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Jun 30, 2022 IST Team

The Actual Costs of Hiring a Labor On Demand Agency

What you need to know about pricing before you employ a terrible staffing agency

You've probably searched cost information for peopleready skilled trades or for cost-effective staffing agencies. If you’re looking into staffing your next construction project, or your current one, here are the costs you need to know about that a labor on demand agency may charge.

Bill Rate Only Pricing

Bill rate only pricing is when you are charged a percentage above the employee’s pay rate.

So, it’s essentially the employee’s hourly pay rate + the staffing agency’s mark-up = bill rate.

It is a straightforward payment scale, yet it’s not always clear what you will get in terms of service and job fit.

Additionally, it may sometimes be considered impolite to inquire about the pay rate, so this creates a shroud of mystery regarding this pricing.

Mark-Up Over Pay Rate Pricing

Mark-up over pay rate pricing occurs when you, as the client, reach out with a targeted pay rate. Then the labor on demand agency will quote you a mark-up over pay rate.

The problem this creates is that you’re creating a "the cheapest price gets the job" scenario. If you’re hiring a staffing agency with prices too good to be true, then you most likely won’t get the results you need.

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The Real Costs

The base wages for most workers are in this ballpark (based on a MossAdams report, adjusted for 2022 inflation):

  • Construction Manager: $163,500
  • Project Manager: $132,000
  • Estimator: $129,000
  • Foreman: $111,250
  • Craftsman: $81,750
  • Laborer: $58,000

As always, depending on your location, these numbers may be higher or lower. With that in mind, construction staffing agencies normally charge anywhere from 25%-100% of the hired employee's wages. This means that an outsourced project manager can cost anywhere from $165,000-$264,000 annually.

Many have the perception that the markup on construction staffing is quite high, yet consider a few key facts.

You would have paid their salary, period.

If you would have found the right fit in a skilled trade job in the first place, you would have hired that person immediately, especially in this shortage (more on that later). That being said, this company has its own employee for you to hire. They did the legwork of finding and hiring this tradesman. They may have a high school diploma or GED-equivalent, or even beyond that education plus specialized experience. You may not just need an electrician but a photovoltaic engineer.

Now you need them immediately because you most likely haven’t been able to find any in your area or any that are qualified. That’s one piece of the pricing.

It’s all about the benefits.

You may think, well, if they are not my employee, why should I pay toward their benefits? It’s a valid question as it’s not your employee and it seems that the agency is placing costs on top.

But the bigger question you should be asking yourself is: do I want my project to be on time and on budget?

Morale is one of the most fragile aspects of working in the construction industry, where workers are known to quit a job for higher pay and “because the money wasn’t worth the hassle”. Our survey reveals these sorts of truths.

If a job isn’t living up to their standards, including work-life balance, they’ll find work somewhere else. And they’ll find it quickly since there’s a shortage of skilled tradesmen across the nation.

So what sort of benefits are we talking about here? Benefits could be things like paid leave, supplemental pay, and insurance. Here are a few other things to keep in mind when it comes to benefits:

  • Paid time off and holidays
  • Cash incentives
  • Bonuses
  • Vehicle allowance
  • Mileage reimbursement
  • Training & certifications
  • Company cell phone
  • Health, dental, vision
  • Disability insurance
  • 401(K) Plans
  • Profit-sharing
  • Other retirement benefits

There are several other costs that go into these rates, like background checks and drug tests. Remember, you may feel like you’re helping find one person you’ll never meet again, but in reality, you’re investing in your project getting done on time and on budget.

There are also mandatory benefits that must be accounted for.

Again, you would have paid for this when onboarding new trade workers. Depending on the part of the country you are in, benefits vary, but in places like Oregon, Washington, and California, staffing agencies pay the highest in statutory (that is, mandated by the federal government and local authorities) costs.

This includes costs like Federal Insurance Contributions Act (FICA) funds, Federal  (FUTA) and State (SUTA) Unemployment Insurance Tax, and Worker’s Comp Insurance. If you are in Texas, you don’t have to worry about worker’s compensation as it’s not required.

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Here Are the Very Real Costs of Hiring Just Any Labor on Demand Agency

We’ve done an in-depth analysis on the skilled trades labor shortage matter here.

The shortage is very real. The talent pool has been scoured for every potential client that fits the job role well. This also exacerbates the problem of finding qualified workers for your job, and your project runs the risk of being over budget and out of time.

The benefit of taking on a construction staffing agency is that you extend your reach beyond your local area or city. Agencies have resources to relocate skilled tradesmen across the country and find the right fit for the job. Make sure that when you interview an agency that they have the acumen and right fit for your project.

You can pay now and have peace of mind with your project. Otherwise, you may be waiting quite a while trying to find the right candidate and pay later.

How IST Approaches Costs

Balance quality and best available costs, something that’s realistic for the market. Talk to us about your costs.

Published by IST Team June 30, 2022
IST Team