Statement-of-work contracting is on the rise: what it means for your staffing agency

shutterstock_outsourcehiring copyThe growth of contract employment reflects a larger shift in the way that companies are operating. By using a blended workforce model that includes both direct-hire employees and contract workers, companies enjoy greater flexibility, leading to cost savings and other benefits.


Statement-of-work (SOW) contracting takes the idea a step further by giving your clients the opportunity to employ contract workers on a project basis rather than on number of hours worked. Potential benefits include everything from cost savings to the ability to attract more highly skilled talent.


If your staffing agency isn’t currently using SOW contractors, here are three reasons to begin including them in your hiring mix.


1.     A new source of profits

Some recruiters and staffing agencies have avoided contract hires because they believe they are not as lucrative as direct-hire recruiting. Yet as more companies outsource specialized projects – often because can’t afford to hire a full-time employee – they are looking to staffing firms to find this skilled labor for them. As a result, staffing agencies can charge a premium to connect companies with competitive SOW contractors, especially in areas such as IT, health care and engineering. Having SOW contractors on staff also gives your agency a way to offset declines in seasonal hiring, as these employees are paid by the project and are less affected by seasonal demand.

2.     Long-term viability

In June 2013, contract staffing reached its highest point since 2006, with 2.7 million active U.S. contractors, according to Staffing Industry Analysts. This spike shows that more companies now view contract workers as a way to control costs, secure competitive talent and keep overhead low. Thus, staffing agencies now have two options: offer hourly and SOW contracting services for clients, or risk losing business to other recruiters. Choosing the former allows you to serve as a single-source provider your clients and better support them as their needs evolve.

3.     A better pool of talent

Highly specialized workers are gravitating toward contract positions for their unique benefits. Some see these positions as an opportunity to improve work-life balance, try more and different types of work and break away from a typical nine-to-five work schedule. Staffing agencies can use this trend to their advantage by snapping up these workers who don’t fit into the traditional direct-hire model to build a strong network of skilled contractors for clients.


By employing full-time hires and SOW contract employees, your staffing agency can provide clients with more flexibility while taking advantage of the growing number of contract employees that are now part of the U.S. workforce.



5 tips for selecting a reliable payroll factor

There are many payroll factors to choose from, but it is important to take the time to find one that fits your staffing company’s specific wants and needs. Before choosing a factor, it’s important to evaluate both your company and the potential factor to ensure the relationship will be mutually beneficial. Here are 5 tips for choosing a reliable, and credible, payroll factoring company:

1. Assess your needs

Prior to beginning your search, review your company to determine which services you want and need. Do you want a strict payroll outsourcing company without any administrative management, or do you also want help filing payroll taxes and/or executing collections? Understanding your needs before beginning your search allows you to find the factor that best fits your company.

2. Tap your contacts

Learn about payroll factors straight from the source: your peers. Ask for referrals, whether anyone has used the factor and what the experience was like. This allows you to narrow your prospects and strike potentially negative companies off of your list.

3. Research the company

A quick search engine query can turn up any negative comments or news stories regarding the factor. Also, check the Better Business Bureau for reports. Look for experience. If a company has been in business for 20 years, for example, that is an indication that it most likely has the know-how to sufficiently serve your company. In addition, look at the payroll outsourcing company’s specialties. A factor that specializes in staffing firms will better understand your business’s unique needs and how it operates. If the factor does not specialize in staffing firms, ask how it plans to aid your specific business.

4. Keep communication open

A reputable factor will answer all of your questions and reply to your calls and emails promptly. Flexibility is key, and your factor should be willing to work with you by providing unique solutions that serve your company.

Customer service is also important. The factor should respond to your needs in a meaningful way and not just provide you with lip service.

Finally, ask about the company’s source of cash so you can be assured you will receive your funds. The company should be able to grow with you as your company gets bigger, providing additional funding and responding to additional needs as they develop. This is a main difference between payroll factors and banks. While banks provide a fixed loan or line of credit amount, factors should scale their funding to meet your needs with less approval time.

5. Review your options

Even if you are happy with your payroll outsourcing company, you should review your options annually. If you find a better rate, go back to your factor with the information. Chances are it will beat the price to keep you as a client. However, keep in mind that the factor with the lowest rate is not always the best one for your business, and you should consider service as part of your decision.


Why is payroll factoring better than a small business credit card?

creditcardWhen your staffing firm has a cash flow issue, it may seem like an easy fix to reach for the plastic.


However, there are downsides to using small business credit cards.


  • Credit cards require a great deal of personal management to stay abreast of changing terms, interest rates and even perks.


  • Your business credit card can affect your personal credit score.


  • Credit cards often have high annual fees.


  • Some cards require you to pay your full balance each month to receive rewards.


  • If you go over your limit or have a missed or late payment, you face high fees.


Payroll factoring, on the other hand, is a more flexible option. It does not require lengthy credit or financial reviews, and the application process is quick and easy.


With payroll factoring, you sell your accounts receivable invoices to the factor in exchange for immediate cash. Your clients then pay the factor directly.


Payroll factors are likely to overadvance because they understand the staffing industry, while with a business credit card, if you go over your limit, you’ll be penalized with high fees.


In addition, payroll factoring includes one low rate, expressed in your contract, that doesn’t change without your agreement.


For more information on payroll factoring and how it can benefit your staffing firm, visit

How should I communicate the role of my payroll factor?

mailletterStaffing firms have credit constraints due to a variety of reasons, including personal credit problems, start-up business costs, low margins or no working capital.


In those situations, they turn to a payroll factor to provide the necessary financing for weekly payroll and other expenses, such as workers’ compensation insurance, office equipment, additional office personnel and marketing.


Payroll factors such as TemPay finance staffing firms so they are able to operate and grow their business. Because of this, it is in your best interest to share information about your financial partner with your customers to assure them of your financial strength.


Disclosure also ensures that each customer remits payments to the correct address, maintaining consistent cash flow.


There are two ways to disclose your funding relationship with your payroll factor.


  • UCC notification letter – The payroll factor mails this letter to each customer to inform it that you have partnered with the factor.


  • Personal call – Contact each customer prior to mailing so they are not caught off guard by the letter.


Some clients may request a letter of financial strength. Your payroll factor should be more than happy to forward this letter so your customer can be assured you have access to unlimited funding.

Around the world: What’s happening globally in the staffing industry

If you place your finger on a spinning globe, chances are that, wherever you land, the staffing industry will be in a state of growth.


In 2011, the most recent year for which data are available, there were 46 million people working in a temporary capacity, the equivalent of 12.4 million full-time workers, according to the International Confederation of Private Employment Agencies. These employees work for 140,000 private employment agencies that operate in 179,000 branches.


Whether you’re looking to expand overseas or just curious about the global industry, we’ve compiled information on the state of the staffing industry in the United States, the European Union, India, Japan, China and Latin America.


United States

In the first three years of recovery following the recession, the U.S. temporary staffing industry added nearly 763,000 jobs, more than any other single industry, according to the American Staffing Association. This recovery period was more robust than those of the previous two recessions.


Temporary jobs accounted for one in 10 job losses during the recession; however, they are now responsible for more than 16 percent of net employment gains since it ended in 2009, even though the industry only employs about 2 percent of the U.S. workforce.


The industry’s employment has skyrocketed as economic uncertainty drives employers to hire temporary employees rather than commit to full-time staff. Other reasons include the growing use of contract employees for greater flexibility, giving employers the ability to quickly increase or decrease staff as needed, as well as access to skills and experience not available within a company.



Temp work among European Union nations has grown in the last two decades, although its share of total employment is still low, according to Eurociett, the European Confederation of Private Employment Agencies, in a study done in collaboration with UNI Europe and the European Trade Union Confederation.


The increase is due to the role of temporary work in reintegrating the unemployed into work, transitioning students from education to work and creating a work-life balance.


However, among European Union nations, staffing service employment only accounted for an average of 1.5 percent of total employment in 2009, the most recent year for which data is available, with only seven out of European 27 countries — the United Kingdom, Netherlands, France, Belgium, Germany, Austria and Sweden — having shares in total employment from temps of more than 1 percent.



Asian countries, for the most part, mirror U.S. and European gains.


In India, temporary staffing is becoming more common for mid- and senior-level positions, especially in sectors such as information technology, e-commerce, sales and marketing. The industry is growing at a pace of 10 to 15 percent each year, which will continue in the coming years, the Indian Staffing Federation reports.


And in Japan, the number of temporary and part-time workers reached a record high of 35.2 percent of the population in 2012 as unemployment continued to fall, according to Staffing Industry Analysts. As the nation deals with an aging population and skills shortages, temporary employment offers a welcome answer to the problem.


In China, on the other hand, the temporary staffing market is volatile, according to Staffing Industry Analysts. Despite recent changes to an employment law that says all workers have the right to equal pay, including temp workers, many are still being paid wages that are less than half the wages of the same permanent positions.


Latin America

While temporary staffing is still a relatively new concept across Latin America, representatives from Argentina, Brazil, Chile, Columbia, Mexico, Peru and Uruguay, along with members of the Latin American Confederation of Private Employment Agencies and the International Confederation of Private Employment Services met in September to discuss the industry.


The group promoted private staffing services, highlighting their value for governments, companies and workers themselves as labor markets ebb and flow, according to staffing industry analysts. It also outlined plans to work with legal boundaries in several countries and communicate the importance of the industry to social and economic growth in Latin America.

How to deal with client payment problems

At one time or another, your staffing service has mostly likely dealt with a client that either pays late or won’t pay at all. Here are our top four tips for dealing with client payment problems.


  1. Create a standard process. Document and practice a clearly defined protocol for customer payment procedures, applicable interest charges or fees and dates at which these charges will commence. Include this information in client contracts that require a signature.
  2. Contact the client. Be polite – explain that you have not received payment and ask if it had problems paying. Ask for a time frame in which you will be paid and follow up if you are not paid by this time. If the client expresses money problems, consider breaking the amount into smaller payments.
  3. Withhold services. If you have a client that consistently pays late or not at all, withhold further staffing services until the balance is up to date. You may also want to create an upfront payment plan with these clients or cut ties completely, depending on the situation.
  4. Take legal action. If, despite your best efforts, you remain unpaid, consider small claims court for smaller amounts or municipal court for larger amounts.

Pros and cons of niche vs. general staffing

Both niche and general staffing have their merits – and their downsides. The route you choose depends on a number of things, and to make the decision a bit easier, we’ve assembled a list of pros and cons for you to review.




  • You have a deeper understanding of the industry or industries.
  • You are able to invest more time to staying up to date on current needs and trends.
  • You learn the traits to look for in an ideal candidate and build a pool of talented, reliable employees that you and your clients can count on.



  • If your niche is too specific, you won’t have enough clients to support your costs.
  • Competition may be fierce.
  • Your potential and repeat customer base is not as large, which could inhibit profitability and growth.




  • You increase the amount of business your staffing service can access, improving your chances for profitability and growth.
  • You gain experience in a wide variety of industries.
  • You increase your networking and geographic options.



  • You can stretch yourself too thin and not have enough employees to meet client demands.
  • If you try to enter a staffing industry with which you are unfamiliar, supplying the wrong talent or not meeting your clients’ expectations could burn you.
  • Your business can grow too large and too fast without the capital to support it.

Determining your staffing niche

To determine your staffing niche, think about the intelligence and experience of yourself and your key management personnel. Then evaluate your strengths and weaknesses to determine where your center of expertise lies.


If you have experience as a temporary staffing employee in the administrative niche, it makes sense to target that niche because you are familiar with the ins and outs of its unique operations. Likewise, if your client relations manager has behind-the-scenes experience in the legal realm, consider focusing on that industry. This is important for any agency to consider but is especially important when starting your own staffing agency.


Another way to determine your staffing service’s niche is to take an overall look at the community or geographic area that you service. Is the area industrial, with many factories? If so, consider focusing on industrial placements. Are there a lot of hospitals and health care facilities? If that is the case, medical placements may best serve the needs of the community.


You can also evaluate your area’s demographics to determine its labor focuses and needs through the U.S. Bureau of Labor Statistics, whose data will show the total labor force in your area, as well as employment in specific industries such as information, financial activities, professional and business services and others.


When determining the niche you wish to pursue, it is also important to consider the competition your staffing firm faces.


“While your area might be best served by an industrial staffing firm, if there are already a number of big players in your area, entering and establishing yourself within the niche may be difficult,” TemPay President Larry Holstein says.

The benefits of niche staffing

While some staffing agencies choose to be jacks-of-all-trades, staffing within a niche provides a more narrowly defined opportunity for targeted specialization.


A niche can include only a few, or even just one, industries or job types. Common staffing niches include light industrial, administrative, IT, construction, health care, legal, clerical and others. Some staffing firms work only with executives or talent with college degrees.


Casting a wide net certainly has its advantages, as doing so increases the amount of business your staffing service has access to and improves your chances of profitability and growth. But spreading yourself too thinly can also backfire.


With a narrower focus, niche staffing allows you to provide more personalized and tailored service, with a deeper understanding of the industry you are staffing. It also allows you to stay up to date on current needs and trends and to decrease the amount of competition. In addition, you’ll build a pool of talented, reliable candidates that you and your clients can count on because you’ll have an in-depth understanding of what traits to look for in an ideal candidate.


“I’m a big believer in staffing within a niche,” says TemPay President Larry Holstein. “When you staff more generally, you typically will not know your entire market, and that’s how you get burned, as you don’t know what to watch out for.”

How will I know the status of my factored invoices?

TemPay prides itself on keeping customers informed of the status of their factored invoices.


Our staff answers the phone 12 hours each weekday to make sure your questions are answered quickly and that challenges are resolved as fast as possible.


We generate several weekly reports to keep your staffing firm in the know, including:
• An aging report that illustrates all unpaid invoices
• A paid invoice report that illustrates invoices for which TemPay has received payment from your customers
• Customized reports at no additional cost


We also assign you a collections representative, who will monitor unpaid invoices to ensure we receive timely payments from your customers.


For information on TemPay and payroll factoring, visit or call (866) 683-6729.