Pay Rates for Contingent Workers
Thursday, April 12, 2007
The following table illustrates how the contingent worker’s status may affect the bill rate and the agency’s profits:
W-2 Bill Rate
Pay Rate (Direct Labor Rate): $50 per Hour
Negotiated Markup 30%: $15 per Hour
Bill Rate: $65 per Hour
Agency Cost (No Benefits): $10 per Hour
Agency Profit: $5 per Hour
Pay Rate (Direct Labor Rate): $50 per Hour
Negotiated Markup 30%: $15 per Hour
Bill Rate: $65 per Hour
Agency Cost (No Benefits): $5 per Hour
Agency Profit: $10 per Hour
The principal difference in cost in the above example is due to the fact that for a W-2 employee, the agency must pay the employer’s share of certain employment related taxes such as FICA, FUTA, state unemployment, etc. On the surface, a 30% markup is competitive. However, by understanding that the placement was not a W-2 employee of the agency, a lower markup should have been negotiated that could have led to savings of approximately $10,000 per year on this single placement.
In order to assist you in evaluating markups, our experience indicates that acceptable markup percentages from agencies generally fall in the ranges defined below:
W-2: 30% - 45%
IC 1099: 12% - 22%