A recent mailer from a professional staffing service was describing their impressive range of services as of high quality with a focus on cost savings and predictable spend. They went on to add that their contingent staffing model was transparent and provides all details of the staffing cost components like pay rates, bill rates and staffing mark-ups. That is really an impressive offer and definitely differentiates their services from those of many others’.
Let us first understand what these components exactly are – to understand why the above offer should be termed impressive.
Bill Rate: A bill rate incorporates the employee’s payment, supplier’s mark-up and every possible item of reference related to state and federal regulatory levies, federal payroll taxes, state and local payroll taxes and expenses, including workers’ compensation insurance, if required and also unemployment insurance. There may be some optional elements included in the package like paid leave, holiday pay or health benefits. The client may take a decision solely based upon what they need to spend on each worker.
Mark-up: When the client specifies the wages payable to the worker, the staffing agency would add its fees as a percentage increase on the pay rate offered. This is called the mark-up. Thus, a 50% mark-up by the staffing company on wages standing at $10/hour would imply that the hourly cost to the company would be $15 or ($10+50%of$10). Thus the fee is linked to the actual payable in each case and varies accordingly.
Flat Rate: This is a single fixed rate payable for positions most of which have a fixed remuneration. The manager is happy as the calculations and cost predictions are fixed in this scenario, with each hour clearly billed based upon the persons working. The rate paid will be ultimately dependent upon the sheer negotiation skills of the supplier as well as the contractor. But this could encourage the staffing company to vary the final payment made to each of the workers and retain a higher margin wherever possible. The client ends up paying a fixed hourly amount to every worker, while the actual amount paid to the contractor is controlled by the staffing company and will vary for each contractor – leading to comparisons and dissatisfaction.
When companies get workers from different staffing companies for identical work, with all of them getting paid different rates and get to meet each other at the workplace, in spite of all the strictures against divulging pay-related information to others at the workplace, they invariably take the first opportune moment (read, away from the manager’s supervision) to ask – “How much?”! Any major discrepancies thrown up by such comparisons are bound to act negatively on their morale with unpleasant results.
Savvy clients today are taking a keen interest in what the contract worker will be paid and seeking those details. Till now many clients did not even know that they have the option to seek transparency on the bill rates and never considered the option to have mark-up percentages pre-negotiated. We find that customers, who at one time were only focused on the skills of the worker, are today taking an interest in the pay rates a worker will be getting and actually negotiating to lower the markups – so that a major portion of the bill rate is passed to the contractor, and gain their loyalty through the term of the assignment.
The ramifications of such an approach on the industry dynamics and its various players are interesting to observe and note and I shall attempt to do so in my subsequent posts.
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