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Permanent V Contract Recruitment

March 8, 2019

People often ask me which is the better option, permanent or contract recruitment. This is a really difficult question to answer, because there are pros and cons for both, and it also means what you mean by ‘better’. Better how? And for whom?

The Pros of Permanent Recruitment

Without a doubt, permanent recruitment is easier from an administration and compliance perspective, which is why so many recruitment start-ups begin as permanent only recruiters. When you are placing candidates to work directly for the end user client, liability for the candidate lies with the client - including all the due diligence pre-recruitment checks that go with them - like right to work checks.

Where you are placing temporary or contract workers, the responsibility for due diligence and pre-screening lies with the employment business. Although temporary workers and contractors are usually under the supervision, direction and control of the end user client, there is still a larger liability around candidates for contract recruiters than for perm recruiters.

The legislative landscape is much less onerous for perm recruiters. If you look at the requirements of the Conduct Regulations, you don’t have to get contracts for services signed at registration, for example. You also completely avoid the Agency Worker Regulations (AWR).

Some recruiters argue that if they are supplying contractors rather than temps they also avoid AWR. Not true. Where the worker is under the supervision, direction and control of the end user client, and there are 3 (or more) parties in the supply arrangement, AWR (equal treatment in terms of pay and holiday after 12 weeks) applies.

With permanent recruitment you definitely avoid the nightmare that is IR35 - something that even most experienced recruiters can struggle to get their heads round. With recent public sector IR35 changes rolling out to the private sector in April 2020, agencies supplying contract workers are having to get involved in deductions at source before paying contractor invoices, which is causing substantial additional administrative work for many contract recruiters.

Another benefit of permanent recruitment for recruiters is that you are invoicing purely gross profit. You don’t have the same enormous cash flow implications that come with contract recruitment. In contract recruitment, the employment business has to pay the contractor a week in arrears regardless of when the client pays their invoice, which often necessitates dealing with outsourced payroll or factoring companies, or securing expensive overdraft facilities.

Even worse, some managed service contracts leave smaller second tier recruiters at the mercy of pay IF paid clauses, although my advice to any recruitment business is never to sign a contract including this kind of clause.

Another plus of permanent recruitment is that you theoretically have access to the whole talent pool. If you are selling a contract or temp opportunity, it would generally be unethical to persuade someone who is in a permanent position to leave that job security for what is ultimately a more precarious opportunity.

Some recruiters say they prefer permanent recruitment because it is a slower pace than temp/contract recruitment and they can take the time to get a more detailed understanding of the role and focus on finding the best match – however many temp/contract recruiters would argue they still get that level of understanding and matching accuracy, as clients have become increasingly demanding!

It is also undeniably true that in today’s world of instant gratification, when you can order something on Amazon today and receive it tomorrow, clients still look for a speedy turnaround even on permanent vacancies. On the surface, therefore, permanent recruitment involves fewer legislative and administrative ‘burdens’, and in some cases there can feel like there is more time to ‘get the fit right’ for the client.

Why I love temp/contract recruitment

For me, temp/contract recruitment is all about relationships. With a permanent candidate, you invest time in getting to know them in depth, place them, and then after a couple of quality calls you don’t speak to them again (unless they come back to you a number of years down the line for their next career move, of course).

Similarly, on the client side of the relationship if they only hire once or twice a year, you may only spend a short period of time in very regular communication - ‘keeping in touch’ between requirements.

The joy of temp/contract recruitment for me is that you invest time in getting to know (and deliver a great service to) your talent pool and as long as you keep them busy, they stay with you. I had numerous temps/contractors who had worked with me for well over 5 years.

Your candidates become part of your team, and you can get to develop a really in-depth understanding of the candidate’s capability based on their proven track record with your clients. You can sell the candidate into the client with a very high degree of confidence once they have worked with you on a number of occasions.

With a well-managed contract talent pool, it should be a little like shuffling a pack of cards. I guess you could call it candidate recycling! (Sticking with that theme, permanent candidates are more like the single use plastics, without the associated environmental damage.) The best temp/contract recruiters really get to know their clients’ businesses so that they are able to forecast almost as well as the client what their future temp/contract needs are likely to be, and ‘stock up’ their talent pool accordingly.

When clients have ongoing temp/contract requirements, it also means that there can be much more frequent communication between the recruiter and the hiring managers, which can lead to really strong and mutually beneficial business relationships.

Another major benefit for me with temp/contract recruitment is that in-house talent acquisition teams are not your competition (as they can be with permanent recruitment, with more and more companies investing in developing their own in-house recruitment capability) – they need the services of temp/contract recruiters.

Quite often, clients simply don’t have the capability (or the desire) to absorb the amount of administration (and, let’s face it, hassle) of administering flexible workers. It’s much easier for them to pay one consolidated invoice for their flexible resource usage each week and let the employment businesses deal with everything else.

Another plus of temp/contract recruitment is that a strong contract desk makes any recruitment business more marketable if they have aspirations to sell. In the internet age, with decent Boolean search skills, finding candidates is relatively easy – the value recruiters bring is the relationships they have with their network, and the level of empathy they develop with them. A talent pool of loyal temp/contract workers with a proven track record of delivering against high value contract requirements is something potential investors will find extremely attractive.

You can probably tell that I have a soft spot for temp/contract recruitment(!), but there is no denying that there is significantly more administration and therefore higher cost (in terms of both time and resources) in temp/contract recruitment.

What about dual desks?

In my last couple of years ‘at the coalface’ of recruitment before moving into recruitment training, I ran a dual desk – doing both temporary/contract and permanent recruitment. This gave me the best of both worlds (and the worst!). Not every recruiter is suited to both contract and permanent recruitment, especially because it can be extremely hard to prioritise, however it enabled me to address more business problems for my clients and explore a range of solutions.

However, the basic skills for permanent and contract recruitment are the same – understand what the client needs and has to offer, understand what the candidate has to offer and what their aspirations are, know your market, and then fit the right person with the right opportunity. (Sounds simple when you put it like that, doesn’t it?!)

What does the future look like?

There are those who are constantly talking about the gig economy and see the future of recruitment as largely contract, however we should not be so quick to write off permanent recruitment. Companies will always need to have a core of permanent employees – the ‘engine room’ of the business that provides consistency, sets out the strategy and defines the culture of the organisation. And despite the recent proliferation of in-house talent acquisition teams, some of the ones I speak with are faced with unmanageable workloads of 20+ requirements at any one time, with limited resources. They still need support with their permanent recruitment, especially the more senior, business-critical roles.

In Summary

Permanent and temp/contract recruitment are not ‘better’ than each other – they fulfil different needs for clients; they suit different types of recruiter. The fundamental skills remain the same.

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