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Managing and Negotiating Labor Rates in the Complex World of External Workers Beeline Benjie Hanson Director of Consulting sig.org/eval
Managing and Negotiating Labor
Rates in the Complex World of
External Workers
Beeline Benjie HansonDirector of Consulting
sig.org/eval
October 17, 2016 2Beeline.com Confidential & Proprietary
October 17, 2016 3Beeline.com Confidential & Proprietary
Managing and Negotiating Rates in the World of External Workers
Presenter:
Benjie Hanson, CCWP
Director – Beeline Consulting
October 20, 2016
October 17, 2016 4Beeline.com Confidential & Proprietary
About Beeline
October 17, 2016 5Beeline.com Confidential & Proprietary
Summary
In the ever-growing external labor market, managing rates is a complex and frustrating
component of any workforce resources procurement assignment. Understanding how
the staffing market derives its revenue and compensates its resources, along with the
complexities of markup, rate cards, market rates, and statutory loads, is essential
for negotiating the best deal, while simultaneously ensuring quality and efficiency.
In this session, Benjie Hanson, Director - Beeline Consulting will walk you through the
multitude of rate management strategies, the external workforce marketplace, and what
works and does not work from a procurement and negotiation strategy.
Attendees will learn:
• How to improve sourcing success through the application of custom rate cards.
• How to apply robust and multi-faceted analysis of rate structures and rate strategies.
• How a comprehensive job taxonomy can help you source the right talent at the right
price, with the right quality.
• How to use data to help you drive better deals and create more value for your
program.
October 17, 2016 6Beeline.com Confidential & Proprietary
External Labor – Complex Procurement
• People are not commodities
• Easy to manipulate the product
• Multiple rate strategies
• Multiple supplier models
• Relationship driven
• Multiple Layers
• Propensity to perform is hard
to measure
• Bill rate, Market Rate, Pay
– Gross Margin, Statutory Load, Markup
October 17, 2016 7Beeline.com Confidential & Proprietary
Topics
• Industry
• Staffing Operations
• Rate and Taxonomy
• Sourcing Strategy
• Rate Models
• RFP in Brief
October 17, 2016 8Beeline.com Confidential & Proprietary
Industry
• Extended Workforce
• Trends from both
Market and Suppliers
October 17, 2016 9Beeline.com Confidential & Proprietary
Staffing Industry
October 17, 2016 10Beeline.com Confidential & Proprietary
Staffing Industry – Supplier
2016 North American Staffing and Recruiting Trends Report
October 17, 2016 11Beeline.com Confidential & Proprietary
Staffing
Ops
• Recruiting
• Compensation models
• Business operations
October 17, 2016 12Beeline.com Confidential & Proprietary
Supply and Demand
October 17, 2016 13Beeline.com Confidential & Proprietary
Staffing 101
REQ
ReceivedPrioritized Assigned Recruit Present Monitor
• Job Description• Requirements• Skills• Rate• Start/End• Supplier Calls /
QA
• Phone Calls• Hall Walking• Resume Floats• Inside Information Sales
Acct Mgmt.
Recruiter
Challenges• Requirements are rarely
accurate• Generic jobs are used without
clarification• Communications are loose or
targeted• Feedback is poor or non-
existent• Opportunities
October 17, 2016 14Beeline.com Confidential & Proprietary
Staffing 101
REQ
ReceivedPrioritized Assigned Recruit Present Monitor
• Job requirements
• General skills,
description, soft skills,
personality
• Relationship
• Contact, inside
information, feedback
• Client type
• Procurement
environment
• Profitability
• Gross profit, other
services, total account
value, new business
opportunities
Response Rate
60.2%
• Consistent feedback
• Level playing field
• Supplier competition
• Scorecards
• Monitored consistent contact
Suppliers in many markets varied by
both region and success of the
suppliers branch or company can
have more REQs than capability of
fill.
October 17, 2016 15Beeline.com Confidential & Proprietary
Staffing 101
REQ
ReceivedPrioritized Assigned Recruit Present Monitor
Based on prioritization, supplier recruiting model, and sourcing type your REQ can end up in one or many of the following models
“A” REQs get specialized, localized, and client culture resources“B” falls under second tier or localized capacity models“C” is pure volume and capacity
Call center
Lead
RecruiterLocal Office
Pool
C
BA
October 17, 2016 16Beeline.com Confidential & Proprietary
• • The closer the recruiter can get to a relationship connection the more confidence in success
• • Changing or clarification of requirements elongates the process
• • Majority of candidates fall within a submit range of 3-5 days
Staffing 101
REQ
ReceivedPrioritized Assigned Recruit Present Monitor
ATS
Referrals
October 17, 2016 17Beeline.com Confidential & Proprietary
Staffing 101
REQ
ReceivedPrioritized Assigned Recruit Present Monitor
Resumes are frequently
tailored to the job, skills,
and requirements
• Target submit to
hire is 3/1
• Not all
candidates know
they are being
submitted
• Preferred route
is to “sell” not
submit
• Presprimary
entation is a
factor in success
October 17, 2016 18Beeline.com Confidential & Proprietary
Staffing 101
REQ
ReceivedPrioritized Assigned Recruit Present Monitor
• Feedback loop
• Requirements updates
• “Re” Recruiting
• Candidate retention
• Onboarding
Average time
to source: 37
days
~50% of that
time is spent in
HM review and
selection
October 17, 2016 19Beeline.com Confidential & Proprietary
Supplier Compensation and Performance
Account Manager
• Revenue
(Billed/Collected)
• Gross Profit
• Gross Margin
• Net Operating
Profit
• Product Mix
• Number
Placements
Selling Recruiter
• Revenue
• Gross Profit
• Product Mix
• Number
Placements
• Fill Rate
• Turnover
Leadership
• EBIT
• Revenue
• Gross Profit
• Net Operating
Profit
• Economic Value
Add
• Number
Placements
Customer Forecast Financial
Note: While a number of measures are shown, the actual measures typically account for 2-4 per role.
Understanding your suppliers’ key performance indicators
greatly increases your ability to alter behavior, increase
performance, and ensures your sourcing environment is set
up for mutual benefits to all parties
October 17, 2016 20Beeline.com Confidential & Proprietary
Rate
• Rate structure
• Rate strategy
October 17, 2016 21Beeline.com Confidential & Proprietary 21
Rate Model
Pay Rate
Gross Margin
Statutory Expenses
Mar
k U
pOperating Expense & Profit
FUTA, SUTA, FICA, WC
Direct Pay to the EntityClassified by Resource Type (i.e.; W2, CTC, 1099)
BIL
L R
ate
Stat
uto
ry
Load
BILL RATE
October 17, 2016 22Beeline.com Confidential & Proprietary
Impacts on Pay Rate
• Length and confidence of engagement
– Longer engagements can decrease costs and improve retention
• Redeployment
– Bench resources are rare excepting specialty business models but inter
assignment short term can decrease bill rates
• Location
– Travel and cost of living
• Company (Client)
– Size and desire
• Project and Role
– Fit, career goals
• Technology and Skillset
– Emerging technology, hard to find, high demand
• Sourcing environment
October 17, 2016 23Beeline.com Confidential & Proprietary
Statutory Expenses (also called Burden Rate)
Statutory expense refers to any special assessment tax or other charge that is imposed by federal, state or local taxing authority or other governmental entity.
Burden Rate = (FUTA+SUTA+FICA+WC)
• FUTA
– Federal Unemployment Tax Authority
– $7K Wage cap, varies by state on %
• SUTA
– State Unemployment Tax Authority
– % varies by state
• FICA
– Federal Insurance Contributions Act
– Social Security and Medicare
– Paid by both employer and employee
• Workers Comp Insurance (WC)
– Insurance covering job related injury and illness
– Fee varies by job function and state
Social Security – 6.2% up to $118,500Medicare – 1.45%
Fee Ranges - .5% to 3.5% (avg 1.5%)
Varies by State (Avg for 2015 is 2.52%)
All Other States 0.60%
New York 2.10%
North Carolina 2.70%
South Carolina 2.70%
Connecticut 2.80%
Kentucky 2.80%
Indiana 3.30%
Ohio 3.30%
California 3.50%
October 17, 2016 24Beeline.com Confidential & Proprietary
Gross Margin Trends
Gross Margin is one of the most relevant and reliable ways to benchmark your overall sourcing efforts.
(Bill-(Pay*(1+Statutory Rate)))/Bill
October 17, 2016 25Beeline.com Confidential & Proprietary
Sourcing
• Human capital industry
• Marketplace
October 17, 2016 26Beeline.com Confidential & Proprietary
What you call them can impact your rate
October 17, 2016 27Beeline.com Confidential & Proprietary
Taxonomy
• Taxonomy is the structure of how your job titles, roles, skills are aligned in your environment – essentially a catalog for labor
• Job titles should reflect the market and not internal terminology
• There should be clearly defined requirements for each role;
– Years of experience
– Recently of Experience
– Top 3 Skills (i.e., PMP, Technology specific)
• Project Coordinator
– Level 1
– Level 2
• Project Scheduler
– Level 1
– Level 2
• Project Manager
– Level 1
– Level 2
• Technical Project Manager
– Level 1
– Level 2
• Program Manager
– Level 1
– Level 2
Project Management
Map to the market and
not internal titles
October 17, 2016 28Beeline.com Confidential & Proprietary
Sourcing Strategy
October 17, 2016 29Beeline.com Confidential & Proprietary
Rate
Models
• Human capital industry
• Marketplace
October 17, 2016 30Beeline.com Confidential & Proprietary 30
Tactics for managing rates
• Rate Card
– Flat Rate – Mapped to a job title, regardless of specific skill, a rate is applied
(PM=$75 /hr)
– Supplier contracted rate card
– Hidden – A job REQ is provided to the supplier but no rate value is shown (REQ = ?)
– Range – Per Title a range is established (PM = $65-$80 hr)
– Not to Exceed – Single value where the rate per job title cannot be exceeded
– Negotiated – Any of the combinations where a “sourcing” role negotiates the rate
• Markup
– Pay to Bill – Pay is entered into the VMS and a calculation creates the Bill rate
• Typically used in commoditized roles where the markup is negotiated for a labor
category
• SOW – Rate arbitrage
– Conversion to rate based on time – Typically used in project or deliverable based
engagements, per role the hours and milestone payment is used to convert to an
hourly rate. This provides a common value to compare with T&M like roles
October 17, 2016 31Beeline.com Confidential & Proprietary
Flat rate
• Assigning a flat rate for each role that is not
further negotiated or does not reflect skills or
experience variations. These rates are typically
baked into a contract, sometimes based on an
RFP or other bid vehicle.
• Designed to simplify the sourcing process and
contain costs from a known baseline
$75Hourly
• Challenges
– Commoditizes resources
– Does not allow for expanded skills without pushing quality
– Overpay
– De-incentivized recruitment
– Misaligned actual job roles – attached a resource to a
higher catalog value (example; PM1 – PM3)
October 17, 2016 32Beeline.com Confidential & Proprietary
Supplier specific rate card
Hourly – PMII
Accenture $105
IBM $135
TEK $ 95
SmallCom $ 85
• Assigning a flat or negotiated rate by supplier usually based on an RFP/RFI response and contractually committed
• Sometimes used in conjunction with reverse auction process or contract committed rate card
• Very common when sourcing categories are “slim” – i.e., App Dev, PM, Testing as each sourcing
• Challenges
– Disadvantage to lower bidding suppliers
– Does not address a “market” value
– Allows for inflated gross without assigned value
– Typically high bidders perform
– De-incentivized recruitment
October 17, 2016 33Beeline.com Confidential & Proprietary
Hidden rate card
• Market or benchmark is established but hidden from the suppliers view
• Intent is to incent the supplier to submit the best candidate at the most competitive price
• Used more often in VMS environments as the first step in maturing a sourcing event
• Prevents “Max” rate submittals, limits over rate card
• Challenges
– Within little time the supplier will have identified each max
rate or have contacted the resource manager
– Without a negotiation strategy to augment this the rates
return to max rates
– Quality can be compressed due to the desire or message
that rate is more important than quality
$75Hourly
October 17, 2016 34Beeline.com Confidential & Proprietary
Negotiated
• Uses a reference point, sometimes range assigned to the job title
• Rates are established outside of an RFP and are open and flexible – level playing field
• Focus on quality and price, deal by deal
• Successful in the compression of rates while maintaining quality
• Challenges
– Requires active management of each sourcing event
– Negotiation and recruiting experience is needed
– Aggressive negotiation without volume will push quality
Sometimes used in conjunction in a range - $65-$85
$75Hourly
$65Hourly
October 17, 2016 35Beeline.com Confidential & Proprietary
Markup
• Typically used in more easily sourced roles
found in Clerical / Admin and Light Industrial
sourcing.
• Negotiated during an RFP for total sourcing
scope.
• Designed on minimal qualifications, ensuring
quality but speed to market and lower
overhead of this type of staffing
• Challenges
– Professional skills creep in causing quality issues
– Use in IT/Professional greatly reduces quality and account
attention to requests
– Attention to statutory regulations and maintenance is
required
Pay +
Markup =
$75Hourly
October 17, 2016 36Beeline.com Confidential & Proprietary
Rate Maturity Model
Developing Emerging LeadingStrategic
Data
Environment
Governance
Minimal visibility, typically invoice driven, Bill rate only with limited source data alignment
Deployed technology, no integrations, limited data alignment, limited data collection
Integrated technology, clear systems of record, core integrations with finance and spend mgmt., most core data
Full process technology integrations, clear SOR mapping, comprehensive data collection and audit
Open sourcing environment, no labor definitions, limited supplier SLA definition
Controlled supplier distribution – manual, preferred /non list. Typically a large supplier list
Clear definition of labor types, applied sourcing strategy .Clear SLAs measured Limited supplier/HM contact
Managed suppliers, limited to no HM visibility, focus on quality of candidate, no contact sourcing
Limited to no policy for extended workforce, unclear roles and responsibilities, no dedicated staff
Assigned staff focused on category, Clearpolicies/SOPs,
Dedicated team, cross functional sponsorship, Organized supplier ID and onboard
Supplier selection responsibility, candidate quality and vetting as a service
October 17, 2016 37Beeline.com Confidential & Proprietary
What Works
• Flat Rate – Mapped to a job title, regardless of specific skill, a rate is applied (PM=$75 /hr)
• Supplier specific contracted rate card
• Hidden – A job REQ is provided to the supplier but no rate value is shown (REQ = ?)
• Range – Per Title a range is established (PM = $65-$80 hr)
• Not to Exceed – Single value where the rate per job title cannot be exceeded
• Negotiated – Any of the combinations where a “sourcing” role negotiates the rate
• Markup – Creates bill rate by using a predefined markup value
Savings
Qualit
y
A
G
F
E
D
C
B
A G
F
ED
C
B
October 17, 2016 38Beeline.com Confidential & Proprietary
Client Examples – Rate Complexities
Client A
Client B
Client C
Average
Bill Rate
$ 58.69
$ 66.32
$ 49.66
% Over
Rate Card
16%
15%
17%
% Over
$100 Hr
8%
17%
4%
Average
Pay Rate
$ 49.11
$ 53.66
$ 35.82
Average
Markup
35%
37%
53%
Average
Gross Margin
18%
18%
25%
% Avg to
Market
-3.4%
9.2%
-18.3%
Market –
Median PMI
- $67.30
Base Mapping –
Project Manager I
PMP
3-5 Years
Engaged in last 18
Months
=(Bill-Pay)/Pay
General Information
BID Requirements
Multiple Candidates/Review
18 Months
October 17, 2016 39Beeline.com Confidential & Proprietary 39
Rate Card Development Process Overview
Client Job Titles
Market Job Titles
Client Rate Averages
Supplier RF(x) Data
Beeline Market Data
Revised (NTE) Rate Card Benchmark
Market Job Titles
Bill Rate Pay RateResource
Type
Rate Card Markup
Industry Benchmark
Beeline VMS Application Environment (Steady State)
Rate Card Development Analysis
Skills
Skills
October 17, 2016 40Beeline.com Confidential & Proprietary
Supplier
RFx
• Human capital industry
• Marketplace
October 17, 2016 41Beeline.com Confidential & Proprietary 41
Selecting a Supplier
• RFPs are necessary but there are several challenges:
• Human capital is ever-changing and shifts in value based on a variety of factors – price is a validator
• Your sourcing environment and communications practices greatly affect how a supplier responds
• Every supplier wants to be on the “List”
• Contractual SLAs are challenging
• Performance is difficult to prove UNTIL they perform in your environment
• Considerations for a NEW RFP:
• Define labor categories
• Baseline a rate card before selection
– Compare to your benchmarks
• Focus on some key factors for
success of your environment
– How will you work in my environment
– Will you comply with our SOPs
– How will you prioritize my work
– What recruiting model will work for me
– Systems compliance (ie; VMS or other)
• Have a scorecard ready
– Equally measure suppliers
– Communicate and share
– Force rank to determine changes
October 17, 2016 42Beeline.com Confidential & Proprietary 42
Analysis
In this example this particular supplier is clearly not aligned with the overall market.
Typically inexperienced or high revenue expectations are in play. This is a supplier
that should be removed from consideration or has very specific boutique sourcing
best utilized under an alternative sourcing strategy
This grouping of roles within
the same job level is
showing where the
program’s current
expectations are not in line
with the larger market.
Generally in these instances
an assessment of quality will
show poor performance and
higher turnover.
Consideration of rate card
inflation would be
recommended in this
instance.
Heat Maps are
great ways to
evaluate complex
data and ensure the
overall trending
data analysis inputs
have a higher
propensity to
provide value and
strategic direction.
October 17, 2016 43Beeline.com Confidential & Proprietary
Summary
• General direct and tasks
October 17, 2016 44Beeline.com Confidential & Proprietary
Considerations
• Define the types of labor
– Staffing vs Consulting
• Market face job roles and skills
– Face to the marketplace
• Update your RFP process
– Different kind of RFP
– Propensity vs guarantee
• Ensure you retain flexibility to negotiate rates
– Negotiate
• Manage the relationship
• Its not copy paper – its people
• Don’t forget the recruiter
October 17, 2016 45Beeline.com Confidential & Proprietary
Contact Information
• Program strategy
• Scorecard development
• Supplier rationalization
• Change management
• Rate card development
• Job skill and taxonomy analysis
Benjie HansonDirector – Beeline Consulting
@benjiehanson
Benjie Hanson
904-527-7199
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Managing and Negotiating Labor Rates in the Complex World of External Workers
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Beeline
Benjie Hanson
Director of Consulting
904-527-5700
