Understanding the agency's billing rate is crucial, as it includes all direct and mandated expenses linked to the staffing agency's legal responsibilities as the official employer of the employee assigned to your site.
It's essential to recognize that numerous staffing managers may lack a complete understanding of the costs involved in being an employer under the existing regulatory framework.
Being an employer in Maryland requires us to cover various expenses, such as mandated taxes (local, federal, social security, and Medicare), unemployment insurance (SUTA and FUTA), workers' compensation, employer taxes, and ACA-compliant healthcare. Consequently, temporary staffing agencies in Maryland often discover that 70-85% of their bill rate is absorbed by these essential employer costs.
This scenario indicates that only 15-30% of a staffing agency's bill rate goes towards the actual services provided, which include advertising, vetting, recruiting, background checks, payroll, credentialing, testing, and managing temporary and contract workers. A small portion of this percentage is also set aside for the profit margin needed to maintain service delivery.
For instance, in a scenario where the bill rate is set at $40 per hour, approximately $34-35 per hour is dedicated to covering the non-negotiable direct costs associated with being the employer of record. Typically, $4-5 of the bill rate is allocated for service-related expenses, while only $1-2 per hour is reserved for profit.
It should be emphasized that all required regulatory expenses, tax duties, and payments to temporary staff for salaries and benefits mirror the costs an employer would have when hiring the employee directly.
Agencies Bill Rates:
A Comprehensive Examination -
Our organization prioritizes transparency with our clients, ensuring they are fully informed about their expenses.
Certain agencies operating in niche markets, often employing individuals with high compensation, adopt a pricing strategy that involves quoting a bill rate to clients. This may be presented through a structured menu categorizing bill rates by job function or established through specific agreements between the client and the agency.
In these scenarios, the employee's pay rate remains undisclosed, and in some sectors of professional staffing, discussing this information between the client and the employee's representative is prohibited.
While there are numerous advantages to a bill rate-only pricing model, a significant drawback is the misconception that all agency compensation plans, hourly rates, service offerings, or profit margins are uniform—this is not accurate. There exists substantial variability in both the bill rates presented to clients for identical tasks and the pay rates received by the employees performing those tasks. Bill rate-only pricing models essentially require buyers to exercise caution.
Let's Dive Into Markup over Employee Pay Rate
The mark-up over pay rate pricing model has gained popularity in the staffing industry as a means to enhance bill rate transparency and standardize agency fees. In this model, the client either determines or provides input on the employee's pay rate and requests the staffing agency to propose a markup based on that rate.
This pricing approach is grounded in logic. Without proper management, markup rates can differ widely among agencies, leading to significant variations in a company's overall staffing expenses. For instance, if an employer sets a pay rate of $25 per hour and Agency A applies a 30% markup, the resulting bill rate would be $32.50 per hour. Conversely, if Agency B applies a 40% markup, the bill rate rises to $40 per hour. Assuming all other service factors are equal, choosing Supplier A results in a savings of $7.50 per hour, or 18.75%.
While the markup over pay rate model is the most common in the staffing sector, it perpetuates the misconception that all agencies with the same markup offer identical service levels or employee quality. This model can disadvantage agencies that prioritize quality, as they often require a higher margin to sustain the level of service they aim to provide.
Moreover, the mark-up pricing model can inadvertently undermine its objectives, especially in high-volume staffing situations. If competitive pressures force staffing companies to lower their markups while regulatory requirements increase direct costs, agencies may find themselves in a position where they must absorb these cost hikes, compromise on quality, or sever ties with the client altogether. When high-quality agencies withdraw, the remaining options for clients are often lower-quality agencies that may sacrifice their service commitments just to remain operational.
Instances have arisen where buyers of substantial staffing services have requested mark-ups that fall below their direct costs. This situation effectively creates an environment where only vendors that are non-compliant or legally compromised can feasibly engage in the business.
It is important to recognize that while direct costs may fluctuate depending on the service location and the type of employee provided, all agencies and their clients operate within the same employer-based regulatory framework. Both parties must collaborate to address the rising employer costs. At the very least, purchasers of high-volume staffing agency services should exercise caution regarding bill rates or mark-ups that appear excessively favorable.
White Coat Healthcare Staffing Model
We suggest a more creative pricing system that tackles the previously mentioned difficulties. This approach involves applying a MARK-UP to all DIRECT COSTS, not limited to the pay rate alone.
Our preferred pricing model is this approach, which demonstrates our commitment to nurturing strong partnerships with our clients and vendors. The Mark Up Over Direct Cost pricing model involves the following steps:
1) Ensure full transparency on all DIRECT COSTS related to the Employer of Record position, presented in a clear, detailed format.
2) Customize a service agreement to match the exact services our clients need, eliminating any unnecessary additions.
3) Implement standardized Pay Rates by defining fixed rates for each job category, making pay a consistent element of our billing framework.
4) Establish a uniform markup percentage that covers all DIRECT COSTS, not limited to the employee's salary.
The difference between DIRECT COSTS and BILL RATE reflects our SERVICE FEES, along with a small, fixed percentage allocated for profit.
Service fees are tailored to each client based on their actual service needs, avoiding one-size-fits-all assumptions! We aim for White Coat's clients to invest in services that enhance their existing operations, steering clear of redundant offerings or those that fail to add value to their work environment.
For instance, the table below outlines all the DIRECT COSTS associated with a temporary employee earning $25/hr. in an administrative medical office environment.
Employee Hourly Pay Rate: $25.00
FICA Tax: 6.2% on employee earnings up to $117,000 annually
Medicare Tax: 1.45% on all earnings, with no cap
State Unemployment Tax (SUTA): 2.60%
Federal Unemployment Tax (FUTA): 0.6%
State Workers Compensation Fund: 1.11%
General & Administrative Costs: 0.32
Onboarding and Compliance Expenses: 0.20
TOTAL DIRECT COST: $28.27
Percentage of Pay Rate: 13.08%
After detailing direct costs, the bill rate is determined by applying a markup to these costs. For instance, with a 20% markup, the bill rate would amount to $33.92, resulting in a SERVICE FEE of $5.65 per hour.
In the DIRECT COST PRICING model…
Any changes in DIRECT COSTS will lead to corresponding adjustments in bill rates in a fully rational manner.
SERVICE FEES will be adjusted based on variations in service requirements.
Bill rates are completely transparent, providing full disclosure of the fees incurred for the services rendered, thereby eliminating any ambiguity regarding your bill rate.
While the transparency of this pricing model is advantageous, it also presents the challenge of providing extensive information to clients who may not be as engaged with staffing calculations or employer expenses.
Our approach is to tailor our presentation of this model to meet the needs of our clients. We understand the necessity of educating those who seek more information while simplifying discussions for those who prefer a more straightforward approach.
We are confident that the DIRECT COST PRICING model represents the most transparent and manageable pricing structure in the staffing sector. It serves as an effective platform for fostering open and honest discussions with our clients about adjusting bill rates to align with budgets while establishing mutual expectations regarding service and employee quality.
The pricing agreement, including markups, is reviewed annually to ensure clients are fully informed of any regulatory changes affecting the Direct Cost component of our billing rate, while also offering them an opportunity to reassess their own needs.
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