6 Pitfalls of the DYI Back-Office, According to Cindy Stephens
By DEBBIE FLEDDERJOHANN, President of Top Echelon Contracting
We have been conditioned to believe that we can do everything for ourselves. With home improvement superstores and Pinterest, DIY has become the latest craze. But just because you CAN do it yourself doesn’t always mean you SHOULD. Often the headaches, anxiety, and risks associated with doing it yourself makes it not worth the money you could save.
This is often the case with contract staffing. Like complicated electrical work, the back-office tasks associated with placing contractors are often better off being outsourced.
Case in point: Cindy Stephens, CPC/CTS, owner of Stephens International Recruiting, Inc. Stephens ran her own back-office for about the first year of her firm’s existence. The firm ran Biomedical Equipment Technician contractors, as well as contractors working on government contracts through its back-office.
“I was really overwhelmed and could not find enough time to concentrate on our primary business areas,” Stephens said. “It took a lot of time to take care of the legal aspects and the payroll, as well as the headaches that comes with the HR piece.”
At that point, some recruiters might have decided to abandon contract staffing, effectively throwing out the baby with the bath water. Stephens instead made what she calls “the best business decision we could have ever made,” outsourcing the employment of her contractors to a contract staffing back-office service. As a result, she eliminated a number of headaches and risks that come with “DIY Contract Staffing:”
1. Placements outside home state. Firms with in-house employees should already be set up to place contractors in their own state, but they find it’s not so easy if they try to expand into other states. “We had to be registered in each state where we had a contract and had to worry about each state’s requirements, which ended up to be a huge headache,” Stephens said. For this reason, many recruiting firms choose to only place contractors in their home state, missing out on potentially lucrative out-of-state opportunities. Don’t want to pass up business opportunities? You don’t have to. Simply aligning with a contract staffing back-office, like Top Echelon Contracting, that is already set up to do business nationwide will allow you to accept placements in other states with no ramp-up time.
2. Workers’ Compensation. Getting coverage in each state where you place contractors is just the tip of the iceberg. Once you’re set up, there are the hassles associated with selecting the correct Workers’ Comp code for each contract assignment, managing claims, and managing yearly Workers’ Comp audits. And what if your coverage is cancelled due to too many claims? Those worries and frustrations were another reason Stephens outsourced her back-office to a provider that would take responsibility for Workers’ Compensation.
3. Payroll processing, funding, and taxes. The first, and one of the most important steps, in setting up your back-office is to establish funding so you can float the contractors’ payroll until you get paid by the client. Many recruiters do this by securing a line of credit from their bank, but what happens to that line if a client stops paying or goes bankrupt? And don’t forget, you have to keep up with the unique payroll and tax laws in each state. Any mistake or delay in payroll can seriously damage your reputation. And who has time for the weekly routine of processing payroll and handling tax reports? Stephens didn’t, and that’s one of the main reasons she decided to outsource.
4. Legal liability. Keeping up with employment laws was another thorn in Stephens‘s side. The sheer number of employment laws is overwhelming and growing every year. Employers are still struggling to wrap their minds around the Affordable Care Act, and its most worrisome provisions haven’t even kicked in yet. Plus, there are state and even local laws to worry about. It only takes the slightest misstep by you OR your contractors to take down your firm. But when you outsource, the back-office becomes the employer of the contractors, assuming the legal responsibilities and liabilities.
5. Liability Insurance. Professional liability insurance can help mitigate the legal liability, but it can be hard to obtain and expensive. It is a necessary evil, though, because clients often ask to see yours before they will do business with you. When you outsource your back-office, your provider carries the Certificate of Insurance, so that is one less thing to worry about.
6. Human Resources. And then there is the “HR piece” Stephens referenced. This piece includes employment paperwork, unemployment claims, background checks, employee relations, employee terminations, and much more. A contract staffing back-office will take care of all the financial, administrative, and legal tasks associated with contract placements.
We know it goes against conventional wisdom to pay someone to do something you can do for yourself, especially in our increasingly DIY culture. But in addition to the risks and frustrations mentioned above, the biggest problem with the DIY back-office is that it takes you away from the activities that actually make your firm money.
“I value my time, and I can now focus on taking care of our primary business operations,” Stephens said. “More importantly, our clients look to us as a valuable resource because we offer flexibility and alternative staffing services. By using a back-office service, we can really promote our ‘Alternative Staffing Solutions’ to our clients. They realize how flexible we are because we can offer direct hire, contract, contract-to-direct, or temp-to-perm, and now our clients are even coming to us for payrolling services.”