I this episode, we’re going to take an in-depth look at travel nursing pay packages from the agency’s perspective. Now, you may be wondering why we would do this…who cares about the agency’s perspective? Just tell me what I need to know about my pay package. Well, many of the most important questions that travelers have about pay packages revolve around the agency’s side of the equation. Moreover, virtually all of the mysteries that surround travel nursing pay packages emanate from the lack of information available about the agency’s side of the equation. [Please note that this is a transcript of a podcast episode. As such, grammar and spelling is not optimized for written content.]
So understanding the agency’s side of the equation will help solve most of the mysteries involved with the issue. It’ll also help us understand some of the difficulties recruiters can face in quoting accurate pay rates or even quoting a pay rate at all for a particular assignment. Most importantly, understanding pay rates from the agency’s perspective will help us gain a deeper understanding of pay packages and ultimately help us become better negotiators.
Our discussion actually begins with the agency’s job orders. Agencies typically work with hundreds if not thousands of facilities. Now, many of these facilities are a part of the same organization, for example, Kaiser or HCA, so having a contract with that one organization opens the door to many different hospitals. Other times, an agency can get a contract with a Vendor Management Service that might give them access to tons of different facilities through one contract.
Now, as we’ve mentioned many times before, different hospitals have different bill rates. Moreover, different hospitals have different rules that affect the costs involved with the contract and thereby affect the pay rates. We’ll talk more about this later in the podcast, but for now, the point is that agencies are dealing with hundreds of job orders from hundreds of clients all many of them with different bill rates and circumstances that need to be tracked in order provide accurate pay quotes.
All agencies have this in common. But this is the point at which they may diverge and take different approaches to dealing with things. You see, agencies have to have a way to keep all of this information in order so that they can go about generating accurate pay quotes.
Some agencies employ the services of applicant tracking software which include features for just this purpose. There are several companies that provide these services for a monthly price. Two of the most popular are called BlueSky and API.
The way these things work is that agencies are able to enter new clients into the system. These are the hospitals. So when the agency gets a new hospital, they enter that hospital’s data into the system. Part of the data that the system collects is the bill rate. It can also collect various other costs associated with this particular hospital.
Now, one the hospital is in the system, the agency can then create a job order for that hospital. The job order will ask for the basic information regarding the assignment, like the shift, the start date and end date and various other time related details as well as the specialty.
Once the job order is entered, the agency can calculate a rate for the job by using another feature in the applicant tracking system called a “Rate Sheet”. To do this, the agency representative find the job order in their system, and opens up the rate sheet for that particular job order.
Think of the rate sheet like a spreadsheet, kind of like a Microsoft Excel spreadsheet. It includes everything the agency needs to calculate a rate. For starters, it automatically pulls in all the information it already has available from the job order and the hospital’s client record. So, as long as everything has been entered correctly, the rate sheet will already include the shift hours, the number of weeks in the contract, the bill rates associated with the contract, and the various costs associated with the contract.
At this point, the agency representative can start fiddling with the pay related numbers. For example, they can add a taxable base rate, a lodging stipend, an M&IE stipend, a travel stipend and anything else they want. If they need to add some new pay variable, there’s a feature that lets them add as many new variables as they want.
Now, as they add the pay related costs, the rate sheet runs calculations in real time so that the agency can see how the profit margin is being affected. For example, if they add $20 per hour as a base rate, then that drops the profit margin accordingly based on the bill rate for the contract. This allows the agency to fiddle with the pay variables in order to get to a profit margin that works for them. So they add a little here, subtract a little there and they ultimately arrive at pay rate for the assignment.
Now, I think it’s fair to say that most agencies are going to have some form of rate sheet that they use to calculate their pay rates. They might not always be this sophisticated though. For example, you could accomplish the same thing with an excel spreadsheet, it’s just that the automated features that we discussed wouldn’t be available which would make it a really time consuming process for the agency to run the rate.
So that’s one difference that agency’s may exhibit when it comes to calculating pay packages. Another difference is that some agencies give their recruiters a lot of leeway when it comes to negotiating pay rates with travelers while other agencies don’t. So at some agencies, the recruiter is the one who is calculating rates and they have leeway as to what they can offer…they might have some guidelines that that they’re supposed to stay within, but they have a lot of leeway nonetheless.
At other agencies, it seems as though recruiters have very little input on the pay rates. Instead, the pay rates are set some other way, perhaps by a manager or some predefined formulae. Now, the reason I say this is because I come from an agency where the recruiter had a lot of leeway and when I write blog posts about my experiences, a lot of recruiters indicate that their companies operated differently.
So this is important for travelers to know because you may come across some agencies that seem very open to negotiating and others who are not. This may be one reason why. Some agencies just prefer to stay away from negotiating.
Now that doesn’t mean that they offer worse or better rates. And that brings us to our discussion of agency profit margins. For example, let’s consider two agencies that seem to be unwilling to negotiate rates and instead, they just tell what the rates are and when you try to negotiate, they don’t budge. Well, one agency might take the approach that they want to be competitive in the market and they just always offer a pay rate based on a profit margin that they know makes them competitive. So if you’re working with that agency then you’ll probably be getting a good deal. On the other hand, the other agency might take the approach that they want to have higher profit margins, period, end of story. So they quote all their rates at a profit margin that is higher for them and therefore lower for the traveler. In which case, you’re not getting a great deal.
It’s important to point out that this same thing can happen between recruiters when they have leeway with the rates. My experience indicates that when recruiters are given leeway, some of them aren’t willing to go below a certain profit margin, while others aren’t.
At this point, you may be wondering, what’s a profit margin and how does it even get calculated? So that’s what we’ll talk about next. Profit margins are very important to travel nursing agencies, just like they are to any other business. There are two common measures of profit margins, gross profit and net profit.
When we talk about agency profit margins, we’re typically talking about their gross profit margins. Why? Because gross profit margins are what the agency uses with they’re calculating the pay rates. We discussed them briefly in episode 7 when we talked about 7 pitfalls to avoid when discussing travel nursing pay.
To recap, a gross profit margin is defined as the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.
The important part is that it’s the proportion of money left over after accounting for the cost of goods sold. So for agencies, gross profit is the proportion of money left over after accounting for all the costs related to the traveler. As much as I hate to say it, travelers are the quote-unquote goods sold by travel nursing agencies.
Now, profit margins are displayed as percentages. That’s what the term “margin” refers to in economics. For example, if the bill rate for a particular job was $65 per hour, then a 20% profit margin would be $13 per hour. As we discussed in episode 7, that doesn’t mean that the traveler is going to be left with a pay package that is worth $52 per hour in this example…65-13 is 52. That’s not the case. That’s because there are a host of other expenses that get attributed to travelers beyond just the pay package. Let’s take a look at some of those expenses.
The first set of expenses are the payroll taxes. Many people don’t know this, but employers pay taxes on their payroll much the same way as employees do. At the federal level, employers and employees split the FICA taxes. Those are the taxes that go to cover Social Security Benefits and Medicare. Employers also pay for various state taxes the same way, for example worker’s comp, disability and unemployment costs. These taxes vary from state to state and some states don’t have them.
So this expense is tied to the taxable hourly rate. Remember, we only pay taxes on the taxable income. So the higher the taxable hourly rate, the higher the tax cost will be. This is one reason that many agencies offer to pay lower taxable hourly wages, so that they can avoid this cost. They can use the savings to pad their profits, or use it to increase their compensation packages to make them more competitive. As we’ve mentioned before though, hourly wages that are really low, like $10 per hour, are a tax violation, it’s just a matter of whether or not the agency gets caught.
Another cost that agencies have to attribute to their travelers is the cost of non-billable orientation hours. In the contract between the agency and the hospital, the agency often agrees to let the traveler work at the hospital for a specified number of hours without billing the hospital, so that the traveler can get oriented. It’s sort of a good faith gesture on the part of the agency. This is typically anywhere from 4 to 12 hours depending on the contract. That’s a significant portion of money. With a $65 per hour bill rate, it can cost anywhere from $260 to $780.
Another potential cost is the billing fee that is typically charged by the Vendor Management Service. Remember that vendor management services are companies that hospitals use to help them manage all the travel nursing agencies they work with. Not all hospitals use vendor management services, but when they do, those services often take a cut of the bill rate. It’s usually around 2% of the bill rate.
Agencies also need to account for any costs related compliance and credentialing for the traveler. So the cost of physical exams, drug screens, or any licenses or certifications that the agency covers must also be factored in.
Now, this is where we get into a little gray area. You see, some agencies factor these costs in during the pay rate calculation process and others don’t. Those that do factor it in will typically add what it is commonly called a Standard Burden” as a cost to all their pay rate calculations. For example, they might factor in a cost of 1.5% or $300 for all of these variables.
If an agency doesn’t factor these costs into their calculation, then it doesn’t necessarily mean that they pay more. Instead, they may require that all their pay packages have a higher gross profit margin than the agency that does factor these costs in.
This is important to know because you’ll find many recruiters who offer convincing arguments that they do indeed provide “free” benefits like paid time off and certification reimbursements. As proof, they’ll point to the fact that these items don’t get accounted for in their pay rate calculations. But if they’re taking a higher profit margin than a company who isn’t providing these things for quote-unquote free, then it’s all a wash in the end. This is why we stressed the importance of breaking pay packages down to hourly figures in episode 3 in order to properly compare them.
Okay, so with all of that in mind let’s discuss the kinds of profit margins that agencies operate with. It’s fairly common to hear recruiters and those who are willing to discuss the issue openly say that agencies operate with profit margins between 20%-25%. My experience indicates that this is pretty much the case.
Additionally, we can look at the profit margins of the biggest companies in the business because these companies are publically traded on one of the stock exchanges. As such, they’re required to publish their quarterly earnings and financial statements. Companies like American mobile and Cross Country routinely report profits between 25% and 30%.
Now, these companies may be earning money in other ways outside of travel nursing. For example, AMN staffs physicians and also does permanent placements, so the profit margins on that business could be higher than it is for their travel nursing business. Or, maybe these agencies do indeed pay less than the smaller and mid-sized companies in the market. That would certainly validate what we hear from travel nurses who have worked with them in the past. As I’ve said before though, my experience indicates that these companies actually offer competitive pay rates.
In any case, the point is that agencies aren’t reporting huge profit margins. Compared to other industries, the travel nursing industry operates an relatively low profit margins. For example, technology companies like facebook or google have margins that are 60-70%. A company like Fastenal, which provides goods and services for the commercial construction industry typically has profit margins of 45-55%. Travel nursing companies are down there with Retail stores and others at the lower end of the profit margin spectrum. Even within the staffing industry, travel companies have lower margins. Some of the biggest staffing companies like Robert Half have margins that are 35-40%.
Now, I’m not saying this so that you go soft on travel nursing companies. As you know, I’m a huge proponent of diligently negotiating your pay rates, especially when the job market is hot like it is now in May of 2015. A difference of 2 -5% can really matter for you. We’re talking about thousands of dollars in annual pay. So we’ll talk more about negotiating pay in future episodes. If you want to get a head start, we do have free eBook on negotiating travel nursing pay and you can get your copy at blog.bluepipes.com/negotiate…
For now, we’re providing this information so that you know what agencies are working with. As an industry, they operate at the lower end of the gross profit margin range.
With that in mind, they also have several challenges that they face when quoting rates to their travelers. We’re going to take a look at some of those now.
First, travelers often understandably complain that agencies are not open and up-front about their pay rates. Travelers seem to want to see the pay rates posted with a job advertisement. My guess is that agencies would love to do this, but there are several problems they’re faced with. First, travel nursing jobs are very fluid, they open and close quickly. Second, it takes a little time to run a rate calculation for an assignment. The systems don’t just spit them right out. Third, it takes time to write out the description. Finally, agencies have hundreds, sometimes thousands of open jobs, so getting all of this information out for their jobs is pretty much impossible.
Another problem that agencies face is that different travelers prefer to have rates quoted in different ways. This makes it difficult for agencies to advertise their rates even in the one-off type situations. For example, when a recruiter posts a job in LinkedIn group, they might post the pay rate as including company provided housing and $1500 a week in net pay. Some travelers prefer it this way and others hate it.
Another problem is that agencies don’t always know how much housing will cost in a particular location. And finding out requires a lot of time to research. So they don’t want to invest the time unless they have a candidate who is genuinely interested in a particular job. Doing the research for tons of different jobs that may or may not be open tomorrow doesn’t seem like a very wise use of their time.
Sometimes, the agency might not have the state taxes added into their rate sheet calculators. If an agency hasn’t placed a candidate in a particular state, then they might have never entered the information. They would have to research this first, then add the figures to their system in order to provide an accurate rate.
Finally, it’s sometimes true that agencies don’t have a bill rate for a particular assignment. This should be quite rare, but it does happen. Now, they can almost always obtain the rate, but it’ll take some work on their part. Again, they may not want to invest the effort until they have a candidate who is genuinely interested in the assignment.
The main point is that agencies have all of these jobs coming at them from different sources and they’re constantly changing. They open and close really quickly. So it’s difficult for them to make a huge time investment in calculating rates and publishing them in all the different ways that travelers would like to see them.
Finally, you’ll hear many agencies state that they can’t provide a rate unless they know the traveler’s unique circumstances. This is actually in-line with what we’ve just described. Each traveler wants and needs different things in terms of housing, licensing, credentialing, travel arrangements and other things. So it’s often true that one compensation package doesn’t fit all travelers. For these agencies, they’re thinking that it seems shady when they post a rate and then a traveler calls and expresses interest in the job, but asks for something different than was in the rate and the agency has to say that they can provide that, but it will change the rate. These agencies don’t want to be in that situation. And it also could be wage recharacterization. Technically, they’re not supposed to be moving money around from non-taxable to taxable. It would be difficult for them to get caught doing this but that doesn’t make it any less against IRS rules.
So to sum up this episode, remember that agencies are typically calculating their pay packages with rate sheets, which are calculators designed specifically for their unique circumstances. They take every cost attributable to the traveler into consideration when calculating their gross profit margins and they like to stay within a standard 20-25% profit margin. It’s true that you can get agencies to give you a better deal in some cases and some agencies given their travelers less which means they’re taking higher profit margins. For travelers, it’s always important to negotiate because not doing so could cost you thousands of dollars per year. You can get our free eBook on negotiating at blog.bluepipes.com/negotiate and we’ll link to it in the show notes. Finally, remember that agencies face some pretty difficult challenges when it comes to running and advertising their pay rates which is why there is little uniformity in the industry with respect to rates.
As always, if you have any questions or would like to share your experiences on this topic, then you can visit the show notes page and post in the comments section. We’ll also have helpful links there as well. The show notes for this episode will be at blog.bluepipes.com/episode14.
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The post TTATN 014: Travel Nursing Pay From the Agency’s Perspective appeared first on BluePipes Blog.