Whilst recruitment agencies weigh up the benefits of contract recruitment vs permanent recruitment, many are wary of the risks that exist for both the agency and the client, regarding how to manage and payroll the contractors once they’re onsite. Thus, many recruitment agencies are simply avoiding contract recruitment and consequently could be missing out on a massive opportunity to increase their revenue stream.
Recruitment agencies will often ask their clients, ‘Do you need help with a project quickly or want to test the market before committing long term to a staff member?’ If so, agencies can help them find a new hire via contract recruitment. Alternatively, they may ask, ‘Do you want to build a long-term team/department?‘ or ‘Are you ready for the responsibilities and challenges that come with this?’ If the answer is yes, they may seek to hire a permanent staff member.
Let’s look at contract recruitment in the US as an example. According to the Staffing Industry Analysts, the average weekly number of active temporary and contract employees consisted between 2.4 million and 2.6 million workers. If your recruitment agency is still weighing up the pros and cons of contract vs perm, we have put together some points to help you sell the right solution when speaking to clients.
With a range of benefits and disadvantages across both offerings, we have evaluated which may be the best option depending on your client’s needs.
What Is Contract Recruitment?
Contract recruitment, also known as temporary staffing, is where a worker is hired under a fixed term contract. Typically, these types of workers are hired for a certain period to complete a specific project. The worker isn’t hired as a direct employee but as a contractor. Contract recruitment consists of different forms of temporary employment arrangements, dependent on project needs:
- Independent Contractors/Freelance projects: Usually work remotely and have flexible hours. Engaging with this type of worker means you won’t need to pay any employees benefits including holiday time, sick leave, pension plans or insurances. All this will be handled by the contractor themselves, including their own taxes.
- Project-Based Contractor: Project-based contract workers are engaged for a defined project. This is when a business requires work completed within business deadlines and deliverables. These professionals integrate directly with internal teams, often working on-site. These contractors can be extended or terminated dependent on how the project progresses, making them ideal for businesses requiring specialised skill without long-term commitment.
What Is Permanent Recruitment?
Regarded as the most traditional form of employment, permanent recruitment is the process of hiring employees for long-term, ongoing positions within a company. Employing a permanent candidate is beneficial to companies that want to plan for long-term growth, with lower levels of staff turnover.
Benefits of Contract Recruitment
Contract recruitment can be beneficial for businesses who are seeking workers on a temporary basis to help with short-term or immediate-need projects. However, it doesn’t only offer the hiring business benefits. Here are some of the advantages for recruitment agencies operating within contract recruitment.
1. Higher Retention and Repeat Business for Recruitment Agencies
Contractors repeatedly seek new roles when temporary projects expire. For example, recruitment agencies that focus on contract recruitment in the US often enjoy the benefit of high candidate retention, as contractors are consistently looking for new roles when their temporary assignments expire. Therefore, the opportunities of repeat business for recruiters are plentiful.
Top Tip: Save time building a new pipeline each month
For recruitment agencies working within contract recruitment, both candidates and clients are likely to reuse your services once the temporary project ends. If you manage an already-existent contract talent pool, it is far less stressful than building an entirely new pipeline each month for permanent positions.
2. Short Notice Periods
Repeat use of contract recruitment by businesses is often generated from the requirement to fill gaps in teams quickly.
For example, in the US, employment is ‘at-will’, meaning that an employer or employee can terminate their work relationship at any point, with or without notice. Generally, both employees and employers in the US default towards a two-week notice period to protect future relationships, but this is not required. .
At-will employment is beneficial to contract recruiters as the candidate will be available almost immediately to start a new role once their project ends, or if they fancy changing jobs when you have an attractive offer, they can seize it immediately. A win-win situation for both the candidate and your new client that needs a contractor for their project.
Top Tip: Clients require contract workers immediately if an employee quits
Many businesses rely heavily on contract recruitment as they frequently need temporary workers on-demand to fill job roles their previous employees may have left with little notice, to limit disruption to their existing team and project. This is a benefit for recruitment agencies as businesses often need their services to help them find the talent.
As a result, agencies operating within contract recruitment can add much more value and build long-standing relationships, as they are likely to need their services with quick-turnaround times. This generally bumps up the contract recruitment fees because they are driven by a transient, fast-moving employment market.
3. More Money, More Frequently
Residual income is another perk to contract recruitment for agencies. Many contractors are paid per hour or per day, and therefore the recruiter can generate ongoing margins in accordance with these terms.
For example, if a contractor works 40 hours in a week, at a pay rate of $80/hour, and the recruiter is billing $100/hour to the client, then that recruiter enjoys revenue of $800 for that week ($20 of pure margin for every hour worked by the contractor), for that candidate, for the life of the assignment.
If you have multiple contractors on your books placed with different clients, you will be making that much or more for each contractor, per week!
4. Higher Margins in Contract Recruitment vs Permanent
If your recruitment agency works within contract recruitment, getting paid quicker and more frequently over several months is simply the more secure method of compensation. Workwell Global’s clientele includes recruitment agencies entering new international markets for the first time, who are pleasantly surprised at the margin sizes for contract recruitment in markets such as the US.
We witness recruitment agencies making up to 25-35% in contract margins in the US, much higher than typical one-off permanent margins. Often an objection to placing contractors over permanent roles is lack of funding for contract roles. This is understandable, as the contractor is not going to be on the end client’s books. So, the recruitment agency needs a way to afford the contractor’s wage every two weeks in the US, as the end client may be on 30-day payment terms.
Luckily, there are funding options available via our solution to overcome this hurdle, allowing you to place contractors in the most lucrative contract recruitment market in the world (the US), immediately.
5. Offer flexible contract-to-hire solutions
Working within contract recruitment allows your recruitment agency to offer clients a more flexible service by providing a contract-to-hire solution. This solution enables the client to ‘try out’ the contract worker for a temporary period before deciding on whether they want to engage the worker for a longer period.
In this scenario, recruiters often can collect both an ongoing margin for the term of the contract and a permanent placement fee at the point of temp-to-perm conversion. The more flexibility you can offer your client, the more your client will look to you over your competitors.
The idea of transferring the employer responsibility to the client at the end of the temporary assignment is also highly appealing. If the client is outsourcing the staffing process to you, they’ll appreciate that they can keep the responsibility and liability for that worker in your court.
Offering an all-in-one solution that includes both supplying and managing the talent for the client will most certainly strengthen the recruiter’s position in the client’s eyes. This means less candidate turnover, better cash flow, and a more favourable client relationship.
Upselling Contract Recruitment to a Client
When a client is focused on permanent hires, it’s a great chance to open a conversation about how contract recruitment can complement their strategy. Rather than presenting it as an alternative, position it as a flexible solution for scenarios they may already face; tight deadlines, project-based work, or sudden skill gaps.
By highlighting benefits like speed, cost control, and access to niche expertise, you show how contract staffing can reduce risk and keep their business agile. These talking points help you frame contract recruitment as a proactive, value-added option rather than an upsell.
1. Quicker Speed to Hire
Hiring a temp worker is a significantly less burdensome task for the end-hirer as the worker can be quickly onboarded and ready to work.
This speed is especially valuable during peak seasons or when unexpected vacancies arise. Agencies maintain a ready pool of pre-vetted candidates, meaning critical roles can be filled in days rather than weeks. Faster hiring reduces downtime and ensures projects stay on track without compromising quality.
2. Keep Quality Talent
If a full-time role is on pause, don’t lose talent. Start the position as a temp and retain them. By keeping top candidates engaged through temporary assignments, the client avoids restarting the recruitment process later, saving time and resources.
3. Reduced Risk
The agency manages the worker’s employment and ensures the worker is engaged and payrolled compliantly. This compliance extends beyond payroll, it includes insurance, and adherence to local labour laws. By outsourcing these responsibilities, the end hirer minimises legal exposure and administrative burden, allowing them to focus on core operations with peace of mind.
4. Try Before You Buy
Easily bring someone onto the team without the large investment in time and resources. This trial period allows the business to assess cultural fit and performance in real-world conditions. If the candidate excels, they can transition to a permanent role confidently.
5. Fluid Workforce
This allows the end hirer to have leaner operations – only have staff as and when they are needed. When the business is ready to proceed with a perm hire, they can convert the worker from temp to perm.
Such flexibility is ideal for businesses with fluctuating workloads or project-based demands. It enables the business to scale up or down quickly without long-term commitments, ensuring operational efficiency and cost control.
Learn More About Contract Recruitment Solutions
Keen to learn more about adding contract offering to your recruitment business? With a myriad of benefits, contract recruitment is a great avenue to explore for a growing staffing agency. Check out our recent conversation with a contract recruitment specialist to understand how to future-proof your staffing firm.
6 Reasons Why You Should Start Contract Recruitment
Benefits of Permanent Recruitment
1. Stable Revenue Stream
When placing perm positions, recruitment agencies receive a one-time placement fee which is a percentage based off the candidate’s annual salary. These are typically higher fees compared to contract roles, creating a more consistent and predictable income stream.
2. Increased Loyalty and Agency Reputation
If the recruitment agency continues to successfully place permanent staff, this builds a positive reputation and is a good reflection on the agency’s ability to match the correct candidate to a specific role.
Permanent placements often lead to long-term relationships with both clients and candidates. When candidates thrive in their roles, they are more likely to recommend the agency to peers and return for future career moves. Similarly, satisfied clients will view the agency as a trusted partner, increasing repeat business and referrals. This cycle of trust strengthens the agency’s brand and positions it as a go-to resource in the market.
3. Competitive Candidate Pool
Permanent recruitment enables agencies to attract passive candidates, those who aren’t actively job hunting but are open to the right opportunity. These individuals often bring exceptional skills and experience, giving clients access to talent that competitors may overlook. By leveraging industry networks and personalised outreach, agencies can build a robust pipeline of top-tier professionals, ensuring clients stay ahead in securing the best talent.
Upselling Permanent Recruitment to a Client
Permanent recruitment also brings value to clients dependent on their needs. Speak to your clients to find out whether contract or permanent hire is best to achieve their long-term business goals. If your client has a long-term vision vs short term projects and requires stability, here are some reasons why permanent recruitment may be best for them.
1. Stability of a Loyal Team and Reduced Churn
For businesses hiring full-time employee, perm means it’s much easier to create a strong and loyal team. If they hire permanently, staff are likely to be more invested in building a successful business as their output directly impacts them.
2. Help is Readily Available
When businesses build a stable team of permanent staff, if they need additional cover (for example, if someone is off sick or on PTO), they are more likely to step up and help.
3. Permanent Staff Know Your Business and Processes
If businesses have permanent staff members, they eventually build up knowledge of the business, how it operates, the essential daily and weekly tasks, and the industry. This knowledge and experience are some of the main factors which help business operations run smoothly. Subsequently, they can get ahead of the competition by developing long-term experts within the industry.
Contract and Permanent Recruitment Onboarding and Payroll
How do you payroll a contract worker?
For contract recruitment, in most cases, the temporary/contract recruitment agency employs the contractor and manages the contract of the individual, including payrolling them, administering benefits, managing timesheets, invoicing the client on a monthly, bi-weekly or even weekly basis. For recruitment agencies, this carries risk. Hence, it is crucial that they invest in a robust compliance process.
But if you haven’t set up your own internal operations in the country you need to hire in yet, or want to place contractors in globally, how do you manage these employment responsibilities that come with contract recruitment?
Use an Employer of Record with a Proven Reputation in Contractor Payroll
If you use an established Employer of Record, with a track reputation of providing onboarding and payrolling services for recruitment agencies, you don’t have to worry about the legal employment aspects.
Using our solution, you will be able to both supply and manage workers. You will also be able to transfer the administrative and employer risk off the shoulders of the client, putting yourself in a position to continually win business.
Communicating to potential clients that the contractors onboarding, payroll, timesheets, HR queries, and much more will be covered, and keeping on top of employment laws (thanks to using an EOR), is a huge selling point.
Need Support Engaging Placements in Contract Recruitment?
With agencies generating most of their revenue in the staffing industry from contract recruitment, it’s time to get your slice of the revenue. Here at Workwell Global, we are your ‘go to’ for contractor payroll. As an Employer of Record that specialises in supporting staffing and recruitment firms, we engage the candidate on your behalf, and are responsibility for payroll, timesheets, employment compliance, and much more.
If you’d like to learn more about the opportunities in new markets, speak to our employment expert.
Disclaimer: The information provided here does not, and is not intended to, constitute legal or accountancy advice. Instead, the information and content available are for general informational purposes only.