A staffing agency provides employers with a variety of services that work to take time-consuming procedures off of an employer’s plate. A billing rate otherwise known as a markup rate can vary significantly between different staffing agencies. A common misconception is that there is a “normal” rate, but each staffing agency has different markups to cover different jobs, insurances, worker’s compensation, legal obligations, and other mandatory expenses a staffing agency must pay to send out an employee.
An important reminder is that staffing agencies have a certain markup rate by knowing how much their worker’s comp costs. In California, employers have mandated benefits that must be provided such as family and medical leave, sick leave, worker’s compensation, and retirement plans (required by SB1126).
Some examples of voluntary benefits include:
- Voluntary paid time off
- Paid holidays
- Life insurance
- Severance pay
- Tuition Reimbursement
What Is the Average Markup Rate in California?
Depending on the position and how likely the person will get injured ultimately determines the markup rate, along with being able to cover workers compensation and mandated benefits to stay compliant with California’s labor laws.
Other considerations to take into account are when a client of a staffing agency asks for “additional services” to be included such as providing masks, gloves, safety vests, training programs for interviewing processes, time clocks, and Employee Appreciation Day supplies. These are some items that your employment agency may assist in providing for you, but with this, a staffing agency may have to raise their markup to cover these additional costs.
A typical markup rate in California can be anywhere from 35% to 75% markup. Depending on what additional services you may need and their worker’s compensation costs.
Each employment agency bears different costs and it is hard to compare the two to each other since there are many different variables.
Suspiciously Low Bill Rates
Please beware of staffing agencies that are offering low bill rates. For instance, if your business is offered a 25% markup for any position including ones inside warehouses, manufacturing facilities, and offices, this company may be cutting corners illegally to afford that rate and still make a profit.
These companies are illegitimate, it puts a bad reputation on law-abiding staffing agencies that get workers compensation for all their employees and provide the appropriate benefits and pay to their staff.
Why Would I Pay More For Staffing Services When I Could Pay Less?
It is important to remember that you get what you pay for. These low markup rates may seem like a good deal for you and your business at first, but it is important to consider long-term implications. A staffing agency with 10+ years of being in business adds a safety net that you are making a deal with a reputable agency. With an agency like this, you will find that they have higher quality service. These agencies have the resources to invest in employee safety, benefits, and training.
In the long run, working with a reputable staffing agency with a seemingly “higher markup” rate, but is a standard rate that will make the business profitable, will save you money and headaches. You can be confident that you are getting the best possible service and that your employees are being treated fairly.
United Employment Solutions is a staffing agency that specializes in finding quality candidates for our clients’ business needs. We do not simply send anyone who applies; we conduct a thorough search of resumes and conduct multiple reviews to ensure that we are sending you the right candidate for the job.
How Do Employment Agencies Calculate a Markup?
There are many ways agencies calculate markups for their clients, but the biggest factors are health insurance, minimum wage, hourly wage, works comp codes, job position. We are narrowing it down to the top 3 ways markups are calculated.
1. Health Insurance Coverage
State and Federal law requires employers with 50 or more full-time employees to provide minimum essential coverage.
2. Minimum Wage in California
As of January 1, 2023, the minimum wage for the state of California is $15.50/hour for businesses.
An important note is that tips cannot be counted toward the required minimum wage. Exempt employees must earn at least two times the state’s minimum wage. With a $15.50/hour minimum wage, exempt employees must make a minimum of $64,480 annually.
In addition to this requirement, each city and county can raise the minimum wage. For example, Los Angeles has a minimum wage of $16.78/hour and Unincorporated Los Angeles County has $16.90/hour minimum wage.
3. Payroll Wages
Payroll wages must be totaled up for an employee, this includes gross compensation, not including taxes that will be deducted. Once that is determined, you sign into your worker’s comp insurance portal to look up codes for each job, for example, workers comp class codes:
- Class Code Categories
- General Medical and Hospital
- Business Services
- Eating Places
- Dairy Product Manufacturing
- Plastic Goods Manufacturing
- Warehouse – Packing
- Fruit – Packaging and Handling
All these categories have completely different rates depending on what materials they are handling, what industry, and what they do daily.
Here are examples of what workers comp charges could look like:
- General Medical and Hospital ($22/hour)
- Clerical ($10/hour)
- Business Services ($9/hour)
- Eating Places ($15/hour)
- Dairy Product Manufacturing ($32/hour)
- Plastic Goods Manufacturing ($27/hour)
- Warehouse – Packing ($24/hour)
- Fruit – Packaging and Handling ($20/hour)
*These numbers are completely made up and not referenced from a workers comp insurance source. These numbers are to show the different rates per hour per employee for workers’ compensation.
Markup Calculations Explained
Most staffing agencies must be able to cover their mandated costs such as these. Meaning, 80% of the markup will cover mandated costs, 10 – 15% of the markup rate will be used to pay for our in-house employees such as recruiters, sales reps, management, and other operational employees, 2-5% of the markup will be profit for the staffing agency.
For example, a bill rate may be $32/hour. This rate is meant to cover 80% of mandated costs such as mandated benefits, workers comp, and taxes which would be $25.60/hour. The 10-15% of covering operations would be $3.20-4.80/hour. Lastly, 2-5% would be counted toward profit, profit would be 0.64 cents/hour to $1.60/hour.
What Will 2024 Look Like For These Low-markup Staffing Companies?
A staffing company with a markup rate of 28% or lower may have difficulty covering its costs and maintaining a profitable business. This could lead to the company cutting corners on important things, such as employee safety. In the long run, this could result in legal problems and financial losses. Additionally, a staffing company with a low markup rate may not be able to attract and retain top talent, which could further hurt its bottom line. In 2024, these companies that have been using these markup rates will begin to suffer the consequences of not meeting their bottom line.