When we make purchases, we typically focus on the total price rather than the cost of the individual components. We shop around for the best deal, and rightly so.
Similarly, when companies consider agency staff rates, they often look for the most competitive standard charge rate for a particular role with the required skills and qualifications. But is the standard charge rate truly the best metric for a meaningful comparison? The answer is no, and here’s why.
The agency charge rate that appears on your invoice is composed of several elements—some are fixed by law, some are legislative but subject to interpretation, and others are determined by the agency itself. Companies can also influence the rate by deciding on the pay they wish to offer, usually in consultation with the agency.
Legislative Components:
- Holiday Pay: A fixed percentage of the pay rate added to the Charge Out Rate (COR). Based on 5.6 weeks of holiday, this equates to 12.07%.
- Pension: 3% of qualifying earnings.
- Sick Pay: Typically based on Statutory Sick Pay (SSP) eligibility, which can vary. Agencies often add a charge to meet this requirement.
- Apprenticeship Levy: Agencies with a wage bill over £3M must contribute 0.5% of their pay bill to the government.
Open Components:
- Hourly Pay Rate: This can vary depending on standard shifts, nights, overtime, weekends, etc.
- Agency Margin: The fee the agency charges for its services.
Legislative but Open to Interpretation:
- Employer’s National Insurance Contribution: This component can vary based on how it is interpreted and applied.
All of these elements can influence the COR a company pays, but the most significant impact comes from how these components are applied. For example, two agencies paying the same standard pay rate can result in a cost difference of up to 30%—yes, 30%. Understanding all the elements of your COR and how they are applied can lead to substantial savings for your company.
Setting the pay rate, understanding the agency margin, and knowing how it is applied is something we excel at. We have guided many companies in optimising these mechanics, leading to significant savings without sacrificing quality or service. Our unique perspective and forensic analysis can help you achieve better value for your investment.
- A games manufacturer/distributor reduced a £341K spend on warehouse and general staff by 15.7%, saving £54K annually.
- A flour manufacturer cut £124K (15%) from its £828K workforce budget for warehouse and packing staff.
- In Hungary, a company operating across multiple locations saved £80K (14.5%) from its £548K spend on hospitality roles.
Agency staff offer a valuable resource for organizations looking to maintain flexibility and access specialised skills. However, to fully realise the benefits, it is essential to manage these workers effectively. By following best practices in communication, integration, feedback, and evaluation, organizations can ensure that their use of agency staff leads to positive outcomes for both the company and the workers involved.
By partnering with ERA Group, businesses can achieve significant cost savings while maintaining, or even improving, the quality of their operations. This holistic approach ensures that savings are realised across multiple areas, leading to improved financial performance and a stronger bottom line.
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