC.
TBOS is a veteran at helping recruitment agencies who are developing a contract offering to their clients by looking after all of the back office and accounting processes. TBOS provides online timesheets, invoicing and payroll systems and looks after the credit control processes for all the agencies we manage. TBOS also has relationships with a number of invoice finance companies, allowing us to set up an arrangement at preferential rates and then manage the day-to-day running of the facility ensure the agency has sufficient cash-flow to pay the contractors. TBOS also provides financial reporting to the directors via monthly management accounts and ensures that the RTI and intermediary reporting is completed within given deadlines.
For more information on how TBOS can manage the back office and accounting processes for your contract placements, please contact our office.