• Survey Approach vs. The People Ticker
• Banding / Experience Level Calibration
• Pay Rate vs. Bill Rate
• Understanding Markups
• Developing a Rate Card
• Negotiation Guide

Negotiation Guide

Well-planned negotiations based on current market information are critical to realizing savings and controlling contingent labor costs. The results gained from The People Ticker provide the user with a competitive advantage for any negotiation of contingent labor bill rates. However, the monetary portion of the negotiation process is only one of a number of factors that must be considered when planning your negotiations whether for existing contingent workers or new engagements. It is important to understand some of the other parameters that may impact negotiations.

In most companies there are internal competing goals when it comes to the engagement or continuation of the services of a contingent worker that may significantly affect any bill rate negotiations or re-negotiations. A typical scenario is that the Hiring Manager is concerned primarily about the availability of the contingent worker and meeting project schedules and cost becomes a secondary factor; Procurement wants to negotiate bill rates to save money; Human Resources is concerned about headcount, length of assignment and other co-employment issues, etc. Other typical concerns may be the financial viability of the agency furnishing the contingent worker and types and amounts of insurance coverage.

A well-planned negotiation process takes into consideration all of the above factors as well as the goals of all interested parties. Occasionally, the choice of losing a contractor mid-project and extending project deadlines through an unreasonable bill rate renegotiation may put all efforts to reduce a particular bill rate on the back burner. In most cases, necessity dictates approach and consequently, communication among all interested parties is essential for successful negotiations. In addition to understanding the negotiation environment and all related potential impacts, current and accurate information is the key to any successful negotiation. The People Ticker provides real time information to allow users to establish their overall negotiation strategy.

The People Ticker provides the most current information available that helps your company to:

• Define expectations for the current Pay Rates for contingent workers
• Define expectations for the Staffing Agency relative to Markups
• Define expectations for current market Bill Rates relative to your contingent workers

We will discuss below some of the considerations specific to re-negotiating bill rates for your embedded base of contingent workers as well as new placements.

Re–Negotiating Embedded Base

Your company’s Embedded Base of contingent workers is defined as those contingent workers who are currently on assignment. This may include individuals who have been on assignment for extended periods of time and therefore may have been engaged when market rates were substantially different than what they are in today’s market. This is an area that is very often overlooked by companies due to the difficulty in tracking fluctuations in market rates. In fact, the longer these individuals are on assignment, the more likely it is that they have been granted increases to their pay rates and bill rates which may be in direct contrast to the realities of the existing market. The successful re-negotiation of embedded base contingent workers will, except in very rare instances, result in real dollar savings to your company without losing the contingent worker as a result of such negotiations.

To effectively re-negotiate your company’s embedded base, you will ideally have the following:

• Contingent Worker Name and Manager Name
• Resumè and job description for the Contingent Worker
• Contingent Worker Pay Rate
• Contingent Worker Bill Rate
• Date of initial placement
• Expected end date of assignment

A summary of the process is included in the following table:

Notify Manager

It is a good practice to alert the manager that a rate analysis is being performed and that their input will be necessary during the process. It is important to communicate to the manager that the goal is NOT to lose the contractor, but to determine, if any, the amount of savings that may be realized based on current market rates.

Market rate of Job (based on job description)

This analysis will allow you to determine the market rate for the skill sets you require.

Market Rate of Contingent Worker (based on resumè)

This analysis will allow you to determine the market rate for the contingent worker. This can be a valuable step in identifying potential retention issues prior to negotiating.

Discuss market rates with Manager

This step in the process requires analysis and caution. Once you have the market information, you must compare it to the pay rates and markups of your existing contingent workers. Where differences are identified, discussions must take place with the contingent worker’s manager and a negotiation strategy must be agreed to. Strategies will be based upon the magnitude of any differences identified, length of assignment, ability to replace the contingent worker with a comparably skilled worker at market rates, any unique circumstances, etc. It is important to remember that any bill rate negotiations will take place with the agency representing the contingent worker and not directly with the contingent worker. The agency must understand that the Pay Rate and Markup must be kept separate in all negotiations in order to avoid negative impact on the contingent worker. By negotiating Bill Rates only, an agency may cut the Pay Rate for the contingent worker and not reduce its markup to yield the Bill Rate reduction that you target. By negatively affecting the Pay Rate, you may put yourself in a position to lose the contingent worker.

Discuss market rates with Staffing Agency

During most re-negotiation efforts, the goal is to reduce the agency’s Markup rather than reducing the contingent worker’s Pay Rate. Staffing agencies provide valuable recruiting and retention services to your organization for the contingent workers they provide. A competitive Markup, consistent with the services provided, will bring value to your company and incentive to your Staffing Agencies. You should expect higher markups from agencies that provide paid holidays and vacations, health benefits, training, bonuses etc. Therefore, it is important to understand the components of the markups that agencies are using. Many times agencies are willing to reduce markups without impacting the level of their services in exchange for higher volumes of placements. Examine the “Negotiating New Placements ” section of this document for specific examples of saving money on markup negotiations.

Negotiating New Placements

Since you are not affecting existing pay and bill arrangements, the negotiation of new placements may be easier than re-negotiating the embedded base of contingent workers. However, the bottom line impact may be just as significant. Your company may or may not have created a Rate Card (ideally based on Pay Rate) for hiring contingent workers using The People Ticker. The Rate Card can be a valuable guide during negotiations. Remember, The People Ticker has provided you with the same or better market rate information than that possessed by the Staffing Agency. The Rate Card defines competitive parameters relative to engagement rates and such parameters should not be viewed as fixed or unchangeable. Will situations occur when it makes sense to hire out of scope from the Rate Card? Of course, but it is vital to know when and why these occurrences happen to avoid setting expensive precedents.

It is also important for all negotiations to be conducted by designated individuals who have access to The People Ticker and have had appropriate training in the negotiation of bill rates for contingent workers. The danger in non-centralized negotiations is that Hiring Managers and Staffing Agencies tend to rely on past history to dictate pricing for the next placement and that they are not always privy to current market rates. Once a manager engages a contingent worker at a rate of $75/hr, the precedent has been set with that agency and other similar, new placements by that agency tend to follow the same pricing. This may result in enormous costs to your organization.

In order to help control this activity and to insure the maximum opportunity for savings, nextSource recommends the review and negotiation, if applicable, of every new placement even though a Rate Card may be in place. Why? Savings opportunities should be identified and realized whenever possible and skilled users should be aware of all possibilities that may impact the bill rate. For example, the type of contingent worker being placed can greatly affect the final bill rate. Without understanding whether or not the contingent worker being placed is a W–2 employee of the agency or a subcontractor (IC/1099) to the agency, the agreed upon markups may result in additional cost to the user.

The following table illustrates how the contingent worker’s status may affect the bill rate and the agency’s profits:

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: