Over the last several years there has been a rise in the number of client companies asking for "payrolling services", where they have found a resource and do not want to pay "full margin" for that resource. The driving factor seems to be an impression that this is a cheaper way to source candidates, because the agency's margin is much reduced.
Eagle's study of this area has concluded that in fact, contrary to popular belief, this is ALWAYS a more expensive way to source, certainly at a global level and even in most individual levels. An analysis we have conducted over the last 10 months involving a comparison of payrolled contractors and regularly sourced contractors against standardized rate tables supports this theory. Here are some facts:
- During this period Eagle placed 340 people against the rate table, of which 70 were "payrolled" and 270 were sourced by Eagle.
- When measured against the rate table the average payrollee was $4.12 above the table and the average regularly sourced contractor was $2.63 below the rate table. Consequently our client paid $6.75 per hour more for a "payrollee" than for a regularly sourced contractor.
- If we extrapolate over a year (2000 hours) for this scenario, the client was paying $13,500 too much for every single "payrollee".
Eagle's recommendation to clients is to do NO payrolling, instead compete every position.
The focus of this discussion has been on cost ... and certainly, as shown, "payrollees" cost more than regular contractors, but there are even more reasons not to source this way:
1. There is a cost to a client when their own people are sourcing candidates. Time taken for this activity is time taken away from their core responsibility.
2. When a client brings in a "friend" or "friend of a friend" in this way a conflict of interest is created. It is possible the new resource may not be subject to the same rigor that would be expected of an agency sourced candidate. There may even be a reluctance to critique, or censure a friend.
3. When a client finds their own candidates, negotiates terms and then hands them to an agency for "payrolling" the risks associated with co-employment are significantly increased.
So now, the clients are paying more money and increasing risk in the area of co-employment in addition to creating a potential conflict of interest. The staffing industry survives and thrives by finding the right resources to meet our client's needs ... and we do it quickly and at the best market rates. Clearly "payrolling" is not a good corporate answer to staffing needs.