Should Recruiters Add Contracting to Their Business Model?

I raised many questions in my previous blog post, too many questions, perhaps. So to show that I've not learned my lesson, I'm going to raise some more.

In that post, I analyzed a CNNMoney.com article titled "Say Good-Bye to Full-Time Jobs With Benefits," especially the part of the article predicting that possibly by as early as 2030, more than 50% of all employees would be working on a contract or temporary basis. One of the questions this begged, of course, is whether or not there will be more direct-hire job orders than contract job orders in 20 years (assuming the current trend continues).

Once again, for argument's sake, let's assume this does happen, that full-time employees eventually constitute the minority in this country. That assumption has a lot of mini-assumptions built into it, but as I stated, let's play the devil's advocate.

If that's the case, what should recruiters by thinking about, especially in terms of their business model?

If companies will be looking more and more for job seekers willing to work on a contract basis and if they'll be distributing more contracting job orders in the future, wouldn't it stand to reason that recruiters should be willing to fill those types of job orders? That would entail making contracting part of their business model, which might be anathema to those recruiters who work strictly a perm desk only, especially if they've been doing so for a long time.

However, the line of thinking makes sense . . . if companies are going to pay you for presenting contract candidates, then the best way to get paid is to present contract candidates for their open positions.

The truth be told, a business model that includes contract placements is beneficial in any economy, not just the one in which we're currently embroiled. Contract placements, which usually happen much more quickly than direct-hire placements, provide consistent and steady revenue during the life of the assignment. And when the contract assignment is over, it's not always over.

That's because many companies these days are choosing the contract-to-direct hire option. In other words, once a contract candidate finishes their assignment, the company is opting to hire them on a full-time basis. The company is trying the candidate out before it "buys" them, so to speak.

Remember, companies are looking to keep costs to a minimum. Hiring the wrong person on a full-time basis can be extremely costly. However, by hiring a candidate on a contract basis first and then evaluating their performance and how well they fit into the company culture, officials can make the decision to either hire them full-time or just allow their contract to expire. The best part for a recruiter is that if their contract candidate does transition to a full-time position, then they receive a conversion fee in addition to their contract money (provided the conversion fee was written into their service agreement with the company).

Can you envision a world where the only way in which companies hire on a full-time basis is to hire on a contract basis first and then convert the contractors they like to direct-hire positions? Neither can I, actually, but it's interesting to think about.

It's true that contract placements can be complicated and time-consuming, which is why many recruiters choose to utilize a back-office service provider. That way, the recruiters can concentrate on just finding the candidates and making placements-the "fun stuff"-while the back-office takes care of all the unpleasant paperwork.

For recruiters, reacting to trends, being pro-active in response to those trends, and staying ahead of the marketplace curve is crucial to long-term success, not to mention the degree of that success. This recession and subsequent "recovery" are not like those of the past; the possibility exists that companies' desire to keep costs at present levels (including through the use of a contingent workforce) will remain the same for quite some time. Recruiters who run a perm desk only will have to decide if contracting would be a worthwhile endeavor, not only for the long-term future, but for the immediate future, as well.

What are your thoughts? Should recruiters consider adding contracting to their business model? Do your clients consistently hire on a contract basis? Am I cracked in the head? (Okay, don't answer that last one.)


(Matt Deutsch is a writer for Top Echelon's Recruiter Training Blog.)

Views: 21

Tags: Contracting

Comment by Dawn Benefiel on June 29, 2010 at 2:52pm
Matt,

This may be a question that could be industry based. In the wonderful world of IT, contract hire is a very common and acceptable practice where another industry may be less on board. I may be "cracked in the head" as you would say, but perhaps recruiters could get a pulse on their area of specialty and decide what benefits them as we evolve? (focused on the long term future and migration of recruitment)... I look forward to hearing responses from the recruiting side to this post. Very thought provoking for sure.

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