“All men are created equal” says the Declaration of Independence. Realizing this lofty ideal is the timeless struggle facing our social order. Sometimes we succeed at achieving something close to equality. Yet, when it comes to determining the value and pay scale for a man or woman in the workforce, such egalitarianism is nowhere to be found. In order to ensure an “apples to apples” comparison between a broadening array of specialized labor types, rate cards have taken on a renewed relevancy. Here’s what it means today.
The rise of contract employment has commoditized labor which today, is purchased similarly to how services are procured. As such, it can be difficult to ensure when sourcing, that a workforce management program isn’t overpaying for the talent it engages. The rate card—formerly a simple menu of pay rates for temp staffing in fields like clerical, light industrial and other less-specialized roles—has evolved with workforce trends, enabling hiring managers to compare pay rates for individual job roles across various staffing agencies serving their programs. The array of complex job roles being engaged as contingent labor has grown considerably. The humble rate card has had to evolve in order to continue to provide like-kind pricing scales and things are getting too complicated to handle without expert guidance. Consider the following.
The pricing strategy deployed in nextSource MSP programs for example, is based on three foundational components which are customized to each client’s unique business needs:
- Rate Management Framework
- Job Taxonomy
- Market-based Rate Cards
The rate management framework defines the pricing structure to be applied for each labor classification within scope. In general, utilizing bill rate controls for professional classifications such as IT, finance, etc. limits the amount of rate variability that occurs across like positions. If controls are only placed on mark-ups, pay rate differences can result in significant variations in the bill rates ultimately paid by the client. By placing the controls around the bill rates, supplier margins can flex to accommodate pay rate differences and the client should experience much less variability in the rates they ultimately pay for similar positions.
Best practices involve identifying “target” and “not to exceed” bill rates for each position in the client’s job taxonomy to achieve cost savings while also providing a mechanism to adjust rates to the upper end of the market range when necessary to achieve the right level of talent. nextSource also recommends configuring VMS software to display the “lowest rate submitted” to suppliers to promote competitive rate submittals and achieve incremental cost savings where possible.
Conversely, markup controls tend to work better for traditional staffing categories such as admin/clerical, call center, etc. as there tends to be much more sensitivity to pay rate variations across the labor population for similar positions. The client is typically better served by implementing a rate strategy that ensures consistent pay rates for like positions while also controlling mark-ups paid to the suppliers.
The rate management framework also identifies where discounts can be utilized to generate additional cost savings without creating undue risk of workforce turnover and/or supplier dissatisfaction. We recommend potential discounting strategies based on factors such as tenure, volume, early pay and overtime that can be factored into the overall pricing framework for the program.
The job taxonomy provides a structural framework comprised of job classes, job titles and job descriptions tailored to the client’s specific business needs and organization structure. Creating an effective job taxonomy is essential to conducting market rate research and implementing effective rate controls on behalf of the client.
Once the taxonomy has been developed, nextSource completes a comprehensive research process to determine appropriate pay and bill rates for each position by geographic location it is mapped to. Defining standardized bill rate ranges and pay rate controls ensures contingent workers are engaged at fair and reasonable costs, based on local market conditions. The standardized taxonomy and associate rate card structures are loaded into VMS platform to provide consistency and enforce control in how managers submit requests for their temporary staffing needs.
Developing the rate management framework and job taxonomies that inform an effective rate card can be an overwhelming challenge for any HR or workforce management department to overcome. Effective rate management requires a high degree of resources and expertise. For many, it makes sense to outsource this important process to the experts.
Conducting market rate research, supplier rationalization/optimization, and supplier negotiations/contracting is the primary task of nextSource’s supplier partnership office (SPO). The SPO manages and leverages rate management intelligence and resources across all nextSource engagements, yielding very accurate rate benchmarking analytics, expertise to apply benchmarks to job types and suppliers, and resources to continuously evolve and monitor and rationalize supplier base to align with changing operational and budgetary needs.