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If you’re reading this, the chances are you’re an experienced construction recruitment consultant & if so, this blog is aimed at you – to tell you exactly what you need to think about to start a construction recruitment agency.
You may focus on the blue-collar market, the white-collar market or perhaps a combination of the two. You may be part of a large agency & having spent years working your way through the ranks you may be professionally at a stage now where it ‘feels’ right to start your own recruitment agency. Similarly you may be part of a smaller agency & as a result of the exposure to some of the mechanics, margins & mantras of running a small agency you find yourself at a stage where you’ve had ‘enough’ professional exposure to start your own agency.
Whatever your background, whatever your journey in getting here today – here’s where we talk about how you start your own construction recruitment agency. Isotope have been fortunate enough to have supported a great number of construction recruiters who have looked to start a construction recruitment agency & therefore we’d have to be idiots not to have picked up a few things when it comes to providing effective & specific support to recruiters within the construction market.
Our aim is to talk you through what you specifically need to think about if you are looking to start a construction recruitment agency & not through hyperbole or tortuous metaphors, but through genuine experience & expertise from the Isotope team who have all had real, hands-on experience in launching & supporting construction recruiters in their own agencies.
Who knows, perhaps we’ve picked up a few things over the years that can help you on your journey to starting & running your own construction recruitment agency. So what do you need to think about?
How am I am going to pay my temps?
This is one of the most frequently asked questions of Isotope from construction recruiters looking to start a construction recruitment agency. They know there must be an answer to this question that doesn’t involve lifting up the floorboards & scrambling around for the tens of thousands they may need to ‘cash-flow’ their temps on a weekly basis while they wait for their client to pay against the 30/60/90 day payment terms they agreed. But what’s the answer?
The answer is that your agency needs to engage with a Factoring & Payroll provider. Now of course Isotope can help with this; working with around 95% of the lenders in the market, we are able to provide the best & most suitable solution for your agency.
Our job would be to suggest the most suitable provider for you; we have seen that through providing our clients with a genuine smorgasbord of factoring & payroll options, we ensure that our client is matched with the most suitable factoring & payroll provider for them – not for Isotope.
One of the biggest hurdles for providers of funding & payroll solutions is the CIS implications of the construction market & therefore this is something that any aspiring construction recruiter would need to be aware of. Again, it would be the role of Isotope to ensure that the principal models & any other funding/back-office models we suggest are able to overcome this challenge for you.
The Construction Industry Scheme – colloquially known as ‘CIS’ – is one of the biggest challenges for any construction recruiter looking to start a construction recruitment agency. A scheme specific to the construction market, it impacts everything from the type of funding & payroll provider you engage with to the margins you charge. So it’s something you need to be aware of, better the devil you know & all that…
When thinking about the most suitable factoring & payroll provider for your new construction agency, in the first instance we would typically recommend our agencies use what’s known as a ‘principal model’; this would be a model where the recruiters would not need to factor in for CIS as ‘the principal’ has gross status. The principal would be responsible for invoicing the end client & paying the worker, with the margin then released to you – the agency.
As the business grows, we would then recommend our agencies register for CIS as a subcontractor. In doing so, they can then focus on generating enough turnover to be eligible for gross status. To do so, the agency would need to generate a turnover of £30,000 per director of the company OR at least £100,000 for the whole company in the 12 months preceding the application for gross status &, of course, have all taxes paid correctly & on time.
& finally, once gross status has been achieved, the agency can then be registered as a contractor. This means that they – the agency – are responsible for verifying workers via CIS, making the correct deductions, reporting on those deductions & then paying the deducted amount across to HMRC.
Ultimately Isotope will always be here to help our clients. In the same way, our superstar accounts team would support you with VAT returns, PAYE contributions & the like, Isotope would also be responsible for completing & submitting CIS returns & notifying our clients of the amounts payable to HMRC. Heck, it’s part of our promise.
Compliance in construction is another challenge that any aspiring recruitment business owner needs to be very aware of. Sounds obvious I know but ONS figures show that nearly half of construction contracting jobs are self-employed & that a fifth of the self-employed in the UK work in construction. The conclusion? Compliance is here to stay.
Here at Isotope we support construction recruiters across both the blue-collar & white-collar markets & have seen the challenges that our clients face in the market. On the blue-collar side of things, our client’s candidates tend to be labourers/groundworkers & tend to want to be paid via their own LTD Company, as they are aware of the tax benefits. On the other side, we have our white-collar agencies who focus primarily within project-based roles – these roles are technical roles both on & off-site that require a third party be drafted in to supply the expertise that the client may not have ‘on site’. Add into the mix the research recently conducted by Hays that shows that a third of large construction companies are not even aware of the upcoming changes in legislation with IR35 in the private sector (they clearly haven’t read the information Isotope supply to all our clients, here) & it shows how important it is for a construction recruiter to ensure they are continually aware of the ever-changing compliance processes surrounding the construction market.
We get it; the market can at times feel very ‘fluid’ which means it’s sometimes tricky to educate your workers about what they can & cannot do, especially if legislative changes are introduced that will impact the way in which they work on a day-to-day basis. A solution that has helped a number of our clients over the years is simply producing company-branded factsheets (usually supplied & created by the Isotope team) that can provide our agencies clients & candidates with all the information they may require to show them how they are now going to be paid. It can also be challenging for recruiters to ensure that their clients understand their obligations in regards to assessing each role & sharing their determination with the supply chain as to whether the role falls ‘in’ or ‘out’ of IR35.
However in order to ensure that you provide your clients with the information they need to ensure they are working alongside the new legislation, you (as an agency) need to understand how these changes will impact you. But you will never have to do that alone; as a result of Isotopes position in the market & being so fortunate to support so many agencies across a variety of markets (construction being one of many, of course) we remain confident that you will never face a challenge alone.
In fact, before you even think about the impacts, chances are a member of the Isotope team has already thought about it, worked it out & is no doubt drafting you an email or planning a call with you already.
Does your recruitment ability, history & prowess change when you start your own construction recruitment agency? Does something cataclysmic happen in the space of 24 hours when you go from an ‘employed’ recruiter to working for yourself?
Of course the answer is a big, fat no.
So why do you even entertain reducing your fees because of those three words, “You’re a startup”?
Now I know there will be instances within the lifetime of your business where you might, rightfully, look at reducing your fees – perhaps due to some volume business or other external factors that will legitimately cause you to look at your suggested fees & perhaps reduce them for a particular client in a particular instance.
But as a construction recruitment agency, the reduction of your fees tends to be felt more keenly than in other sectors (remember what we spoke about in the ‘CIS’ section of this blog?) & therefore it’s important to be aware of this when starting out. We all know that the first 6-12 months is a time where you may be most susceptible to reducing your fees in a simple attempt to win the business. But given the additional deductions that are taken from an agencies margin, CIS & any potential funding costs you may have as an agency, the focus on ensuring your margin is correct is incredibly important.
Often, a small business can’t possibly compete with the larger agencies on cost alone, as the bigger agencies have the advantage of economics of scale. You, the recruiter at the helm of your agency, will need to set themselves apart in other ways, using the benefit of their experience & knowledge of their particular niche in the sector as well as utilising their existing network as effectively as possible. As a small agency, you care & the chances are (although I appreciate I may not know you personally yet) you decided to start your own agency partly because you were fed up of the lack of transparency around margins & costs in the industry. That motivation, that commitment to have a more transparent relationship with your clients & candidates will mean that when it comes to talking to clients about the margins, you should be honest & transparent about what they are & why they are that way. Not only will it create a level of trust around your agency but it will (because we’ve seen it time & time again) ensure that you are never in a position whereby your margin is simply too low for the work & associated costs you have.
Nifty margins calculators created by the accounts team here at Isotope have always ensured that our clients are aware of the actual impact that their margin has on their business & it’s a process we really encourage our clients to adopt.
For example: let’s say you have a £1.50 margin. While it’s low, it doesn’t ‘sound’ too bad. However it’s only when you start to look at what that equates to in profit that you start to become aware of how important margin is. After factoring/funding charges, PAYE/NIC (if applicable) & any other costs you may have on your margin, what was a £1.50 margin can quickly dwindle. It’s also important to distinguish between whether your hourly rate is a calculated percentage or a fixed markup – both have an impact on your bottom line.
Bottom line is, you would have thought about your margin as a consultant within an agency & the impact this has. But it’s a different mindset when you’re thinking about margin as a business owner – we know that & we’d love to encourage you to talk to us about how we can help you to ensure the price is right. Think of Isotope as your very own Bruce Forsyth, just without the iconic dance moves!
Key in every sector, but no more than in the construction market. Quite rightly, prospective clients will be looking for evidence that you, the recruiter, understands H&S within the sector.
In the vast majority of supplier registration forms we see on behalf of our clients, the prospective client will be looking to either a H&S qualification or, at the very least, the correct H&S policies in place. We would typically recommend our construction agencies to gain a H&S accreditation such as CHAS or SMAS since these have a particular focus on the construction sector.
With such accreditations you will need to ensure your agency has the relevant policies in place to uphold the standards of the accreditation & to secure the accreditation in the first instance; something that the legal eagles here at Isotope work with our clients on, on a regular basis. After all, you won’t be the only construction agency we’ve been fortunate enough to work with & help through this journey.
Let us use the experiences we have of working with & supporting clients in your market, going through the same challenges & experiencing the same hurdles; to help you navigate you through your business journey with the beauty of having a team that know what’s around the corner.
This is by no means an extensive list. But what we hope is that if you are a recruiter looking at the idea of starting your own construction recruitment agency, in using this 5 step checklist you begin to ask yourself the right questions when it comes to starting your own construction agency. If you’re keen to explore the idea more, perhaps it’s worth reading this blog too.
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