The rates you pay your talent agencies may represent the largest percentage cost of your firm’s contingent labor program. Therefore, standardizing fees and bringing these costs under management has the potential to create impressive savings. As with all the inputs required to run your business, benchmarking costs to ensure consistency throughout the organization and conformity to industry cost norms is a critical component of external workforce management. Of course, contingent workers are not interchangeable parts, but rather heterogeneous resources with unique strengths, skill sets, and experience levels. They are not commodities, which makes determining their value more difficult, but no less critical. Many variables contribute to the cost of non-traditional workers and the fees agencies charge to find, manage, and deliver the talent you need.
Benchmarking these fees and pay rates will provide the data you need to analyze your operations and optimize your overall costs in important categories. First, benchmark the talent industry in your market in preparation for establishing consistent rates among vendors and/or vendor tiers. Second, audit your internal labor procurement history: compile rates paid by department, vendor, and location, as well as worker category, class, skill level, and task description. Large gaps may spotlight areas in which additional controls should be enacted.
Vendor Rates – A Primer
To fully grasp the total cost of your non-traditional worker engagement program, you need to know what you are paying for. These are the rates labor suppliers typically charge for providing skilled workers:
- Bill Rate – The final, total amount you will pay per hour for a contingent worker. It includes all the charges listed below.
- Pay Rate – The hourly wage the staffing agency pays the contingent worker for working for your company. This should be the largest component of the invoice.
- Mark Up – The amount the agency charges above the pay rate. This amount encompasses several areas that may or may not be listed as separate line items, including Pass-through charges – payroll taxes, social security, unemployment insurance, etc.; Benefits – insurance, vacation, sick days, pension, and other perks; Overhead – recruitment, management, training, administration, and related costs; Profit – the fee the agency earns for taking on the burden of sourcing and providing your workers.
Wage rates are difficult to control. They are often impacted by geography and demand, and (as with full-time employees) higher wages often reflect greater experience and more advanced skills. While you want to keep your bill rate as low as possible, your willingness to pay higher rates for superior talent makes it more likely top workers will want to join your project and return for additional work. This will minimize fill times and increase retention, helping you develop and implement value-adding initiatives more quickly. Still, you do not want to overpay for contingent workers. Benchmarking to gain an understanding of market pay rates empowers your company to more accurately define the proficiency level you are looking for in each requisition. This makes life easier for suppliers; as they work to fill your position, they may also position you as a preferred client, giving you priority over talent that other clients covet.
Overhead and profit, on the other hand, can be benchmarked more precisely. Overhead often is partially a function of efficiency and automation. Agencies that are more proficient and have invested in technology may be able to administer and process workers and requisitions faster. This leads to greater volume and the ability to charge less per transaction and still maintain an acceptable profit. This is not to say achieving cost savings through benchmarking mark ups is easy. Data is the catalyst, and often individual companies lack enough data to make informed judgments. Self-directed contingent labor management programs may not be able to commit the resources needed to obtain and integrate third-party data or to analyze the results. Their attempts to build a standardized rate card may be laughable to their best suppliers, increasing their labor risk, and accounting for perhaps hundreds of job descriptions and assignment classifications is arduous at best for most managers.
By calculating and comparing actual compensation rates your company pays with industry benchmarks, your hiring managers can gauge, control, and predict the costs associated with attracting the kinds of high-quality talent your firm needs to staff its most important projects. Keeping worker bill rates to established benchmarks of local market conditions helps evaluate talent supplier competitiveness. Benchmarks alloy you to use real-world data when planning and deciding whether to move forward with projects that use outside talent.
Staffing agencies’ revenue and profit goals are all different, as is the quality of the workers they may provide and their level of operational and administrative efficiency. Their mark ups can vary by tens of dollars per hour for some workers. To deal with these variables, companies more and more are engaging managed service providers (MSPs) to make some semblance of a workable, standard rate card. An MSP combines data from all its clients to create a much deeper data pool, resulting in more reliable insights. From this foundation, the MSP can create a supplier rate card containing not only acceptable charges but also distinctions among assignment types, worker qualifications and experience levels. The rate card provides a starting point for bidding and negotiating all worker placements in order to keep client costs as low as possible. The MSP’s fees are paid by suppliers keen to be counted among the chosen vendors, saving the client even more. Working with an organized, efficient MSP saves them time and money, so they can flourish even after lowering their mark ups and paying the MSP’s commission.
An MSP can use its third-party data to advise clients on labor cost savings and align the talent function with finance, production, marketing, supply chain, and other company activities. The data is the difference in aggregating market intelligence for vetting suppliers, ensuring diversity, and consolidating vendors.
Metasys has developed a process for evaluating suppliers not only on their mark ups but also on their service delivery and their worker management. This provides clients a complete picture of what they are paying for in contingent labor procurement. We can advise you on each potential vendor’s effectiveness in finding workers with the skills you need and how adept it is in recognizing and matching these skills to your requisitions. Do not leave potential savings of 10 percent or more on the table. To learn more about how Metasys can collect, analyze, present, and help you act on vendor rate benchmarks, contact us today.