Whilst recruitment agencies get great satisfaction from providing an exceptional service to clients, nobody would be able to do so for long if it is not profitable.
The “middle office” in any recruitment company centres on the payroll of the contract and casual employees. If employees are not paid correctly, they will cease to provide their labour, and payroll provides the basis of charging the client.
Payroll is not an administration function but rather an extension of the service to the client. Middle office provides this service, as well as being a centre of excellence and control, and also the single source of data for contract and casual recruitment performance.
Middle office, as a key function of a recruitment agency, gains in importance each year.
Labour markets have become increasingly regulated to prevent exploitation of workers. Whilst this is a positive move, it has created an added level of complexity to determining how a worker should be paid. Payroll should always be managed by expert staff who maintain current knowledge in all applicable legislation.
There is the need to distinguish between an employment and a contracting relationship, adherence to relevant tax legislation and reporting (both national and state), and calculation of benefits such as superannuation. Some portions of this can be assisted by technology but other elements still require specialist knowledge.
The sooner an accurate invoice is received by your client, the better your chances of receiving payment quickly. Some clients require their purchase order to be quoted, others need consolidation of charges onto a single invoice and yet others will want copies sent to multiple contacts. Effective management of client specific needs should assist the front office to increase sales.
Middle Office will contain plenty of data which can assist in improving service levels, revenue, and profitability. While margin reporting is emphasised, the scope of reporting is not confined to this area. As an example, the volume of adjustments being performed to correct pays and invoicing can be used to address deficiencies in consultant’s sales processes as well as payroll operations.
Owners and managers of recruitment agencies justifiably spend much of their leadership effort on the front office. Attracting and working with clients and candidates is the “reason for being” – it delivers the sales and the opportunity for revenue and profit. Little attention is usually given to the back-office function of financial reporting and regulatory processes.
What has changed is the importance of the middle office function, and that is where successful recruitment agencies will gain risk advantage, compliance advantage, and competitive advantage.
Thomas is a CPA qualified accountant, business advisor and on-demand CFO with over 20 years of experience running businesses. He has worked in senior finance roles with some of Australia’s biggest companies and best business leaders.
Thomas been an independent CFO for 20 years, working with B2B businesses from start-up to 30M turnover. Twenty years ago not many people knew what an Outsourced CFO was but they are becoming more widespread these days. Which Thomas thinks is a great thing.