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HCMWorks Insights

Watch Out for Labor Markup Added by Staffing Agencies

Posted by Julia Fournier on 27 Dec 2017

If you’re an SME, you understand that knowing what costs are, and where they come from, is key to running a business. When your company is looking to hire contingent workers via a staffing agency, it is important to be aware of the staffing agency markup rates that they charge for their services.

The rates staffing agencies can charge are actually affected by a number of extraneous variables, and in some cases, not paying attention can result in your company paying up to 75% more for quality employees than is necessary.

So, what is markup? Markup rates added by staffing agencies are defined as the fee charged to companies by staffing agencies to source labor. The agency takes this fee as payment for the services on top of the wage your company pays the new contingent worker. Both of these come out of your pocket. In layman’s terms, if you’re charged $30 an hour for the worker, up to $10 could be going to the agency and the remaining $20 to the worker.

Some factors that can impact the final percentage of the markup include, but are not limited to, supply and demand of these workers, the agency size, and the worker’s skill. Another potential issue to note, is that some staffing agencies give preferential treatment to certain companies, thus having a neutral, unbiased agency is preferred.

Markup can vary dramatically from around 10% to as much as 75%, so the hiring company should be comfortable discussing how they got to that percentage and what influenced the rate they have quoted you.

Exploring Your Contingent Workforce Ecosystem

It is important to remember that this is a two way relationship, and it’s often overlooked that both parties have power in the agreement, and your company can influence the set markup percentage. Making yourself familiar with the bill rate, the combination of the worker’s wage and the agency’s fees, allows you to compare rates from several staffing agencies and decide on the rate and quality of talent that fits your needs.

Identifying and comparing rates can seem like the most straightforward method, due to only focusing on the final cost, however sometimes the ratios of markup to pay rate isn’t always obvious straightaway. A popular method your company can use is the creation of competition, setting up a bid to agencies, so they can compete for the best price and your business. Although this can be a more complex method, it can be the best solution for a company on a limited budget.

Staffing agencies can sometimes fail to include all information and they should be up front about what is included in their fees. You must ensure that all taxes are included and any other costs such as worker benefits or unemployment insurance (If these apply). In addition, always double check contracts before agreeing to them, if something seems too good, it normally is!

Exploring Your Contingent Workforce Ecosystem

About HCMWorks

At HCMWorks, we are not a staffing agency, we are a contingent workforce service provider helping organizations gain better access to talent through the use of independent contractors, consultants, temporary workers, freelancers and other non-payrolled employees.

We provide the expertise, the technology, and processes to help you reduce your workforce costs, mitigate against misclassification and co-employment risks, and increase the efficiency and timeliness of your contingent recruitment process. 

Tags: Contingent Workforce, Rogue Spend

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