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HCMWorks Insights

What is the Difference Between Bill Rate, Markup and Pay Rate?

Posted by Julia Fournier on 22 Mar 2019

If your business is one of the many organizations in North America making use of the highly-skilled gig economy, then it’s more than likely that you are working with a staffing agency.

A staffing agency will recruit temporary workers for your company, allowing your business to scale up for peak and seasonal periods, access skills that you don’t currently employ in-house, as well as hire highly-qualified and experienced workers for specific projects. 

The result of using a staffing agency is the acquisition of top talent, reduced time spent on sourcing workers and lower costs.

But that’s only if you use the correct staffing agency for your business. That’s why many businesses turn to the expertise of a managed service provider (MSP), such as HCMWorks, to find the right staffing vendors and fill the growing talent gaps in their ever-changing workforce.

If you are new to the use of staffing agencies, there are some costs that you should fully understand to ensure you have complete visibility into your hiring decisions. All staffing agencies charge for their services based on three elements - pay rate, markup and bill rate.

While these costs are simple when isolated, many HR professionals, procurement teams and business owners confuse these interrelated terms when they are grouped together.

To help improve the visibility of your contingent workforce and staffing agency spend, HCMWorks has defined what each of these costs are.

What is the bill rate?

The bill rate is the amount that your company will pay to a staffing agency, per hour, for both their services as well as the services of a contingent worker. The bill rate is simple, and is a combination of both the pay rate and the markup.

To find out how much you will be paying a staffing agency for the entire lifespan of a contingent worker, you can simply take the hourly bill rate and multiply it by the number of hours that the temporary worker will be working with your business.

What is the pay rate?

The pay rate, not to be confused with the bill rate, is the amount that the staffing agency is paying the contingent worker for the services that they are providing your company. This is the largest component of the bill rate and it generally plays a significant role in the quality of the temporary worker.

What is the markup?

The markup is generally applied as a percentage on top of the pay rate, which is provided to the staffing agency for its services.

The markup is the more complex cost, as there is plenty of variation. This cost can fluctuate depending on market demand, assignment duration, buyer’s knowledge, type of workers and skill sets, business volumes and much more.

Markup rates can be anywhere from as low as 15 percent, when talent is sourced inside a competitive environment such as a (MSP) program, to as high as 50 percent or more under less structured processes.

Many organizations struggle to understand exactly what they are paying their staffing agency. However, through the clarification of the three key components of contingent labor spend, your company will be in a position to better control costs and make informed hiring decisions.

If you have any further questions around these three costs and want to increase the visibility of your business has into contingent labor spend, contact HCMWorks today.

Human Capital Management Trends

Tags: Contingent Workforce

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