How to Establish Contract Bill Rates

How-to-Establish-Contract-Bill-Rates-6678One of the most confusing aspects of contract staffing for some recruiters is determining the rates, particularly the bill rate that they will charge to the client company. But determining contract bill rates is not as difficult as recruiters may think. In fact, once you understand the formula, it can be quite simple.

First, let’s look at what makes up the hourly bill rate:

Hourly Pay Rate + Tax Burden + G&A (Back-Office) + Recruiter Share =
Hourly Bill Rate

Many recruiters find the easiest way to determine the bill rate is to follow a simple three-step process:

  1. Contract Training KitGet a bill rate range from the client. If you have a range, you will  know if you are in the ballpark as you work through the rest of this process.
  2. Determine contractor pay rate. The largest single component of the bill rate is what the contractor will be paid on an hourly basis (aka pay rate). Therefore, the pay rate is a logical starting point when it comes to actually calculating a proposed bill rate. There are a few ways to figure out what the pay rate should be. An experienced contractor can often tell you what they want to make per hour, and you can determine whether that is reasonable based on their education, experience, skill set, etc. If they are new to contracting, figure out how much someone in a similar position would make annually on a salary basis. This could be from your own experience in the niche, the candidate’s current or previous salaries, or from research (try sites such as the Bureau of Labor Statistics or  Once you have the salary, you will want to convert it to an hourly pay rate by dividing it by 2,080 (the average number of working hours per year). Keep in mind there are a number of things aside from education, experience, and skills that can affect the hourly pay rate:
    • Assignment length – Short-term contracts generally demand higher pay rates to attract quality candidates.
    • Conversion potential - The pay rate can also be closer to a direct salary if the position is likely to convert to direct.
    • Benefits – They pay rate can be lower if quality benefits (health, dental, vision, and life insurance, 401k, etc.) are available.
    • How long the worker was unemployed – A longer unemployed period generally translates into a lower pay rate.
  3. Apply a multiplier (mark-up). Once you have the hourly pay rate, you can use an average multiplier to calculate the company’s bill rate.  The average multiplier  has traditionally been between 1.51 and 1.67 and was at 1.60 for March 2014. But there are a number of factors that can affect the multiplier. Location is a good example. The multiplier is much higher for New York City than a city in a state such as Michigan.  Hard-to-find positions and in-demand positions, such as healthcare, also draw a higher multiplier.  Once you have determined the mark-up, you simply multiply it by the pay rate to come up with the proposed bill rate.  EXAMPLE: $45.67/hr pay rate x 1.60 = $73.07/hr bill rate

The margin between the pay rate and the bill rate covers the tax burden, G&A, and the recruiter share. Let’s take a closer look at these three factors:

  • Tax Burden – Contractors are generally placed as W-2 employees of the recruiting/staffing firm or of a contract staffing back-office utilized by the firm. There is a tax burden for every W-2 employee that includes state and federal taxes, Workers’ Compensation, etc.  These costs vary by state and job classification.
  • G&A - This stands for General and Administrative costs assumed by the firm or back-office. The costs are tied to the legal, financial, and administrative duties associated with contract placements.
  • Recruiter profit  – The remainder of the margin after the tax burden and G&A is recruiter profit. Obviously, the wider the margin between the contractor pay rate and the company bill rate, the more profit there will be.  Top Echelon Contracting actually provides a customized Quote to each recruiter to make the negotiation process easier.  The Quote includes a matrix that provides an $11 pay rate spread and a $20 bill rate spread. At each point in the matrix, you can see how much your recruiter income will be.

There is definitely money in contract staffing, and once you learn the basics of rate negotiations, you’ve got the hardest part handled.  You already know how to find candidates and match them to job orders, so the rest is easy!

New Guidance on Contractor Background Checks

New-Guidance-on-Contractor-Background-Checks-6661A recent government document on the proper use of  background checks is a must-read for any recruiter who runs contractor background checks.

The Equal  Employment Opportunity Commission (EEOC) and the Federal Trade Commission (FTC) co-published a technical assistance document for employers and another for employees explaining the laws governing background checks. The EEOC is responsible for making sure that background checks are not discriminatory while the FTC enforces the Fair Credit Reporting Act (FCRA), which protects the privacy and accuracy of the credit reports used in background checks.

Training CenterThe document titled “Background Checks: What Employers Need to Know” is the one that recruiters need to pay attention to. The document does not provide any new regulations but rather provides tips for acquiring and utilizing information from background checks properly.  While the document notes that it is not illegal to run background checks, it stresses the importance of following the regulations of the EEOC and FTC.

Here are some key points addressed in the document:

  • Don’t intentionally discriminate.  Treat everyone equally. If you require a background check of one candidate for a position, you should require it of any candidates for that position. For example, you shouldn’t run background checks only on people of a certain race.
  • Don’t unintentionally discriminate. If a background problem is more common among a certain race or other protected class, having a blanket policy forbidding the employment of people with that criminal background could disproportionately exclude members of that class. This is known as disparate impact. If you cannot show that basing employment decisions on that factor is “job related and consistent with business necessity,” you could be faced with a discrimination lawsuit.
  • Get the applicant’s written permission to run a background check and make sure they know the information can be used to make decisions about their employment.  The notice must be in writing and in a stand-alone format. It can not be part of the employment application.
  • Notify individuals BEFORE taking adverse employment action. They must be given a copy of the background check and “A Summary of Your Rights Under the Fair Credit Reporting Act.” This allows them to explain the negative information.
  • Communicate properly AFTER adverse employment action. You must notify the candidate (orally, in writing, or electronically) that they were rejected due to information on the background check and provide them with the name, address, and phone number of the company that ran the background check.  You must also notify them that the background check company did not make the hiring decision and that they cannot give the reasons for it.  Individuals can, however, dispute the accuracy or completeness of the report and request a free report from the background check company within 60 days.
  • Pay attention to record-keeping rules. The EEOC requires that you retain any employment records for a year after the records were made or a year after the employment action was taken, whichever is later.  If you are charged with discrimination, you must retain the records until the case is concluded.  When the records no longer have to be retained, they must be disposed of properly (burn, pulverize, shred, etc.).

The days when background checks were limited to direct hire employees are over.  As contractors become a more integral part of the workforce and are handling more critical and sensitive tasks, background checks can help ensure that you are not putting your client or your reputation at risk by placing a contractor. Moreover, a number of companies require backgrounds checks before they will allow a contractor to start an assignment. Clients commonly require some or all of the following checks:

  • Social Security Number verification
  • Statewide misdemeanor and felony check
  • Sex offender
  • Address history
  • County level specific checks for the places the contractor has lived

You can outsource background checks, and all of the other employment tasks associated with contractors, to a contract staffing back-office provider. If you do, make sure that they can handle the types of checks listed above AND that they are following the laws of the EEOC and FTC.  Background checks are meant to protect you and your clients, but only if they are handled properly.

This article is for informational purposes only and should not be considered legal advice.

Cap for H-1B Visas Met in Less Than a Week

Cap-for-H-1B-Visas-Met-in-Less-Than-a-Week-1581As predicted, the available H-1B visas for Fiscal Year 2015 went quickly.  U.S. Citizenship and Immigration Services (USCIS) announced on Monday that it had received a sufficient number of H-1B petitions, just six days after the petition season opened.

With H-1B visas, employers are able to hire foreign workers with specialized knowledge or technical expertise, such as scientists, engineers, or computer professionals. Congress sets a limit each year on how many visas can be issued.  The cap for FY2015 was 65,000 with another 20,000 allocated to those with master’s or higher degrees obtained at universities in the United States. USCIS began accepting petitions on April 1 and has already received more than enough to meet both caps for FY2015.

Contracting-Corner-CTAApproximately 175,000 petitions were filed, which is more than double the number of available visas, according to Staffing Industry Analysts.  USCIS will conduct a random selection process (i.e., lottery) to determine which of the petitioners will receive the limited number of visas . Petitions applying to the 20,000 advanced degree cap will be selected first.  Any advanced degree petitions that are not selected in the first lottery will then be entered into the selection process for the 65,000 cap.

It is unknown when the lottery will take place. First, USCIS must complete the intake process. Filing fees will be refunded for any rejected petitions unless they are found to be a duplicate filing.

USCIS will continue to accept petitions for those exempt from the cap, including current H-1B workers who had been counted toward a previous cap.  These workers can file petitions to extend the amount of time they can remain in the United States, to change the terms of employment, to change employers, or to work concurrently in a second H-1B position.

When Can Recruiters Offer Contractors Per Diem?

 	SONY DSCPer diem is often an important negotiating factor that can make or break whether a candidate accepts a contract assignment.  It is important, however, that recruiters use this allowance with caution and follow the rules set by the Internal Revenue Service (IRS).

Per diem is a reimbursement allowance paid to an individual for lodging, meals, and incidentals for travel away from home when performing services as an employee. Paying a per diem rate to a worker for business travel is often preferable to reimbursing them for the true and actual costs of the expenses they incur.

Placements outside home statePer diem is more common in contract assignments because the employee is often working in a location far from their permanent residence, so they must  maintain a second residence during their contract period. To qualify for full per diem, the contractor must maintain two residences during the contract assignment. The second residence could be an apartment, hotel, or other lodging. Per diem does not apply if they are living with a family member or friend during the assignment.

A common myth about per diem is that it can be given even if the contractor is permanently relocating their family to the new work location. In this situation, they will likely not be entitled to per diem because they are only maintaining one residence and therefore not duplicating expenses.  For more information, please see IRS Publication 463 at

From a recruiter’s perspective, if a contractor receives full per diem when they shouldn’t, it opens both your client company and the contractor up to IRS scrutiny and audits. That is why it is important to educate both your clients and candidates on the proper application of per diem.

This article is for informational purposes only. It should not be construed as legal or tax advice.


White House Seeks to Make More Workers Eligible for Overtime

A recent presidential decree presents future implications for employers and for recruiters who place contractors.

President Obama has issued a memorandum directing the Department of Labor (DOL) to update the regulations surrounding who can legally be considered exempt from overtime. The end goal is to make fewer people ineligible for overtime.


The Fair Labor Standards Act (FLSA) requires that most American workers be paid at a rate 1.5 times their regular pay rate for any hours worked over 40 in a workweek. Some employees who work in executive, administrative, and professional positions can be considered exempt from overtime.  They must meet the “minimum salary” and “duties” tests, as defined by the DOL, to qualify for these “white collar exemptions.”

In his memorandum to Secretary of Labor Tom Perez, who oversees the DOL, President Obama stated that the white collar exemptions “have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to minimum wage.” Therefore, he asked the DOL to:

  1. “Modernize and streamline” the overtime regulations to make them more consistent with the original intent of the FLSA
  2. Address the changes in the modern workforce
  3. Make them easier for both employers and workers to understand

Contracting-Corner-CTAWhile it is too soon to tell what the exact changes will be, it is certain they will include an increase to the minimum salary requirement.  A Fact Sheet released by the White House states that this minimum has failed to keep up with inflation, only having been changed twice in 40 years. The minimum salary requirement to qualify as exempt is currently $455 per week, which is below the poverty level for a worker supporting a family of four.  It can even cause someone to be paid under minimum wage if they had to work 65 or more hours per week and were only paid the minimum salary required by the white collar exemptions.  The Fact Sheet also points out that, due to that salary threshold, only 12% of Americans qualify for overtime, compared with 65% in 1975. As a result, experts predict the salary threshold could be increased to as high as $1,000 per week. 

The “duties test” will also likely be updated.  Each exemption has its own standards for what constitutes an exempt employee based on the duties they perform. For example, to qualify for the Executive Exemption, the worker’s primary duty must be managing the enterprise or a department or subdivision, and they must regularly direct the work of at least two other full-time employees. It is expected that those duties tests will become more specific, possibly dictating an exact percent of time a worker must spend doing certain duties to qualify.

This is an important issue for employers and for recruiters, even if you outsource the employment of your contractors to a back-office service. Here are the main action items for recruiters:

  1. Keep up-to-date on the issue. The changes will not happen overnight.  It took two years for the DOL to decide on changes for the last revision in 2004. However, you will want to keep this issue on your radar so that when the regulations are updated, you will be ready.
  2. Communicate with clients. If you have exempt contractors placed at any of your client companies, you will want to make your clients aware of this. When the changes come, you may need to increase some contractors’ salaries or move them to non-exempt.  Both scenarios have the potential to increase your clients’ costs.  They will probably appreciate the heads up because they will have to apply the new regulations to their direct staff as well.
  3. Make sure you are following current federal AND state laws. If you have contractors currently classified as exempt, you of course want to make sure they qualify under the DOL’s current regulations. But it’s not just the DOL you have to worry about.  Some states, such as California and New York, have different rules. For instance, in California, the salary of an exempt worker can be no less than twice the minimum wage for a full-time employee.  The minimum is currently $640 but will increase to $800 in 2016.

The DOL is expected to release proposed regulations as early as this summer, so we should have a better picture then of what they will look like once they are updated. We will be sure to keep you posted as this issue continues to develop.

This article is for informational purposes only and should not be considered legal advice.

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Contract Staffing Breaking More Records

Opportunity this way.Made in 3d softwareAfter a record-breaking 2013, contract staffing continues to break records as employers build their businesses around blended workforce models.

According to Bingham Consulting Professional’s Monthly Employment Review for February, “temporary help services”  added 24,000 jobs, reaching an all-time high of 2,800,300.  This represented a 8.9% increase over February 2013.  Additionally, temporary help services (aka contract staffing) hit a record market share of 2.0336, edging out the previous record market share of 2.0288 established in April 2000.

Contract Training KitThese numbers support what we have said numerous times on this blog and elsewhere: the increase in contract staffing since the recession is not a short-term trend. Companies are using contractors as part of a long-term business strategy, building blended workforce models around them. This is due in large part to the economic uncertainty that still prevails in light of ever-increasing employment regulations (most notably Obamacare) and political instability. Employers are looking strategically at each job opening to determine if a direct hire is the best fit. Often they are finding that a contractor is better suited, especially in the following situations:

  1. Hiring freezes – Contractors can be brought in because funding for contractors typically comes from a different budget.
  2. Special projects  - Especially if those projects require special skills that won’t be needed when the project is complete.
  3. Difficult hiring decisions – Companies can try candidates on a contract-to-direct basis to ensure they are getting the right fit, or they can utilize a contractor in the interim while continuing to look for a direct hire.
  4. Sudden surges in business – A company may need additional help if business suddenly picks up, but if they are not sure how long the surge will last, they probably won’t want to add to their overhead permanently.  Contract staffing allows them to quickly bring on the help they need and just as quickly reduce their staff if the need passes . . . without the ugly layoffs that often accompany a reduction in force.

These are just some of the most common reasons, but the point is that companies want and need contractors.  If you want to be seen as a true staffing partner, you will want to be sure that you are offering contract staffing services and are able to meet ALL their staffing needs.


High H-1B Visa Demand for IT Contractors Predicted

High-H-1B-Visa-Deamnd-for-IT-Contractors-Predicted-225Experts are once again expecting a huge rush for H-1B visas as the time to submit petitions approaches.

The U.S. Citizenship and Immigration Service (USCIS) will start accepting petitions for H-1B visas subject to the fiscal year (FY) 2015 cap on April 1. A limited number of H-1B visas are issued each year to allow employers to hire foreign workers with specialized knowledge or technical expertise, such as scientists, engineers, or computer professions. The caps remain the same as last year: 65,000 for those with bachelor’s degrees and another 20,000 for workers with master’s or higher degrees obtained at universities in the United States.

Training CenterThose caps are expected to be met within the first week of the filing season. In fact, immigration attorney Marc Klein told CNBC that at least 160,000 applications are expected for those 85,000 available visas.  If he’s right, this year’s applications will exceed 2012′s petitions (134,000) and those submitted for 2013 (124,000). The USCIS will use a computer-generated selection process, or lottery, to determine which of the submitted petitioners will be granted the available visas.

Demand is expected to be especially high for foreign workers who can fill contract Information Technology (IT)positions. Hiring is hot in the IT sector, and due to the nature of the work, much of that hiring is being done on a contract basis. Therefore, competition for highly skilled technology contractors is fierce, forcing companies to look outside the United States for contract talent. Klein says he is also processing H-1B applications for accounting, advertising, and architecture positions.

At the urging of the technology community, there has been talk in Congress about increasing the cap, but it has stalled due to the larger debate on immigration reform in general. In the meantime, companies will continue to clamor for the limited number of H-1B Visas currently available for FY 2015.



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Latest Obamacare Changes Affect Reporting Requirements for Employers

Latest-Obamacare-Changes-Affect-Reporting-Requirements-for-Employers-3716These days, it seems like if you blink, you will miss a new change to the Affordable Care Act (ACA, or Obamacare). In just the past week, two major changes have occurred:

  1. Non-compliant plans can continue to be renewed under a new extension.
  2. The “final” reporting regulations were released, simplifying the ACAs reporting requirements.

20 marketing tips 2The first of these two changes deals with plans that were cancelled last year because they did not meet the ACA’s minimum essential coverage requirements.  Millions of Americans received cancellation notices from their insurance carriers, drawing criticism of President Obama who had promised that, under the ACA, Americans could keep their current healthcare plans if they liked them.  To soften the blow, the President announced in November that health insurance issuers could  renew the non-compliant policies through 2014 under a transition relief policy.  Last week, it was announced that the policy had been extended, allowing plans to be renewed through October 1, 2016. For more information, please see the announcement from the Centers for Medicare & Medicaid Services.

The final reporting regulations refer to the reports insurance carriers and employers will have to file to show that ACA-compliant coverage is being offered when required under the employer mandate.  Reports regarding coverage offered in 2015 will be due early in 2016.

The ACA will require insurance carriers to complete Minimum Essential Coverage (MEC, or Section 6055) reporting, while employers with more than 50 full-time employees must perform Applicable Large Employer (ALE, or Section 6056) reporting. Self-insured employers must complete both.  The final regulations combine both sections onto one form so that self-insured employers will only have to complete one form.  The final regulations also simplify the information employers must provide under section 6056 of that form.  Additionally, they provide a “phase-in” period for 2015 only that simplifies the information even further for employers who can certify that they offered qualifying coverage to at least 95% of their full-time employees. For more information, see the U.S. Department of Treasury’s Fact Sheet on the final regulations.

The employer mandate provision of the ACA is the portion of the law that has received the most attention, but these recent changes show that there are a number of other provisions and requirements that you need to be aware of. While these particular changes affect mainly individuals and large employers, Obamacare contains provisions and requirements that affect even the smallest employers. If you have even one in-house employee or one contractor on your payroll, you need to keep up with all the latest developments on this complex law.  We will continue to do our part to keep you up-to-date.


Independent Contractor Misclassification Crackdown Intensifies with New Initiative

Recruiter-beware-independent-contractor-misclassification-crackdown-intensifies-6612The stakes keep getting higher for companies that misclassify workers as 1099 independent contractors (ICs) when they should be W-2 employees.

The 2015 Fiscal Year Budget, which was recently released and takes effect in October 2014, allocates $14 million to the Department of Labor (DOL) for preventing and detecting the misclassification of workers as ICs.  While $4 million will go to hiring more investigators, the bulk of the money ($10 million), will fund grants to help individual states identify misclassification and recoup unpaid taxes. This is no surprise. Through its Misclassification Initiative, the DOL has signed Memorandums of Understanding with the IRS and several states agreeing to share information about possible misclassification. As a result of the Initiative, the DOL has already collected over $18.2 million in back wages for more than 19,000 workers.  According to Secretary of Labor Thomas E. Perez, this is a 97% increase in back wages since the implementation of the Initiative.

Contract Training KitRecruiters often receive pressure from both companies and candidates to use the IC classification due to the tax advantages that can be enjoyed by both parties. The IC classification will likely become even more popular with clients when the employer mandate of the Affordable Care Act (ACA) kicks in. But it’s not up to the client, candidate, or recruiter. Proper classification is determined by the IRS guidelines, which can be reviewed at

The DOL’s Misclassification Initiative has significantly increased the legal and financial risks of misclassification, especially for companies that could now be hit with fines, penalties, back taxes, back wages, etc., from several agencies at once. Don’t let your clients fall into this trap. If they have ICs, encourage them to audit their workforce against the IRS guidelines. If they have workers that are misclassified, you can help them by offering to convert those ICs to W-2 employees and outsource their employment to a contract staffing back-office. That way, your clients can still escape the administrative and financial burdens associated with employing the workers without the risks involved with making them ICs.

For more information on this important issue, read our recent article in our Contracting Corner newsletter.

This article is for informational purposes only and should not be considered legal advice.


How Will Obamacare Impact Hiring and Recruiting?

Water drops cause the shape on blue background.It seems like there is a sudden resurgence in the buzz surrounding the Affordable Care Act (ACA) despite the fact that the recent “final” employer mandate regulations effectively delayed the mandate again. Maybe it’s because workers are now required to carry insurance. Maybe companies are simply being proactive. Whatever the reason, we are finding more recruiters are wondering how this will affect hiring and their recruiting business.

Marketing docs CTAIn a recent report, the Congressional Budget Office (CBO) estimates the ACA could lead to a decrease of 2.5 million jobs by 2024.   They are attributing the bulk of those losses to people who voluntarily leave the workforce because they no longer have to rely on a full-time job to obtain health insurance.  Obamacare created The Marketplace where they can shop for insurance, and it also expanded the Medicaid program.  But the CBO expects the employer mandate to also play a role in the decrease of jobs. The employer mandate will require employers with 50 or more full-time or full-time equivalent employees to provide healthcare insurance that provides “minimum essential coverage” to full-time employees.   The CBO expects employers to reduce their workforces or cut hours to avoid the penalty.  While this has not yet materialized, the CBO noted the penalty for not offering coverage does not kick in until 2015 (and even later for some employers, based on the employer mandate final regulations).

This is not what any recruiter wants to hear. But it’s not all doom and gloom. Many companies will be unable or unwilling to cut hours or put off hiring because doing so would likely hamper their ability to grow. Instead, they will turn to contractors. As a result, Obamacare is going to further drive the growth of contract staffing.  Some recruiters are already seeing contractors working longer assignments because they are no longer being used just to complete a short-term projects. Instead, they are being used as part of a blended workforce model as we discussed in our most recent Contracting Corner. In this model, companies maintain just a small core of traditional employees who are the key personnel with the knowledge and experience that can make or break the business. That core is surrounded by a larger outer ring of contractors who handle the day-to-day tasks and critical projects.

Many recruiters we work with are positioning themselves to take advantage of this trend. They are actively promoting their contract staffing services and learning all they can about the ACA so they can serve as a resource for their clients.  And they are aligning themselves with a contract staffing back-office that can handle all of the financial, administrative, and legal tasks, including providing ACA-compliant healthcare coverage, so the recruiters can concentrate on helping their clients navigate the ACA and its employer mandate. Recruiters who are wondering how they will be affected by this law and how to respond would be wise to take their lead.

Only time will tell what the true impact of Obamacare will be, but by establishing yourself as a partner to your clients who are grappling with this complex law, you can help ensure a positive outcome for both you and them.