Recruitment Terminology for Contract Recruiting

Blended Workforce: When a company maintains a small core of traditional direct employees that is supported by a larger group of contractors.

Buy-out Agreement: See conversion fee agreement.

Candidate: Person to potentially fill a job opening.

Candidate Recruiter: If this is a split-placement this is the recruiter who provides the candidate.

Clerical: The largest segment of the temporary help industry. Refers to administrative assistants.

Client Company: Company receiving services from workers who are employees of a staffing firm.

Client Recruiter: If this is a split-placement this is how the recruiter who provides the job order is referred.

COBRA: Legislation enacted in 1986 requiring employers with more than 20 employees to offer continuation of healthcare coverage in the event that an employee is terminated or experiences a qualifying life event. The employer taking tax deduction benefits for sponsoring employee benefits is the employer to look to for COBRA obligations, as legislation is part of the ERISA tax law.

Co-employment: The employment relationship between two or more legally separated employers.

Common-law Rules: Defined as “the law of a country or state, based on custom, usage and the decisions and opinions of law courts.” Common-law rules are traditional tests that are applied to determine an employee or independent contractor status. A common-law employer is an employer who possesses the right to direct and control an employee as to the final results and as to the details of when, where, and how the work is to be done.

Co-Liability: When two parties share liability for something. In staffing, this typically refers to co-employment liability. Co-employment liability occurs in staffing when the employer of a worker and the company the worker is providing services to jointly share employment liability. This typically happens in professional employer organizations situations.

Contingent Staffing: Flexible supply of temporary labor to support a core of employees in peripheral, non-core functions, and during periods of increased demand.

Contingent Workers: Includes all nontraditional work arrangements other than direct full-time employment, workers including: contractors, temporaries, consultants, self-employed, independent contractors, and part-time workers.

Contracting: Triangular employment relationship where a staffing company supplies employees to a client company for a specific function and time period, at a specified hourly rate.

Contractor: Employee of staffing company who provides services to a client company under the day-to- day supervision of the client.

Conversion Fee: Placement fee earned by the recruiter when candidate is hired as an employee of the client company. Conversion fee is in addition to the hourly fee earned during the term of the contract.

Conversion Fee Agreement: Fee schedule between the recruiter and client company covering the fee due, if the contract candidate is hired as an employee client company. The financial details of every placement are different making it a best practice to have separate agreements for each contract candidate you place to protect yourself.

Core Employees: Traditional employees who have the critical skills necessary for an organization’s continued existence. These employees guide the company’s strategies for the future. Core employees may be surrounded by a flexible ring of contingent workers who handle project based work.

Corp to Corp: Essentially means business-to-business. Despite the way it sounds, it doesn’t mean you have to be a corporation to do corp to corp business, as you can have an LLC or an S Corp. A 1099 is issued in this situation. 

Downsizing: Movement in Corporate America to reduce costs and become more competitive; reducing headcount to lower fixed costs.

Employee Benefits: An indirect form of employee compensation, in addition to wages. Some employee benefits are mandated by law. These include social security, unemployment, and workers compensation. Other employee benefits are sponsored voluntarily by employers. It is usual to talk about health-care, life insurance, retirement, or other welfare benefits in this context.

Employer of Record: The entity serving as the employer for tax purposes while the employee performs work for a different company. Often referred to as the W-2 employer of record because they are responsible for issuing W-2’s to the employee and shoulders the responsibility for all the traditional employment tasks and liabilities.

Employer Burden: The actual cost of a company to have an employee, not including the employee’s salary. These costs include the following: employer taxes, benefits, paid time off, etc.

Employee Leasing: The term employee leasing for the service industry has come to mean a business service whereby a firm specializing in payroll accounting, personnel management, employee benefit, and risk administration, offers its skills and expertise to the subscribing business. The long-term, regular dedicated employees of the subscribing business are transferred to the leasing firm’s payroll and benefits resources. The leased-employees return to the subscribing business via the avenue of employee leasing.

Employment Retirement Income Security Act (ERISA): A federal law that governs pension and welfare employee benefit plans. Sets guidelines for these programs. A group of complex and extensive law governing employee benefits.

Federal Insurance Contributions Act (FICA): The federal law that requires to withhold two separate taxes from the wages you earn. It includes Social Security Tax and Medicare Tax at a flat percentage rate.

Float: The time between the issuing an invoice to a company for a contractor’s services and the time that the company makes payment on the invoice.

Fidelity Bond: Protects an insured business against dishonest acts such as embezzlement.

Flexible Staffing: Trend in American companies towards a core of employees with critical skills necessary for a company’s survival, surrounded by a flexible ring of contingent staff to handle peripheral, non-core functions. See also contingent staffing.

Federal Unemployment Tax Act (FUTA): FUTA is the term used for the payroll tax every employer must pay under this act. This tax cannot be withheld from the employee’s pay, it is solely the responsibility of the employer.

General Employer: In joint employer situations or court cases involving multiple employers, the
general employer is the original employer who retains the employment agreement with the employee. This is the employer with broad control. The courts and administrative agencies identify the general employer as the employer who is maintaining the employee on the payroll and providing. The borrowing or short-term employer is called the special employer.

Independent Contractor: An independent contractor provides services to a company, but is not an employee of that company. The company pays the independent contractor on a freelance basis without withholding payroll taxes or paying the employer’s share of payroll taxes.

Just in Time Workforce: Staffing model that allows companies to meet their staffing level needs by supplementing their workforce through the use of contractors.

Liability Insurance: Insurance which covers bodily injury or property damage to others, to third parties.

Mandatory Sick Leave: Mandated laws that require an employer to offer paid sick leave to employees. Sick leave locations can be on a city wide, county wide, or statewide basis.

Margin: Dollar amount difference between the client company bill rate and the employee salary. For example, if the hourly bill rate is $30.00 and the hourly pay is $20.00, the margin is $10.00. See also markup and multiplier.

Markup: The percentage that the client company bill rate is greater than the employee pay rate. For example, if the hourly bill rate is $30.00 and the hourly pay is $20.00, the the Markup is 50%. See also margin and multiplier.

Misclassification: The situation where a company has improperly treated (and paid) a worker that should have been a W-2 employee, but was treated as a 1099 independent contractor.  Typically the IRS audits to determine if any misclassifications have occurred.

Multiplier: The quotient of the client company bill rate pided by the employee pay rate. For example, if the hourly bill rate is $30.00 and the hourly pay is $20.00, the multiplier is 1.5. See also margin and markup.

Non-Compete: A clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer).

One-Stop-Shop: Situation where a recruiting firm is able to offer both direct-hire, temp to direct-hire and contract staffing services. Saves client companies time and cuts down on the complexity of using multiple search firms to find candidates for different kinds of open positions.

Outsourcing: Basic outsourcing is where the client company has an entire department staffed by the employees of a staffing company, from top to bottom. Can be done on or off the client company premises. See also vendor on premises.

Payroll Taxes: Employers are appointed, as agents of the government, to withhold federal, state and local income tax from employee’s wages. These obligations are severely regulated and carry heavy penalties if they are not done correctly.

Payrolling: Refers to situations where all or a portion of a client-customer’s employees are on the payroll of a staffing firm but working at the client-customer’s location.

Professional Employer Organizations (PEO): partner with companies to provide comprehensive HR outsourcing to help manage a company’s human resources, employee benefits, payroll, and regulatory compliance. A PEO works through a co-employment arrangement, which means the PEO contractually shares certain employer responsibilities with the company.

Special Employer: This term is used in general and special employment. A special employer is a person or organization that is deemed to share an employer-employee relationship with the general employer. It applies more accurately where the general employer momentarily relinquishes control over their employee[s] to another employer.

Split Placement: Deals made between two firms engaged in a recruiting partnership. Split placements typically occur when one recruiter obtains a client with an open job order and the other recruiter fills the role by finding a suitable candidate

Sole-Source: One source or means of acquiring all of your staffing needs. Commonly referred to as sole-source supplier which allows a client company to go to one recruiter (firm) for all their staffing needs. (Direct, Temp-to-Direct, Contract, Etc.)

Staffing Company: A company who is the employer for contract candidates and handles all responsibilities associated with payroll and administrative duties.

State Unemployment Insurance (SUI): Each state imposes a payroll tax on the employer for unemployment benefits. The tax ranges from 1% to over 10% of each dollar of payroll. The employer is entirely responsible for paying the tax, it cannot be deducted from the employee’s pay.

Technical Contracting: Contracting jobs such as engineers, programmer analysts, systems analysts, drafters, designers, and technical writers.

Temp-to-Direct: A contract candidate is placed on an assignment with a client company based on the assumption that if the client likes the candidate, the candidate may be permitted to be hired by the client as a direct-hire.

Traditional Employment: Term for direct employment.

Triangular Employment: Relationship between contract candidate, staffing company, and client company in which the contract candidate is the employee of the staffing company but performs services for the client company.

Unemployment Insurance: Government sponsored protection to assist workers who have been laid off or even quit their jobs through no fault of their own. The unemployment income lasts only a few months. This insurance represents a significant contribution on the part of an employer as a percentage of employees’ gross wages.

Vendor of Record (VOR): A procurement arrangement, typically established through an RFP, that authorizes one or more qualified vendors to provide goods/services to one or more clients for a defined period on terms, conditions and pricing.

Vendor on Premises: Outsourcing arrangement where a full-time staffing coordinator administers the entire outsourcing process for the client: interviewing, testing and screening applicants, filling job assignments, issuing payrolls, providing on-site management of the department.

Virtual Corporation: New term for maintaining a minimum staff of core employees, surrounded by a ring of contingent staff.

W-2 vs. 1099 MISC: At the end of each year, workers either receive a Form W-2 or a Form 1099 MISC. An employee receives a W-2 and has all required payroll taxes withheld throughout the year. An independent contractor receives a 1099 and has no payroll taxes withheld.

Workers’ Compensation: Businesses are required by law to obtain workers’ compensation insurance for their employees. The purpose of this insurance is to provide medical and other benefit coverage for employees who suffer a job-related injury or illness. Generally speaking, the staffing firm must maintain workers’ compensation for their employees, or coordinate coverage through the subscriber.