Finding new talent in any industry can be a long and tiring process, but it’s also one of the most important parts of running a business. Realistically speaking, it’s not always possible to invest the right time and money into your recruitment process. 

Thankfully, there are solutions out there that can make it a whole lot easier. A common question we get is, “Am I running a recruitment agency or a labour hire firm?’

They might not seem that different, but some of the key features can help you decide how you should structure your business. Every business owner has different preferences, resources and goals, so it’s important to know which structure will work best for you. 

What’s The Main Difference?

As you might already know, there’s one thing recruitment agencies and labour hire firms have in common – they simplify the process of hiring new employees by doing it for you. 

In other words, these firms go out and look for some of the best candidates according to your current needs, and send them over to you. From there, you just choose which ones you’d like to hire. 

However, the main difference is that a recruitment agency will completely ‘hand over’ the candidates to their client (the business) and have nothing else to do with them, whereas a labour hire firm will still be connected to the candidates after the onboarding process. In other words, a labour hire firm still has control over the employees’ wages and entitlements, not the client. 

Let’s look at these differences in more detail. 

Recruitment Agencies

Recruitment agencies will usually reel in potential candidates for their client (the business looking for new talent). They might do this by posting a job advertisement with the relevant job description, and select the type of candidates with the specific skills the client is looking for. 

To better understand the process, let’s look at it step by step:

  1. The client (the business) will send a detailed job description to the recruitment agency 
  2. The agency will filter out a pool of candidates based on which ones have the right skills, experience and qualifications for the job
  3. Once the right ones have been selected, the agency will arrange their final interviews with the client
  4. The final candidate(s) will be employed and the client pays a ‘finder’s fee’ to the recruitment agency. 

At this point, the recruitment agency has no more ties with the employee, and the client will manage their wage and entitlements. Put simply, the recruitment firm handles the screening process, but once they’re hired, the candidates work only for the client. 

This is what sets recruitment agencies apart from labour hire firms. 

Example

New Hires Pty Ltd is a recruitment agency in Sydney. They received an email from one of their clients, a law firm called XY&Z. They are currently in need of a part-time paralegal to work 3 days a week, and they need to have completed at least 2 years of their law degree.

Lisa is a full-time student in her third year of studying law, hoping to find work as a paralegal. She came across a job ad and reached out to New Hires. After looking at her CV, they decide that she is perfect for the position.

New Hires arranges for her interview with XY&Z. The firm thinks she’s a great fit and decides to take her on board. XY&Z pays New Hires a finder’s fee, and proceeds with the onboarding process with Lisa. They decide how much to pay her, what her entitlements are and arrange for her to sign an employment contract with them.

From here, Lisa is now employed only by XY&Z. 

Labour Hire Firms

Labour hire firms do something quite similar. They still help clients recruit new people, but the relationship with them following the onboarding process is a little different. 

To put it simply, labour hire firms manage the employees even after they are hired by the client. They take the role of an employer. Generally speaking, this means they control the employees’:

  • Wage
  • Entitlements
  • Training
  • Insurance

So, labour hire firms act almost like an ‘on-demand’ employee provider service. In return, the clients will pay a fee to the labour hire firm for connecting employees to work for them.

The employees work for the labour hire firm who then send them out to various clients for short or long term positions, but they are employed by the labour hire firm. This also creates a higher chance of uncertainty in relation to the duration of work or employment with the client (we’ll look at this in more detail shortly). 

Example

Tim is currently employed by Star Agency, a labour hire firm that connects exceptional copywriters to marketing firms. One of their loyal clients, A&B, informs Star Agency of an upcoming, short-term project that would be perfect for a junior copywriter. They need a copywriter ASAP as the project starts the following week.

Luckily, Tim has already completed the relevant training programs with Star Agency and has a background in digital marketing, tailored to businesses like A&B. Star Agency happily sends Tim’s CV to Star Agency and notifies them of his experience and training. This means A&B doesn’t need to worry about the screening process.

They agree to have Tim on the project. Star Agency manages his wage, entitlements and insurance, and A&B is ready to send him the details of the work he will be doing.

Which Option Is Better For Me?

If you’re not sure whether you should run a recruitment firm or a labour hire firm, it’s important to look at the benefits of each model. It will usually depend on how you’d prefer to run your business as well as your general business goals. 

Should I Choose A Recruitment Firm?

As a recruitment firm, you’re likely to secure a large number of clients because you’d be saving them heaps of time and money. It’s quite convenient for businesses looking to fill a permanent, long-term position. 

It’s important that the candidate has the right skills and experience if they’re going to be with the client for a while, so it’s definitely not a process that can be rushed. This is where recruitment firms prove to be extremely valuable. 

Further, recruitment firms have tonnes of experience around choosing the right candidates, so you can trust that their decisions are right. 

What Documents Do I Need?

As we mentioned earlier, recruitment firms don’t actually manage the employees after the client has hired them. However, they do need a set of Recruitment Terms and Conditions. This should include a Recruitment Agreement with your client (employer), which covers things like:

  • Liability
  • Commission
  • Dispute resolution

It should also include a Candidate Agreement, which basically lets you share the candidate’s information with your clients. We’ve written more about the documents you’ll need as a recruitment agency here

Should I Run A Labour Hire Firm?

Unlike recruitment agencies, labour hire firms are designed for more flexibility. For example, it’s more practical if the client tends to have short-term projects, quick deadlines or unexpected vacancies.

One of the key features of a labour hire firm is that they train their employees beforehand, so their skills are tailored to the clients. So, when businesses do contact them looking for a candidate, chances are they already have a pool of candidates who have been trained, screened and ready to start ASAP. 

This makes it easy to provide employees when there is short notice or an emergency situation requiring quick replacements (for example, if one of the client’s employees has fallen seriously ill, labour hire firms are likely to have a candidate ready to start). 

Another upside to a labour hire firm is the rewarding experience of having long-term connections with your clients. You’re more likely to stay in touch with these businesses because you’ve trained your staff for their specific business needs, so they won’t really need to look elsewhere for new talent! 

What Documents Do I Need?

As a labour hire firm, you can’t forget about your legal documents. This area tends to be heavily regulated, so you want to make sure there’s no room for trouble or unexpected issues with your clients (the degree of flexibility also requires some safety nets!). 

You’ll need to draft a Labour Hire Agreement, which basically sets out the rights and responsibilities of you, the client and the employees you’ll be ‘hiring out’. For example, it should clarify wages, liability and Work Health and Safety obligations

It’s also important to remember that they’re technically your employees, so you have Employer Obligations. Some things you should consider include:

Need Help?

If your business sounds like either a recruitment agency or a labour hire firm, it’s a good idea to check which model you fall under as the key differences could mean a lot for your business. If you’re just starting out, it’s worth considering your long-term goals before deciding which structure will work for you. 

We understand it can be difficult to hit the ground running. Our team of lawyers at Sprintlaw are happy to help you set things up, or answer any questions you might have. You can reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation-free chat.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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