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Why Do Companies Choose to Work with Agencies and NOT Directly With Independent Contractors?

I am sometimes given a bit of a hard time by independent contractors who feel that agencies "take money out of their pockets" or are making money off their backs, bringing little value to them. Having run an agency for the last 12 years, I can honestly say that I have never worked so hard. I have worked in technology, sales and management roles and I have worked for large companies and system integrators ... so I think I know what I am talking about when I say we earn every penny we make , and the profits in our business are skinny!

I have written previous blog entries about the value proposition that agencies bring to clients, but there are also many benefits to an independent contractor of working with agencies.

I will write a blog outlining the value proposition to the independent contractor, but for this particular entry I want to focus on what, for many contractors is the single biggest benefit ... access to jobs that are not available otherwise.

The fact is that most (almost all) large companies in Canada will avoid direct contractual relationships with independent contractors. Thus in order to work at those companies the independents need to contract through one of the agencies on the preferred supplier list.

There are two primary reasons companies choose this route, Cost and Risk ... plus a third factor not as important, but still relevant ... Hassle! Let me explain:

1. COST.

Agencies can supply contractors cheaper than companies can get them themselves. (I would be happy to expand on this one, bet generally agencies have large databases and can provide multiple options plus when companies contract directly with independents there is less negotiating power.)
The client has leverage by squeezing their suppliers.
The client saves administratively by having just one contract with a few agencies and paying one cheque (with long payment terms), rather than creating hundreds of contracts and hundreds of payments, each month.

2. RISK.

The big risk to clients is for an independent contractor to be deemed an employee. The agencies manage this risk for them, create a degree of separation contractually and create a difference between how contractors are treated and how the client's own employees are treated.
This risk has significant implications to both the client and the independent contractor if an employee/employer relationship is deemed to exist.


Clients use contractors for lots of reasons but a primary one is the access to flexible labour, with minimum commitment. By employing an agency to manage the relationship the clients is freed of many "hassles" ... hiring and firing, payment, management issues, personal issues etc. If there is an issue they tell the agency, who then deal with it.

The benefits to clients of working through agencies are compelling and therefore the only way to gain access to contract jobs with those companies is through their supplier agencies. This is not a trend that is likely to change any time soon, certainly with large companies.

Coming soon ... a more comprehensive value proposition to independent contractors about working with agencies.