Whether they rely heavily on staffing services or only require occasional help, users of contingent workers often have questions and concerns about the mysterious bill rate. How can I be sure the worker is being paid fairly? Did the staffing provider include all federal and state taxes? Are there any hidden fees? Why is this bill rate higher/lower? This white paper explores the factors that affect bill rates, provides responses to common concerns, and explains how you can achieve the best value when it comes to your contingent workforce spend.
The Anatomy of Bill Rate
Bill rates consist of three elements: pay rate, cost burden, and gross margin. The pay rate is the temporary employee’s compensation. The cost burden consists of business expenses such as recruitment costs, employee benefits, insurance, federal and state taxes, and Workers’ Compensation. Although these elements may seem straightforward, many factors affect pay rates and cost burden, and therefore alter the final bill rate.
Pay rates vary dramatically based on each candidate’s unique skill set, experience, expertise and geography. For instance, a candidate with a specialized skill set and years of experience will earn more than a recent graduate with little work experience. On the same note, identical candidates with matching skill sets and experience can earn different salaries based on the cost of living in a particular area. A higher pay rate (and/or project milestone and completion bonuses) might also be required to motivate a worker to stick with a job if it involves a difficult workload or a challenging work environment.
Cost burden is affected by the density of the candidate pool and geography. Candidates with skill sets that are consistently in high demand typically expect to receive higher pay rates than candidates with more readily available skill sets. Also, when recruiters have a difficult time looking for candidates with specialized skills, recruitment costs can rise if the candidate pool within specific geographic regions is sparse because it requires a greater investment of time to find and recruit these candidates. Staffing firms keep a close eye on the labor markets, but it can be difficult to predict which candidates are entering or leaving the job market.
Additionally, cost burdens can waver based upon the staffing firm’s cost of doing business (including real estate, taxes, and insurance) in various geographic locations. In order to treat our candidates with the respect they deserve, Roth Staffing Companies offers affordable medical benefits, which can increase the cost burden. Furthermore, most staffing providers expect the Patient Protection and Affordable Care Act (commonly known as “Obamacare”) to alter business expenses in the future as they align candidates’ benefits packages with new federal guidelines.
Lastly, the national economy and the economic solvency of each industry also greatly impacts bill rates. When the economy rises and falls, so does a staffing service’s costs. According to Staffing Industry Analysts, most clients should expect bill rates to rise with increasingly optimistic economic conditions as recovering companies demand high-skilled labor. The boom or bust of each industry also causes bill rates to fluctuate. When times are good, there are more employment opportunities and increased labor productivity. This directly impacts pay levels and services costs.
For example, according to Forbes, computer system design continues to be one of the leading fast-growing industries in 2013. Staffing Industry Analysts cites a roughly 5% increase overall in IT staffing from the end of 2011 to October 2012 and states that the technology industry looks increasingly optimistic in 2013 and beyond. Additionally, Staffing Industry Analysts expects to see positive gains in the management and business/financial sectors. The organization forecasts that management occupations will grow by 16% within the next three years and business/financial operations occupations will expand by 17.3% in the next decade.
These three industries represent merely a handful of sectors that expect to see an increased demand for skilled candidates in the near future, which will affect pay rates, cost burdens, and ultimately, bill rates.
Treating Candidates and Clients with Respect
Because bill rates are not a fixed figure, communication between a staffing partner, candidate, and client is key. Roth Staffing’s Purpose—“To make life better for the people we serve”®—means that we focus on doing the right thing for our candidates and clients in order to fulfill our Promise—“We love to create remarkable experiences… every person, every time.”® As a values-driven organization, treating candidates and clients with respect is our first priority. This includes understanding candidate and client expectations and working transparently to make mutually beneficial decisions for all parties.
From a technical standpoint, Roth Staffing Companies references a multitude of sources to determine appropriate candidate compensation rates. Staffing Industry Analysts, CareerBuilder, Bureau of Labor Statistics, Glassdoor, and salary.com are just a few of the resources that we use to estimate the correct compensation range for a typical employee within a specific industry and market. With this approximation as a baseline, we then assess our service costs, the individual candidate’s skill set, experience, and desired rate of compensation, as well as the client’s status as an employer of choice, industry and geographic footprint, to develop an equitable bill rate.
A Focus on Quality
With so many factors to consider—a candidate’s skills and experience, a client’s business policies, footprint and workplace culture, and a staffing firm’s costs to do business—often we forget the most important facet of the staffing equation: quality. The reason is simple: with the economy still on the mend, most workplaces are paying close attention to their bottom line. However, most often than not a poor candidate placement will end up costing your company or department more than it would have to pay for a higher quality candidate in the first place.
Roth Staffing’s research estimates that a company’s cost of a bad hire can run anywhere from roughly $9,500 to almost $24,000 (not including the employee’s paycheck), and the Society for Human Resources Management (SHRM) approximates that figure to be five times the employee’s annual salary.
It’s becoming more difficult for businesses to find the quality talent they need, which is why companies and departments turn to staffing providers to find skilled employees. Roth Staffing Companies partners with our clients to understand their talent needs and cost containment goals so they can minimize general hiring costs and avoid expenses incurred with an unfit hire. Through our systematic and proven hiring methodology, Roth Staffing Companies will ensure that your business or department hires the right person, at the right price.
Sources: Staffing Industry Analysts, CareerBuilder, SHRM, PBS, Forbes