Working With Technology Staffing Vendors

I have been asked a number of times by both consultants and managers for insight into the math behind the bill rate and after writing it in many emails and putting together various excel cheat sheets I thought it would be a good candidate for a blog entry. I would also like to start off by stating that my purpose in this post is not to expose any deep dark secrets of staffing vendors. Many of my good friends are staffing professionals that are great to work with, are open with their clients about all the information involved and I recommend often. I do hope this will be beneficial in helping people involved in the process negotiate from a more educated position.

The Bill Rate

Have you ever wondered what exactly the bill rate you are provided by vendors is comprised of? The equation breaks down like this:

Consultant Pay Rate + Burden + Spread = Bill Rate

Consultant Pay Rate

Consultant Pay Rate is generally calculated by working backwards from the expected yearly earnings the consultant would like to make. This would also in be the expected salary they would like to earn in the event that they are converted to a permanent employee. This hourly rate can be computed by taking the salary number and dividing by the total number of workable hours in a year which is 2080.

Salary / 2080 = Consultant Pay Rate

Things to keep in mind when looking at this piece of the equation are cost of benefits to the consultant, paid time off, and an allowance of a few extra dollars an hour to account for the uncertainty of contract work because the vendor is typically going to pass all these costs along to the client as Burden.

Burden

Burden varies depending on whether or not the contractor is being paid as a W2 employee or a Corp to Corp. In the past contractors have also be allowed to bill as a 1099, which means the staffing firm just pays them as if they were a corporate entity more or less and the contractor handles their own taxes etc. Due to insurance liability for the staffing firms this arrangement is becoming more and more of a rarity. Typical burden rates are outlined below.

Disclaimer:

These general numbers are based on the specific rates used by the major staffing firms in Jacksonville, FL. These numbers are based on the rates applied nationally, but please keep in mind that they are subject to change according to the costs placed on the vendor by their clients and the region of the country. For example a few years ago when a major insurance company client of mine implemented a new vendor management software system they added a percentage of the cost to the vendors. The vendors then raised their burden rate to their recruiters to include that cost.

W2 burden is between 16-20% for most companies that offer little or no benefits to their consultants. For companies that cover the cost of benefits and or paid time off which they cannot directly bill the client for their burden rate can be as high as 25%.

Corp-corp is generally between 3-5% but I have seen as high as a 12% burden applied to Corp-corp arrangements.

Spread

Spread or margin is the staffing firm's net revenue or commission. The amount of spread a staffing firm needs to make depends on the duration of the contract period. A good benchmark is to take 20% of the expected permanent salary as the target amount and then calculate that being recouped as a direct placement fee or over a three, six, nine month period or whatever time frame is agreed to. This does not take into account “discounts” that are sometimes given in response to agreements to utilize one staffing vendor exclusively or a discount per a particular volume.

How Can This Help You?

Now that you know the components involved in the equation your goal should be to find a staffing partner with which you can interact with honestly to understand and agree on the value of each piece of the equation. For more information or help assessing managing your current staffing relationships and needs please feel free to post questions or reach out directly.

Recommended Reading

I highly recommend the following books by a very insightful and entertaining negotiator, Herb Cohen. Whether you negotiate frequently at work or are just looking for a good read you will no doubt get a return on your investment from these books.

Negotiate This!


You Can Negotiate Anything


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