As the market continues to evolve, so should your rate card methodology. While what has been used in the past may suffice, a deep review can improve your program and confirm whether you are getting the best talent possible at the best price.
Simply put, rate methodology is the framework for determining the rates or fees that will be paid to contingent workers or suppliers such as staffing firms for their services within a contingent program. To ensure your contingent program’s rate card methodology is fair, competitive, flexible and aligned with your organization’s specific goals, several key factors must be considered.
Job descriptions and skill levels. What types of roles are under consideration? Ideally, the role information will include a complete job description with headcount data and workers’ compensation coding — otherwise known as the National Council on Compensation Insurance code. This involves identifying the specific skills, experience and qualifications required for each role and aligning the rate structure accordingly.
Defining job descriptions and skill levels is crucial, yet many organizations struggle to achieve this within their contingent programs. Factoring in skill levels makes it possible to pay workers differently according to their seniority, experience and skill set and can help you determine whether to utilize a markup or a rate card.
For instance, organizations may utilize a markup on lower-level roles such as light industrial and a max rate card on higher-level roles such as IT. This is because a markup allows a staffing firm (“supplier”) to maintain profitability despite the lower bill rate. Conversely, in industries like IT, where specialized skills are in high demand and candidates have more negotiating power, a max rate card system may be used to set standard rates that reflect the value of those skills.
Volume. This may seem obvious, but you must first understand your programs spend and headcount volume. This includes the historical and projected volumes and any events that could impact this over time. Understanding your program volume can help you determine whether to utilize a markup or rate card.
Geographical distinctions. Do you know the geographies supported by your contingent program? Several local and regional considerations can impact the success of any rate card methodology, so understanding these nuances is imperative.
The recommended practice for contingent programs operating in Europe is to use multipliers for pricing rather than rate cards. State-specific differences can also exist; for example, in the US, California has regulations governing overtime, sick pay and worker leave time that other states don’t have.
Market conditions and rates. Do you have a clear understanding of the current market conditions in in the areas your contingent program operates in? For instance, wage inflation means higher bill rates. If there is skill scarcity and demand, the rates should be adjusted to reflect the scarcity of certain skills and the level of demand in the market.
It is essential to research and understand the current market rates or markups for various contingent worker roles. This involves analyzing industry standards, regional variations and specific skill sets to ensure that rates and markups are competitive and attractive to potential workers and suppliers. A good source for this data is SIA and Magnit’s Rate Intelligence Tool.
Equity and compliance. With pay parity laws present in many countries, it is important to ensure consistent rates for similar roles across the organization. This involves comparing rates for similar roles in different departments or business units to ensure fairness and consistency.
It is important to ensure that the rates or markups are compliant with relevant labor laws, regulations and industry standards. A good source for this data is SIA’s Legal and Regulatory Research.
Budget and cost considerations. An organization’s budget and cost considerations are important factors in determining the rate card methodology for their workers. This involves balancing the need to attract top talent with the organization’s financial constraints and cost management goals. Make sure you work with the executive sponsor for your contingent program during budget and planning periods so all stakeholders are involved in the rate card strategy decision-making process.
Third-party support. Will you be working with a managed service provider partner to manage the rate card methodology? Will this be part of their delivery model or an additional cost? What is the frequency of rate card reviews?
Program details. Are program fees in place to support an MSP or VMS? If so, are these supplier-funded program fees? If you have a supplier-funded program, you need to consider an all-in cost which includes any program fees on top of your bill rate or markup.
In addition, consider whether your supplier contract allows for rate auditing so you can enforce a rate card methodology.
Labor category differentiators. Will all labor categories be handled the same regarding your rate card methodology, or will they be handled differently?
Organizational reputation or brand recognition. You need to understand your organization’s standing in your local markets where you truly compete for talent. For example, in markets like San Francisco where there is a high need for tech talent, you may choose to have a rate card that entices talent to select your organization for work opportunities if you are not one of the big three tech companies in that market.
To choose the best rate card methodology you must have thorough knowledge of the market, your program’s core elements and how they work together to offer your potential suppliers and talent the best possible opportunities. By being aware of the important elements outlined above and doing your research, you can decide which rate card methodology will position your program for long-term success.
