Below is a summary of the third chapter of our white paper: ‘The Business Case for a Direct Contractor Recruitment Strategy’. Here we discuss the traditional agency reliant contractor recruitment model, its advantages, disadvantages, and why employers should consider a direct contractor recruitment model. ‘You can download the full paper via the link below:
The Traditional Contractor Recruitment Model
Contractors or freelancers are often drafted in on a project basis at short notice. Having on demand access to contract talent pools of various niches and skills is difficult to achieve. Even if you could find a contractor with the right skill set quickly, you need to be able to determine their availability and day rate, not information that’s always readily available.
Monitoring contractors also takes resource and normally involves some sort of timesheet management. The contractor will need to be set up as a supplier to be pay-rolled, typically via an Umbrella or Ltd Company, and finally you’ll need to approve and pay the relevant invoices. On top of all this, you need to comply with the relevant HMRC laws to ensure you don’t run into any co-employment issues.
All of the above, in addition to the fact that unlike permanent hires, recruiting contractors has not been traditionally considered part of a firms direct recruitment strategy, means it’s often simpler for an employer to use an established recruitment consultancy to supply their contractors. Of course, depending on the industry you will then be paying a mark-up on their day rate anywhere between 12-30%.
Typically a hiring manager will be have a demand for a contractor and notify a recruitment agency, perhaps on a Preferred Supplier List (PSL). The agency will do the work of searching for a suitable contractor and present a shortlist to the hiring manager. Telephone and face to face interviews will take place, the contractor may receive a job offer and begin their contract. Each week the contractor will submit their timesheets to the agency who pays the contractor. The agency then invoices the company with an added margin on the contractors’ day rate.
Advantages of The Traditional Model
- Resource – The agency does the searching and has access to talent pools.
- Simplicity – You receive a shortlist of candidates.
- Compliance – Reduced risk around co-employment issues.
- References Checks – The agency will have carried out necessary reference checks on the contractor.
- Dependence – You are reliant on third parties for access to talent resulting in an inability to build your own pool or pipeline of contractors.
- Cost of Hiring– You will pay a mark-up (often a very significant mark-up) on day rates.
- Brand – Using third parties means you have reduced brand control over the candidate experience and how your company is represented in the market.
- Lack of Market Insight – Your reliant on a third parties for key information such as upcoming skills shortages and market day rate benchmark data.
- Time to Hire – Using a third party means an extra step in the process and a longer recruitment cycle.
- Commercial Priorities – Successfully negotiating down rates with recruitment agencies may provide short term cost saving benefits, but it can also push you down their priority list if they can place the same candidates for a higher margin elsewhere.