One of the most important aspects of successfully moving a start-up healthcare staffing firm from incubation to ongoing success is the ability to effectively manage margins. Tracking the true cost of labor is a cornerstone of all successful staffing companies. Every staffing firm should have their own benchmarks for margin objectives. Letting margins slide only a little can have disastrous effects on cash flow and future viability.

The First Step

The first step in margin calculation requires a concerted effort to identify, record, and track those expenses that are directly related to the cost of each candidate that is placed. Every staffing firm should know how much to accrue for every dollar or hour of labor that is placed. Although some of the percentages that make up the labor burden are fixed (i.e. Social Security and Medicare), others will be market-based and can vary from company to company.  The 2010 Hiring Incentives to Restore Employment (HIRE) Act was a rare exception to the Federal employer tax burden as qualified new hires between March 19, 2010 and December 31, 2010 provided a business tax credit of up to $1,000 against the standard 6.2% employer burden.

Three other significant areas of healthcare staffing agency cost are state unemployment insurance, (SUI), worker’s compensation insurance, and professional liability.  A Federal-State unemployment insurance program mandates a percentage of payroll be paid for both Federal (FUTA) and State (SUI) insurance premiums.

Unemployment Rates

Recently, high rates of unemployment coupled with legislation to extend the normal period of benefits payable have depleted many state unemployment funds. As recourse for states to continue making payments, the Federal government has provided loans to states with depleted accounts. As an individual company, little can be done to make a significant impact on the rising premiums that are a direct result of higher than normal unemployment payouts. This does not, however, prevent an individual company from effectively managing it’s own premium rates within the states it provides employees. As is the case with most insurance policies, unemployment insurance rates are carefully calculated based on an employer’s most recent history of claimants for benefits.

Since the unemployment premium rate is a direct cost of labor, careful attention to the claims process is critical in assuring an accurate rate. Although no one wants to deny a qualified individual benefits due, it falls to the employer to make sure claims are warranted and valid. Disregarding a formal process for administering unemployment claims is an invitation for higher premiums. Unfortunately, due to the sustained period of high unemployment, and extended periods for benefits, these premium rates are likely to see significant increases in coming years.  Despite an expected baseline increase across the country, effectively managing claims can at least provide some level of protection against the highest rate increases within the states.  

In a later article we will discuss some of the other factors in margin calculation.   What are your margin expectations?