Inner workings of Software Recruiters/Staffing Companies [closed]

Question

A company will typically pay a staffing company for "temporary" talent. In the software industry these temporary positions can be preferable to full time positions and can therefore last a very long time. There are times when the staffing company pays the employee as a business instead of hiring that person as a W-2 employee.

The staffing company bills the hiring company and pays the employee. What is the typical fee for this arrangement?

Why do some hiring companies refuse to allow 1099's by the staffing company to the employee? It seems that there would be less liability rather than more.

If the hiring company does a contract to hire, is there a fee that is received by the staffing company if the contract goes to term?

Has anyone, after the contract term, cut out the staffing company and had the employee company deal directly with the hiring company? This should presumable come with a bump in rate to the employees' company.

Answer 1

The staffing company bills the hiring company and pays the employee. What is the typical fee for this arrangement?

I wouldn't assume there is a "typical fee". As a profit-making organization, the staffing company obviously wants to get paid as much as possible from the hiring company any pay as little as possible to the employee without the employee deciding to move on to greener pastures. That margin may well change over time but it will certainly depend on other things like what benefits the staffing company offers to the employee.

Why do some hiring companies refuse to allow 1099's by the staffing company to the employee? It seems that there would be less liability rather than more.

There are probably more than a few reasons. One that jumps to mind is the risk of contractor mis-classification. Generally, large companies are wary when hiring contractors that a judge (or the IRS) is going to declare that their contractors were de facto employees and thus entitled to all the benefits they would have received as an employee (and the employer is liable for the taxes they would have paid for those employees). That's why, for example, many companies require contractors to leave every N months for a period of time-- it helps ensure that contractors are really independent businesses with multiple clients. Allowing a staffing company to simply subcontract out all the work means that the hiring company is still liable for this mis-classification but has many fewer ways of mitigating this risk.

If the hiring company does a contract to hire, is there a fee that is received by the staffing company if the contract goes to term?

Maybe. Depends on the arrangement.

Has anyone, after the contract term, cut out the staffing company and had the employee company deal directly with the hiring company? This should presumable come with a bump in rate to the employees' company.

Undoubtedly, the contract between the hiring company and the staffing company prevents the hiring company from doing this (at least not without paying a steep penalty). A staffing company that did have a non-poaching clause would be terribly daft. There may be a similar clause in the agreement between the staffing company and the employee but the hiring company has the deep pockets so that's who would get sued.

Answer 2

The staffing company bills the hiring company and pays the employee. What is the typical fee for this arrangement?

It depends, depending upon several factors it can be between 20% and 300%.

Why do some hiring companies refuse to allow 1099's by the staffing company to the employee? It seems that there would be less liability rather than more.

If they have a 1099 they aren't the staffing companies employee, which raises the chance that they will be determined to be the employee of the company for which they are working.

If the hiring company does a contract to hire, is there a fee that is received by the staffing company if the contract goes to term?

That will be determined by the contract between the staffing company and the hiring company. Note that rewarding the staffing company for providing excellent workers will encourage them to continue to provide excellent workers. If I'm a staffing company and two companies want the same type of job filled and I have two candidates, the better candidate is probably going to the company that rewards me more.

Has anyone, after the contract term, cut out the staffing company and had the employee company deal directly with the hiring company? This should presumable come with a bump in rate to the employees' company.

Asking "has anyone ever" is a waste of time. Unless it's something like "gone to Mars" or "travelled from NY to Singapore in less than an hour" the answer is yes. As for whether it comes with a bump in salary, that depends upon the cost of employing them through the staffing company. If the staffing company was getting 20%, I would expect the employee to get a pay cut, not a raise.