“I can hire direct, eliminate the agency’s fee and save money”

Some companies look to cut out recruiting agencies, reasoning that if they eliminate the agency fees, they will be paying less overall. This can work. However, those savings may not materialize.

Instead of saving money, they often pay more overall, as the workers recognize direct negotiation with the company as an opportunity to charge more. This is because the worker may rationalize, “I was able to negotiate $70/hour working through an agency in my last engagement, but I know that the company is used to paying $85/hour to the agency. So I’ll just ask for $85 (or $90, or $100), because that’s what they’re used to paying.”

An agency with an extensive history of working with contractors knows what the work is worth, and is able to negotiate a rate that will be competitive and fair for the worker and the company using that worker’s skills.

“I’ll never have misclassification problems”

With the risking buzz around the ‘Gig economy’, the tax authorities in many jurisdictions are becoming concerned about the growing number of contingent, part-time workers. This is because full-time employees generate a reliable stream of tax revenue through payroll deductions – but this isn’t the same for contingent workers.

So, governments are paying very close attention to any holes in their flow of tax revenue, and are often targeting contractor classification - workers who should be considered employees, but are receiving tax treatment as freelancers - as a priority enforcement issue.

Classification assessments can get murky if the worker is using your computers for software and network for security and efficiency reasons, coming to your premises daily during the assignment, and participating in team meetings with your regular employees. Performing and documenting a classification assessment for each worker is an important part of being ready to make the case that the engagement is appropriate and the worker shouldn't be considered your employee.

However, part of going the DS route through an agency, who handles payments and keeps the relationship with the company at arm’s length, should include a formal classification process so it is clear that the worker is not your company’s employee. This gives you peace of mind because the risk of misclassification of workers is mitigated – you’re not liable for paying any missed deductions, or for fines for non-compliance.

“I can negotiate my own pay rates with freelancers”

Yes, you can negotiate the rate and terms of pay – but it’s often better to let an agency with experience handle it. Here’s why:

  • The agency has a wide array of payroll data, helping to determine what the worker’s skills are worth – no matter how arcane and uncommon their skills are.
  • It’s better if the worker negotiates pay rates with a neutral third party, rather than facing the anxiety of negotiating with the person they’ll be reporting to on the job.
  • It’s best to avoid confrontation over pay rates, and this is handled best if an agency handles negotiations over rates and terms of work.
  • This means that the rate of pay determined through the agency is more likely to be fair and accurate – so the company does not end up paying more than it should, and the worker feels that their time is being valued appropriately.

The numbers back this up. Procom conducted a study into contractor pay rates, and found that contractors hired directly by a company had a total cost that was 10% to 14% higher than those commissioned through an agency, showing the power of a competitive recruitment process and effective negotiation skills.

Some of this is because determining and negotiating pay rates for skilled workers is a core function of an agency such as Procom – and this is rarely a strong skill set for line managers.

“I can find quality candidates by hiring direct”

Often this will be true, but may not always be the case due to skills shortages, pressing timelines or other issues that may mean you require some expert recruiting help.

Having an agency in the mix can give experienced contractors the confidence that they’ll be paid on time, and have access to a client services person for rapid help if they have a problem or need help in their engagement. They also like the fact that they’re able to build a track record for reliability and quality of work, which will help them get future assignments through the agency.

Procom surveyed over 600 job seekers to find out which they prefer. We found that 43% prefer to negotiate directly with the company needing their skills – but 57% would rather go through an agency.

 Up next: Where do I start?  >>