The Arithmetic Of Staffing

When my Dad taught me the arithmetic of staffing some 30+ years ago, it wasn’t necessary to be a Certified Public Accountant to understand the calculations.

Thirty years ago, a gross profit calculation was as simple as Bill – Pay = Gross Profit. Back in those days, we enjoyed profit margins large enough where we didn’t sweat operation twists such as employer taxes and workers’ comp, since rates were so low we could count them as overhead.

Today, those little twists have grown into profit destroying monstrosities and have turned our simple calculations into a Gordian knot.

Consider the following steps needed to calculate gross profit arithmetic today:

  1. Start with the bill rate. Make accommodations for non-standard overtime rates, unit rates and salary bill rates. If the billing is for medical staffing, factor in the callback and charge-nurse rates. Determine any shift differentials. Apply discounts using tiered discounting. If supplying staff via a VMS (Vendor Management System), discount the VMS fee according to its price schedule.
  2. Calculate the pay rate. Factor in non-standard overtime rates, holiday pay, shift differentials and industry-specific payments or charges. Apply overtime rules that vary by state. Determine “hidden” payroll costs, i.e. franchise fees, employer taxes, liability insurance and workers’ comp.
  3. Calculate any miscellaneous costs. If you receive funding, determine its cost. Figure in any rebates. If your client pays by credit card and requires you to absorb the fee (if so, let’s hope you’re getting paid immediately), determine the fee percent for that card type.
  4. Calculate splits. If your job orders are shared, (similar in situation to when one realtor lists your home and another sells it) then you need to calculate splits. In staffing, you can split among multiple parties; the branch owning an accounting job order may let it be filled by its accounting division who in turn fills it through an outside agency. Then split the bill and cost components between the parties (for example, 60%, 30%, 10%).
  5. Sales taxes on staffing. A confiscatory and inappropriate government intrusion on the labor market, if you ask me – apply in an increasing number of states. Those sales taxes vary based on the type of work an employee is doing on a particular day. For instance, in Texas, you charge sales taxes for a computer professional’s services except when that person is doing training. In Washington DC, the tax depends on the job title. In Ohio, consult your tax lawyer. Although most accountants don’t want sales taxes to impact gross margin calculations, you have to remember to invoice and collect those taxes while keeping them out of GP calculations.

Triumph! Here’s your GP report, we’re finally done! Or are we? Oops, we forgot about employee benefits…here…done!!! Um, no again. We still need to split employer payroll costs into separate transactions for checks cut from multiple assignments.

At TempWorks, it continues to get harder, not easier. We serve clients who come to us with their own individual bill and pay processes that impact their Gross Profit.

After all, if they weren’t unique, they wouldn’t succeed. Right?

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