The cost per hour charged by outside staffing agencies can be shocking if you don’t understand the ingredients that make up that cost recipe.  As staggering as those invoices can be, the reality of where the money is going might surprise you.

Most agencies speak to their clients in terms of billable hourly rate.  This is a simple formula called “mark up over pay rate”. It’s a percentage of the hourly rate paid to the contract employee.  Over the years this model has proven to be the most transparent means of communicating the total hourly cost of hiring a temporary employee.  The difference between these numbers can be significant, depending on the type of position.  Mark up over pay rate percentages can vary between 35% all the way to 100% for highly specialized roles, with the average sitting at an expected 50%-65%.

What’s often unclear are the direct costs that are absorbed by an outside agency when they assume the role of employer on your behalf. These direct costs include: FICA tax, Medicare tax, state unemployment tax, healthcare, workers’ compensation, local mandated benefit costs, as well as business and occupation tax.  These fees are outside that of the salary paid to recruiters, traditional business costs, and specialty insurances like liability. 

 Below is an example of a sample staffing company, using an hourly rate of $35 per hour and assuming a 65% mark up ($57.75) for a temporary accountant:

As professionals in HR, the above example also highlights just how much the true spend is for each employee we hire.  It’s a huge investment on both sides of the house.  By better understanding the structure of your external staffing costs, you can partner with your external agencies on meaningful and mutually beneficial pricing.  You can also speak with real numbers when discussing whether or not a temporary employee is the best solution for your company.

As with any vendor relationship, the key is to establish trust through good processes and clear understanding of service levels. 

Additional ASE Resources
ASE Staffing Services - ASE is fortunate to have a great team of temporary associates that are out in the field with our clients, doing great work.  As you approach year end, don’t forget to tap into our staffing team for your supplemental or direct hire needs. For more information contact Shannon Reed.