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Feeling Overcharged by Staffing Firms? Here’s What Goes Into Your Rate

Posted on May 30th, 2019 Read time: 3 minutes

Job seekers sitting in a line of chairs waiting

The first time you use a temporary staffing service, you’ll undoubtedly be a bit surprised when you hear the rate the staffing firm quotes you.

In the past, companies have often gone to these groups in search of the lowest price possible — but the landscape is shifting. Companies across the country have realized that suppliers with bare-bones prices will also have bare-bones resources. These firms lack the customer support staff that employees and client companies are looking for.

Once you’ve worked in tandem with a few different staffing services, though, you’ll start to realize the costs that go into that rate quote.

Until then, here’s a breakdown of what goes into that staffing firm price tag:

1. Wages

Most of what you pay a staffing firm goes to the employee in the form of wages. Not surprisingly, skilled workers are in high demand.

Only 7.8% of the 142.5 million working Americans are employed in a role with an average salary of at least $100,000. More than a third of these jobs require an advanced degree, meaning that the supply of these workers is relatively low while demand is high.

2. Taxes

On top of hourly wages, employers must pay taxes and benefits to employees in accordance with local, state, and federal laws.

The Federal Insurance Contributions Act tax is used to fund Social Security and Medicare. The FICA tax rate is 6.2% up to the Social Security 2019 wage limit of $132,900 in wages, and the Medicare tax rate is 1.45% with no income cap.

Companies are also required to pay both federal and state unemployment taxes, known as the Federal Unemployment Tax Act and the State Unemployment Tax Act. The FUTA tax rate is 6%; however, it can be reduced by 0.6% if the state unemployment tax is paid on time. The SUTA rate varies by company and by state and can range anywhere from roughly 2% to 10% depending on that company’s experience.

Taxes can be quite convoluted. But what you do need to know is that an employee earning $30,000 could call for an employer to pay an average of $3,600 in additional taxes each year.

3. Benefits

It’s a common misconception that employers have to provide full-time employees with health insurance. The Affordable Care Act had imposed a penalty for employers with more than 50 full-time employees that failed to offer minimum essential health coverage, but that provision was repealed for 2019.

Unlike health insurance, workers’ compensation insurance is mandatory and covers costs of medical treatment, lost wages, and litigation in the event that a worker is injured. The cost varies based on location, but other factors include the industry the worker is employed in and his or her role.

As of March 2019, 30 jurisdictions required employers to provide workers with paid sick-leave benefits. Paid jury duty, family leave, and commuter benefits wrap up the remaining mandatory benefits.

When all is said and done, employers pay an hourly rate of $11.41 for employee benefits alone, according to a March 2019 U.S. Bureau of Labor Statistics report. That’s close to half of the $24.91 per hour that goes toward wages or salaries.

4. Recruiting

For staffing companies, a big piece of their price includes recruiting, advertising, and onboarding costs, such as training or testing to find the right candidates. This could add up to 30% to the total markup. Some companies might choose to use their own resources for recruiting and utilize a payrolling company that operates closely to staffing but doesn’t handle the recruitment and placements.

In the current labor market, especially, it’s clear that hiring full-time employees is expensive no matter their position. It can be even more expensive for staffing firms to track down stellar, high-performing workers.

By understanding the costs associated with staffing firms, businesses can learn what questions to ask to determine whether temporary staffing or payrolling is right for their business. If you have questions about this or anything else, contact IES today and let us know how we can help.

 

By: Sara Jensen, Vice President of Business Development

Sara Jensen is the Vice President of Business Development at Innovative Employee Solutions (IES), a leading nationwide employer of record that specializes in payrolling and contractor management services for today’s contingent workforce. Founded in 1974 in San Diego, IES has grown into one of the city’s largest women-owned businesses and been named one of its “Best Places to Work” for 10 years in a row.

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