New recruitment model to change contractor relationships

Zero Margin model boasts savings of up to $27 000 per year for each contractor hired

A new recruitment model seeks to address the growing market for IT contractors in Australia by lowering recruitment costs for employers, and improving the traditionally cagey relationship between the agency and contract employees.

Launched this week by Sydney-based IT recruitment firm Best International, the Zero Margin Contracting model boasts the ability to save employers up to 64 percent in agency fees by replacing the usual ongoing recruitment margin with a one-off sourcing fee.

According to current recruitment models, employers that engage a contractor through a recruitment agency are liable to pay ongoing agency fees of about 20 to 30 percent of the contractor's salary for the duration of the contract. In today's increasingly contract-based workforce, however, ongoing agency fees could add up to a hefty sum for employers.

"As contracts get longer and longer and these people [contractors] are maybe even converted into permanent employees, people [employers] continue to pay that ongoing margin," Best International's managing director John McVicker explained.

"On a $50 an hour contractor, that's $27,000 a year in margin," he said. "It certainly is one of the large differentiating factors [between permanent and contract staff], and that can be quite prohibitive for some organizations."

In place of an ongoing agency margin, the Zero Margin Contracting model will introduce a lump sum payment to be determined on a project-by-project basis. While this usually means a larger one-off cost for employers, McVicker expects the new model will be more cost-effective for contracts that span anywhere past the 12- or 13- week mark.

Savings could translate to more money in the bank for employers, but McVicker said it is more likely that the additional resources will be put back into sourcing and paying for more talented staff.

"This will certainly be more appropriate in the market where we're seeing such competition for people," he said. "[Employers will] have more money to pay the contractor, which will have a direct benefit to the employer as well, because they can probably source more talented people."

Contractors stand to gain if more resources are being put on the table - but financial rewards are secondary to what the new model will mean for the typical relationship between contractors and recruitment agencies, McVicker said, expecting the model to address the common belief that agencies are essentially taking money out of what should be the contractors' salaries.

"We find that very talented people love this model, because they believe that they are being rewarded 100 percent for their work, and not having to pay any hidden costs or margins to an agency," he said.

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