August 27, 2012
If you are a client of a staffing agency, you may question how staffing agencies determine the fees charged for providing contract workers. Staffing agencies provide services for which they are entitled to charge the customer, and these services may be priced in a number of ways. Most clients prefer to have agencies quote a pay rate (the promised wage to the contract worker) and a mark-up expressed as a percentage of the pay rate. It pays to understand and evaluate the genuine cost components that constitute the mark-ups, particularly if you are transacting with more than one supplier. Do read on to learn more about cost components. , Then ask your suppliers to provide complete transparency into their quoted prices.
Read between the Lines:
By focusing all attention on the final cost to the company, without evaluating the built-in components, you may fall into the trap of choosing the supplier with the lower mark-ups. You may find that the supplier intends to pay lower rates, putting you at a disadvantage in terms of attracting the best talent. Or, the supplier may be attempting to “buy your business” through low margins. Unfortunately, this often results in recruiters who are not motivated to fill your open positions. Being well informed is the secret to accessing the best talent at the best rates. Decide whether you need to delve deeper or not!
Components of the Mark-up Rate:
Let us look at what a staffing agency charges a client over and above the hourly rate payable to the employee.
Along with paying for the suppliers’ efforts and time as a hiring and on-going manager, the ultimate cost a client pays depends on the type of worker being hired, the scarcity of those resources, and the level of screening that you require. The different cost categories under which the mark-up is charged are detailed below:
- Recruitment costs: The supplier recruits the candidate(s) as per the client’s role specifications and requirements. This is a regular recruitment effort for which the supplier needs to maintain a team of experienced recruiters. Typical expenses include advertising costs through different media, costs of services for background checks, drug tests, skills testing, reference checking, prior employment verification, etc.
- Overheads: The staffing agencies’ own overhead costs will also have to come from the bill rate. These may be significantly higher for larger staffing agencies because of the large number of employees they have and the larger infrastructure they need to have to support it.
- Statutory Obligations: Federal, state and local taxes, benefits, workers’ comp insurance, unemployment insurance and other benefits which are mandated by the government or the supplier deems essential to engage the worker’s commitment to the job.
- Ongoing Contractor Management and Administration: contract workers are employees of the staffing agency for the duration of the assignment. There are expenses associated with payroll administration, contractor care, on-boarding and off-boarding.
- Profit: The suppliers’ profit margin needs to be added on as it forms the bottom line for the suppliers’ business and its raison d’être.
Mark-up Rate Influencers:
Why do mark-up rates vary so much? Principal reasons include:
- Required skill, role position and location. The availability of suitable candidates influences costs as per the classical demand-supply theory. Location-specific costs tend to vary as do hourly rates – for the same role. It takes more effort to fill some positions, and that can be reflected in the recruiting charge. Because of the high unemployment rates in some states, the state unemployment tax (SUTA) has greatly increased, driving up the margin.
- When a supplier gets a large volume of business from the same customer, there are savings that may get passed on to the customer.
- Work environments make a big difference. Employers pay very high workers compensation rates for individuals who work in potentially dangerous conditions, like many manufacturing workers.
- Customer requirements for contractor screening affect mark-up. While the costs for standard criminal checks and drug tests are relatively low, when customers ask for extensive background checks, skills testing, and other vetting efforts the cost quickly rise.
- We are all affected by the high costs of healthcare insurance. When a customer expects the staffing agency to provide paid healthcare or other benefits, and to offer paid holidays and vacation time, this is reflected in the price.
The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.