For veteran contingent workforce managers as well as those who are new to the industry, knowing where the money goes at the worker level is critical. In order to know whether a bill rate is appropriate, the first step is to really understand what goes into that rate.
Bill Rate Basics
There are multiple components to what a staffing firm bills the buyer. The primary components are the worker’s pay rate and the staffing firm’s markup on that rate.
Worker pay. The worker’s pay consists exclusively of direct compensation paid by the supplier to the contractor. It does not include any pass-through expenses such as travel expenses.
Markup. The markup is more complicated, and often misunderstood. Usually calculated as a percentage of the worker’s pay, markup comprises statutory expenses and gross margin.
- Statutory expenses cover taxes, benefits and other legally required worker expenses the staffing firm incurs.
- Gross margin includes the staffing firm’s recruiting costs and operating expenses — as well as profit.
Other worker-related expenses. The contingent worker bill rate may also include travel, meals, dues, screening, hiring fees or other pass-through expenses as agreed upon contractually, but not all contingent workers would incur these expenses.
Important considerations. Program managers should encourage or require transparency on required versus optional and pass-through costs. Also, look at the bill rate and ask yourself whether you are getting just the minimum value you want or perhaps paying for more than you need. Frequently, buyers ask us what other companies are doing in terms of bill rate. However, such comparisons typically are of limited value because service-level agreements and job descriptions vary widely from company to company.
Look carefully at other areas to determine if the price for a contingent worker is right:
Minimum worker pay and premium pay. Does the minimum worker pay comply with minimum wage laws, pay parity in some regions, work council or union agreements, required rate computation legislation and any premiums based on assignment and demographics? Review worker pay premiums to ensure you get visibility into the talent market while maintaining a quality pool of talent that is readily accessible. Make sure candidates are accepting offers and are retained. Do your homework and look at the pay variability between high-demand workers doing the same role in FTE roles at your company. There should be minimal variability.
Benefits. Are you paying for optional benefits or looking at thresholds like earnings, tenure and occupation to manage costs?
Markup and Discounts. Do you incur markup on overtime? Do you receive a discount for early payment?
Pass-through expenses. Do you know and review which expenses you need to reimburse in order to be competitive and which you do not? Do you have an audit process in place to review contingent worker expenses?
For a more detailed look at what goes into a contingent worker’s bill rate, the Staffing Industry Analysts Advisory Group, composed of industry leaders and experts from the buyer and staffing contingent work community, has just released What’s in the Contingent Worker Bill Rate. Add it to your arsenal and make sure you, your suppliers, your colleagues and your C-suite executives know whether you are being billed appropriately.