Do You Know What Your Staffing Agency’s Margins Really Are?

Every staffing company knows to identify mandated employer benefits when calculating the markup for clients. Payroll deductions such as OASDI (FICA), Medicare, FUTA and SUTA rates are usually known at the time the staffing agreement with the client is made and are rarely reviewed again in the context of client rates. Unless you have the kind of markup arrangement like many professional employer organizations (PEOs), where actual assessments are monitored with each billing, some precautionary messaging can really pay off in these uncertain economic times.  Most states unemployment funds are being depleted at record rates due to the 2007-2008 jobs collapse.  Most US states will eventually catch up with their counterparts who have already raised the earnings threshold and their rates. The UpJohn Institute has an excellent white paper on the subject located here:

Build in a self-imposed modification to your most recent markup rate and focus on keeping your temps on your staffing payroll so they reach the maximum as early in the year as possible. Every temp who reaches their max and continues working drops a couple of percentage points to your bottom line. If you replace them with a fresh temp, you go back to square one.  Having properly designed front and back office staffing software is critical. Check particularly your back office software. Are there timely Sales Analysis Reports and Payroll and Billing Management Reports which accurately track your staffing agency margins down to each hour worked? If not, your margins may not be as high as you think they are.

800 pound gorilla

Of course the 800 pound gorilla in every staffing agency’s waiting room is workers comp. Here again a pre-emptive add-on to your most recent comp rates can store some nuts up for the winter (or the workers comp audit). If you get hit with a big rate adjustment, don’t be bashful about sitting down with your client, showing them the facts and asking for rate relief. If the client won’t budge, he at least knows you are honoring your rate commitment and making a sacrifice to keep his business.

Finally, if you have to make mark up concessions, make them out of what your client sees as your net profit margin while giving yourself some breathing room on your mandated benefits.

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