She works hard for the money, so hard for it honey
At the recommendation of one of the guys over at Recruiting.com I’ve been reading Gurus, Hired Guns, and Warm Bodies by Stephen R. Barley and Gideon Kunda. I’ve been finding it pretty interesting so far, though I haven’t gotten that deeply into it yet.
Something I noticed, however, as they were talking about their “itinerant experts” who work with staffing companies, was that there were several sort of offhanded digs directed at the markups charged by staffing companies, as though we somehow “hijack” people’s earnings.
To Barley & Kunda’s credit, they do address this question more fully later in the book and do begin to explain exactly what service the agency provides that justifies the markup. Now, realizing that I am biased, it seems to me that they don’t fully understand what it is that the markup pays for, and the comments from some of the workers interviewed for the book indicate that a lot of candidates don’t really understand it, either. That’s regrettable, because it causes a lot of distrust between candidates and recruiters, which isn’t in anyone’s best interests. So let me explain a little bit about markups and staffing generally in hopes of clarifying it.
A word about how pay/bill rates are figured. I generally determine what the pay rate is based approximately on what someone would get to do the same job as a regular full-time employee. Ideally, I’ll base it on what the client would pay per year for that job, but if the client doesn’t know, I’ll use whatever the approximate market salary would be. If it’s a $50,000 per year job, I divide $50,000 by the number of hours worked in a year, and that’s the hourly rate I offer the talent. From there, I have a standard markup that’s based on all the costs I have to cover, and I charge it to everyone. Only rarely do I deviate from it, and then only in special circumstances. It seems to me that if a talent working on a W-2 for me is making approximately the same amount of money that he or she would be making in a full-time position, I’m not “hijacking” anyone’s potential earnings with my markup.
I realize that there are plenty of agencies out there which place less of an emphasis on paying talent a fair rate. That’s generally because they compete with other agencies on price, and my particular company tries not to play that game. If my client gets rate-shock, I’m pretty confident about the value of both the talent as well as my own work, so while I can usually provide a few dollars of wiggle room, I don’t participate in “how low can you go” contests. After all, if I’m paying my talent fairly, there’s less chance of them getting offered significantly more money somewhere else since they’re already being paid well, and talent who feel like I’m taking good care of them aren’t just going to jump the first time someone offers them another $2 an hour. So if you think you’re working with an agency that doesn’t care about paying you fairly, I encourage you to shop around for another agency.
Now let me address the question of how I earn the markup I charge.
First, there’s the obvious component of the markup, the “burden.” In addition to the hourly rate paid to the talent, the staffing company has to recoup the cost of the person’s payroll taxes, benefits, associated unemployment insurance, etc. This is a pretty obvious cost incurred by the company and no one really objects to this component. This number can vary anywhere from 12% to 25% of the salary, depending on the jurisdiction, the company’s unemployment insurance rates, the benefits offered, etc. The specific number is generally considered a trade secret, but know that it does vary quite a bit from place to place.
Then there are the other costs, and this is where the resentment starts to set in. Clearly, the employees of the staffing agency have to be paid. After all, the talent and the clients don’t work for free, right? And the costs of doing business have to be paid- I need an office to sit in, a computer, a connection to the internet, a phone line, a fax, office supplies, electricity, etc. But how nice does my office have to be? Some talent and clients object to the idea that the markup goes to pay for fancy downtown offices, for example.
The problem with that logic is that it doesn’t take into consideration the cost of having an office that’s NOT downtown, or has shabby furniture, or ugly lighting, or whatever. Image is critical in all kinds of business, but especially in staffing, where the industry has a shaky reputation. We have to project an image of professionalism and stability. Think about it: Would you go to an interview in old jeans and a stained t-shirt and actually expect to get the job? Of course not- you put on a suit, or at least your best business-casual gear, in order to present yourself the best way possible. Why should I meet clients in an office in the middle of nowhere with crappy furniture and bare walls? We have to be where the clients are, and we have to have an office that looks reasonably well put-together. Our “fancy downtown offices” help us get the clients so we can find more people jobs.
Other talent complain that since they’re the “product” the agency is selling to the client, they have a right to know what the markup on them is, to make sure we’re not taking advantage of what are essentially their clients too. While I applaud a talent’s committment to good value for the client, that’s really not how it works.
The “product” actually being sold is the match between client and talent. Think of it this way: A client is really only paying the hourly rate + burden for the talent. The rest of the money in the bill rate goes to pay for all the things that go into my ability to put talent and clients together. It pays my salary, which compensates me for not only my expertise in my particular subject area, but also for the 40-60 hours per week I put in to recruiting talent, evaluating resumes, interviewing talent, talking up those talent to my clients, getting to know my clients well enough to find them the right people, making sure that time is entered properly so that the talent get paid, professional development so I can be better at finding jobs for people, etc. It also pays for the people at my corporate office who run the payroll, fix my computer, and collect past-due payments from my clients so that we can continue to pay the talent. In other words, the “product” I’m selling is all the work I do to find and retain the best talent, and the actual cost of the talent (wages + burden) is part of that product’s price.
When a client calls me and asks me for a senior network engineer, and I’ve got an excellent candidate for him the very next morning, it may look like I didn’t have to work for it, but I’m constantly reviewing resumes, interviewing talent, networking to find more talent, and screening out the less desirable candidates. That takes a lot of time, and the client pays that markup so that I can afford to take all that time to build up a rich and deep candidate pool. That way, when that order comes in, I’m ready with just the right person, just in time.
It’s also worth nothing that in addition to all the other things the talent gets out of this arrangement (an advocate with the client in case something goes wrong, tax withholding, health benefits, etc.), the staffing agency also takes on all the risk of collection if the client doesn’t pay the invoices, for some reason. By the time my clients get an invoice, the talent has already been paid for the work. The talent gets paid every week whether the client pays the bills or not. We have the ability to run credit checks on the clients, which is harder to do as an independent contractor, and are in a better position to absorb bad debt.
So really, I work hard for that markup. If we’re doing our jobs right, we’re earning every cent of that money, and both our talent and client are benefitting from the work we do.