Case study: Why you may be paying too much for your temporary accounting resources
In the absence of a regulator or a professional body that governs the recruitment sector in Canada, we’ve long been advocates for transparent recruitment practices.
During boom times employers needed to do whatever was necessary to hire good people, and exuberant recruitment fees were always a bye-product of that endeavour. Fast forward a few years and the employment landscape in Calgary is very different today, yet some agencies continue to exert pressure on employers and contractors alike in a bid to make more money.
Over the past few months we’ve been actively engaging in discussion with our clients to understand this issue. It appears some firms regularly charge clients upwards of 50% margin, and in many cases as high as double the contractor rate.
Below is an example of how contract rates are typically broken down.
Let’s use a 6 month contract for a Senior Accountant, with the FTE (full-time equivalent) salary for a permanent position of $80,000.
Contractor pay rate is typically calculated using the FTE permanent salary and dividing it by 1981 (average working hours per year). 10-15% is then added to the contractors hourly rate to compensate for the absence of benefits or bonus.
Next we calculate and add payroll burdens; agencies (and any other employer) hiring employees have to pay their share of EI and CPP, and under Alberta Employment Standards is required to pay an additional 4% towards vacation, and 4% for stat holidays. Employers (the agency in this case) are also required to pay WCB.
Next we add the agency margin (considered agency profit). This “profit” needs to cover any costs of payrol, contract administration, recruitment (interviews, screen and selection), reference and background checks. This margin or “mark-up” is typically widely varying, apparently ranging between 30 – 100% of the contractor costs (read contractor pay rate + burdens).
So, a typical Senior Accountant contract would breakdown as follows:
Contractor pay rate: $45/hour
Payroll Burdens: $6.98/hour
Agency Margin: $29.25/hour (@ 65% margin. NB some agencies use 100% margin)
Client Total Cost:$81.23 per hour
$80 an hour isn’t necessarily extortionate for a designated Senior Accountant contractor, but it’s eye opening when you consider only $45, a little over half of what employers pay, actually makes it to the person hired.
In an effort to provide a more transparent recruitment model, and also one that’s more favourable to the client and contractor (read – not the recruitment agency) Red Recruitment is introducing our 7-11-15 concept. Breaking out our “margin” dependant on the category of position we are recruiting, the mark-up on each level of position is either $7, $11 or $15.
A Senior Accountant would fall into the “Senior” category and as such would carry an $11/hour margin.
Contractor pay rate: $50/hour
Payroll burdens: $7.75/hour
Agency Margin: $11/hour
Client Total Cost: $68.75 per hour
A quick calculation suggests client savings of $12.48 per hour, or $1,996 per month; Almost $12,000 over the term of a 6 month contract, more than enough to pay for a few employee team building events.
In addition to the client savings, the Contractor is also financially better off to the tune of $4,800 pre-tax. Significant, when you consider the majority of temporary employees are ineligible for benefits, professional development, bonus or other compensation consideration.