Staffing Agencies vs. Employers: Understanding Bill Rates and Cost Savings

Employers often view staffing agencies as an expensive alternative; however, agencies can provides a more economical solution for addressing workforce shortages. By leveraging transparent bill rates, employers can better understand the costs involved, while staffing agencies take on various employment-related expenses, such as payroll taxes and benefits, which can significantly reduce the overall financial burden on the employer

 

The Myth: Staffing Agencies Are Costly to Use

The belief that staffing agencies are prohibitively expensive is a widespread misconception. Although agencies do charge fees for their services, these costs are frequently offset by the long-term savings they generate. By minimizing employee turnover and streamlining the hiring process, staffing agencies help companies avoid the high costs associated with recruiting, onboarding, and training new employees, ultimately leading to a more stable and productive workforce.

 

Utilizing staffing agencies can also prevent productivity gaps that arise from unfilled positions. When employers rely on agencies to quickly source qualified candidates, they can maintain operational efficiency and ensure that projects remain on track. This proactive approach not only saves time and resources but also enhances the overall performance of the organization, making the investment in staffing services a strategic choice for many employers.

 

The Fact: Staffing Agencies are Less Costly

Here's why staffing agencies can be more economical than hiring permanent employees directly:

• Cost-Effective Hiring: Agencies significantly reduce expenses associated with training and the high cost of employee turnover. They invest in finding the right fit, which minimizes the need for repeated hiring processes.

• Reduced Overhead: Staffing agencies handle the entire sourcing, screening, and interviewing process. This saves a company's internal HR department significant time and resources that would otherwise be spent on recruitment.

• Faster Time to Fill: Agencies maintain pre-screened, specialized talent pools. This allows for faster hiring, eliminating costly productivity gaps that arise from vacant positions.

• Reduced Risk: "Temp-to-hire" solutions offered by agencies allow companies to evaluate candidates on the job. This reduces the risk of making a bad hire, which can be incredibly expensive in terms of lost productivity and the need for another recruitment cycle.

• Higher Retention and Better Long-Term Outcomes: Ultimately, the investment in a quality staffing agency often leads to higher employee retention and better long-term results for the company.

No Comparison to Cost: Agencies Bear the Burden

A key differentiator is that staffing agencies act as the "employer of record." This means they cover a wide range of expenses related to their workers (Per Diem, PRN, and contract workers). This burden of hiring costs is absorbed into the hourly rate, with no separate or hidden fees.

Here's a direct comparison of what agencies and employers typically cover:

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Here's a direct comparison of what agencies and employers typically cover:

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                                  Feature                                       Staffing                                              Agencies Employers (Direct Hire)

                                 Hours Paid                                     Bill hours worked only                            Pay for hours worked

                                 Paid Time Off (PTO)                         No PTO                                                Yes (typically)

                                 Healthcare Insurance                       Pay Healthcare Insurance                       Yes (typically)

                                 Unemployment Insurance                Pay Unemployment Insurance                 Yes (typically)

                                 Workers' Compensation                  Pay Workers' Compensation Insurance     Yes (typically)

                                 Government Tax Burdens                 Pay Tax Burdens                                    Yes (typically)

                                 Employer's Taxes                             No Employer's Taxes                              Yes (typically)

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EXAMPLE CALCULATION: As example, the following table details all the DIRECT COSTS associated with a per diem nursing assistant earning $20/hr. and assigned to work in a nursing home or professional role. 

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​​​Nursing Assistant Pay Rate                                  $   20.00

FICA Tax                                                            $    1.24

Medicare Tax                                                    $    0.29

SUI (State Unemployment Tax)                           $    0.52

FUTA (Federal Unemployment Tax)                     $    0.12

Workers Compensation                                     $    1.10

Healthcare Coverage                                         $    2.39

Onboarding and Compliance Costs                     $    0.25

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TOTAL DIRECT COSTS $23.52

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Once the direct costs are established, the bill rate is determined by applying a markup to those costs. For instance, with a 20% markup, the resulting bill rate would be $23.52, which corresponds to a agency service fee of $4.72 per hour. In the direct cost pricing model, any fluctuations in direct costs lead to proportional adjustments in bill rates, ensuring a rational and transparent pricing structure. Everthing 

 

Service fees are adjusted according to changes in service requirements, providing clarity on the actual fees charged for services rendered. For example, a nursing assistant earning $20 per hour typically has an annual base compensation of around $41,600, based on a full-time schedule of 40 hours per week for 52 weeks, excluding overtime bonuses. With increased experience, rates can rise to between $21.00 and $24.00, along with benefits such as health, vision, and dental insurance, enhancing the overall compensation package.

 

This model allows staffing agencies to significantly alleviate financial burdens for client companies by assuming responsibility for various benefits, insurances, and taxes, thereby positioning themselves as strategic and cost-effective partners in managing staffing needs.

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Agencies play a crucial role in alleviating the financial burdens faced by client companies by assuming responsibility for various employee benefits, insurance, and taxes typically managed by employers. This all-encompassing strategy, presented through a clear billing rate, positions staffing agencies as a valuable and economical ally in addressing staffing requirements.