How to Run a Staffing Company That Makes Money

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How do staffing companies work?

Staffing agencies, also known as temp agencies, connect people looking for work with temporary employment.  Staffing agencies also work with managers of organizations looking to fill temporary or permanent gaps of employment.  Temporary positions sometimes turn into permanent long term employment or full time positions. 

How do staffing companies make money?

Generally speaking, staffing agencies make a money in different ways.  They either take a percentage of the employee’s salary or they charge the company looking for an employee a price for their services.

Benefits to organizations using staffing companies

  • Money Savings on Hiring Practices
  • Flexible Staffing
  • Avoid Fringe Benefits
  • Contract to Hire

Depending largely on the level of the employees and the type of staffing products, staffing companies’ profits vary widely.  In addition, staffing companies that specialize in different industries, such as legal or computer services, often demand higher fees.  Billing rates can vary from a 25 percent to 100 percent markup on the staffing employee’s base salary.

Yes. Math is involved

How do you calculate the cost of an employee?

The true cost of paying each of your employees is significantly higher than their hourly rate.  Even if you don’t offer benefits or paid vacation, there are some unavoidable taxes and expenses you’ll incur having employees on your payroll.

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What is Labor Burden?

  • Payroll Taxes (Employer)
  • Paid time off
  • Health Insurance
  • Workers’ Compensation
  • Uniforms or special work clothes
  • Training

Labor Burden: The costs, above and beyond gross compensation (gross wages), that you incur in order for an employee to perform the work that you hired them to do.

Example: #1

Employee 1 (Clerical Office Worker) @ 10.00 per hour.

Employees Gross pay = 10.00 x 40 (Hours per week) = 400.00

Employers FICA = 10.00 x 40 = 400.00 x 6.2% = 24.80

Employers Medicare = 10.00 x 40 = 400.00 x 1.45% = 5.80

Employers SUTA = 10.00 x 40 = 400.00 x 3.5% = 14.00  (cut off stops after 7,000)

Employers FUTA = 10.00 x 40 = 400.00 x 2.1% = 8.40 (cut off stops after 7,000)

Workers Compensation = 10.00 x 40 = 400.00 x 1% (or 1.00 per hundred of payroll) = 4.00

 

Employee 1 400.00 + 400.00

FICA   24.80 +   24.80

Medicare     5.80 +     5.80

SUTA   14.00 +     0.00

FUTA     8.40 +     0.00

Workers Comp.     4.00 =     4.00

------------------------------ -----------------------------

Total Burden 457.00 434.60

 

Burden percentage of gross pay = 457.00 / 400.00 = 1.1425 or 114.25% of gross pay

 

Break Even = Sales or mark-up no less than 114.25% of hourly pay or gross pay

Example: #2

Employee 1 (Clerical Office Worker) @ 10.00 per hour.

Employees Gross pay = 10.00 x 40 (Hours per week) = 400.00

Employers FICA = 10.00 x 40 = 400.00 x 6.2% = 24.80

Employers Medicare = 10.00 x 40 = 400.00 x 1.45% = 5.80

Employers SUTA = 10.00 x 40 = 400.00 x 6.2% = 24.80  (cut off stops after 7,000)

Employers FUTA = 10.00 x 40 = 400.00 x 2.1% = 8.40 (cut off stops after 7,000)

Workers Compensation = 10.00 x 40 = 400.00 x 1.25% (or 1.00 per hundred of payroll) = 5.00

Employee 1 400.00 + 400.00

FICA   24.80 +   24.80

Medicare     5.80 +     5.80

SUTA   24.80 +     0.00

FUTA     8.40 +     0.00

Workers Comp.     5.00 =     5.00

------------------------------ ----------------------------

Total Burden 468.50 435.60

Burden percentage of gross pay = 400.00 / 468.50 = 1.1712 or 117.12% of gross pay

Break Even = Sales or mark-up no less than 117.12% of hourly pay or gross pay

Sales Mark-Up of 125%

 

Example 1 = 400.00 x 125% = 500.00 – 457.00 (burden) =  43.00 per week 

Example 2 = 400.00 x 125% = 500.00 – 468.50 (burden) =  31.50 per week

 

How does the burden change when cut-offs are reached (7,000)

Example 1 = 400.00 x 125% = 500.00 – 434.60 (burden) = 65.40 per week

Example 2 = 400.00 x 125% = 500.00 – 435.60 (burden) = 64.40 per week

 

Annualize Gross Profit for Example 1 and 2

 

400.00 x 52 (weeks) = 20,800.00  (Gross pay paid to employee)

500.00 x 52 (weeks) = 26,000.00  (Total billing to client)

 

Net changes to client = $ 5,200.00

Mark Leonard