You already have several technicians working for you. You know what salary they earn and therefore what they cost per hour. You temporarily need someone extra, and you decide to hire an employee through a secondment agency. You review several candidates, and you make your choice. Bas is the one. You’re happy.
Then the quote from the secondment agency arrives with their hourly rate. You do a double-take, this can’t be right? It’s way higher than the amount you had calculated by dividing the average monthly salary by the number of hours worked.
For those of you who don’t want to be blind-sided like this, I shall explain below how a secondment or employment agency calculates an hourly rate.
Hourly rate structure
The employee’s monthly salary is undoubtedly one of the most influential factors, but not the only one that counts when determining the cost price and the corresponding hourly rate.
An hourly rate, the amount you pay as the hiring party, consists of the following components:
Let us look at each element individually:
Total costs
The total expenses incurred by a secondment agency for a seconded employee consist mostly of the employee’s salary and their holiday allowance. Then there are additional costs; the employer’s expenses (sector fund premium, health insurance, Whk premium, WAO / WIA, etc.) and of course, the employer’s share of the pension premium.
There may also be additional costs from a collective agreement (for example, payment into a social fund or training costs) or contractual liabilities (e.g. compensation for waiting days before qualifying for sickness allowance).
Other costs that a secondment worker can accrue include the absenteeism costs (Occupational Health and Safety), supplements to the Sickness Insurance Act, insurance, safety equipment costs, certification, education and training, and of course costs from the organisation. Recently, due to a change in the law, transition costs can also be charged.
Number of workable hours
To calculate the price per hour, the agency divides the total costs by the number of hours. NB: not the number of contracted hours for the employee, but by the number of billable hours the employee works. The actual hours the employee works.
There can be a difference between these two amounts due to things such as holiday hours. Holiday hours are part of the employee’s contracted hours (he gets paid for them), but the customer is not liable for them. The customer only pays for the hours that the employee has worked directly for him.
Sickness hours also do not count as billable hours for the customer. The employer (the agency) pays these hours.
Then there are public holidays, leaves of absence due to special circumstances, time off for appointments and any training days.
Employees permanently employed by the agency, also run the risk of a break in continuity — a period where the employee is not working with a customer. Maybe there is a short gap between contracts. Even worse, there are no assignments in the pipeline, and the employee “sits on the bench” for a while. During that time he will continue to be paid by the agency, but there will be no income generated.
To cover these “ambiguous” days (illness, delay), agencies include a risk factor in their cost price calculations for secondment workers and temporary staff. After all, not every employee will be (equally) sick or sit idle. They often calculate this risk factor from historic sickness absence rates and idle rates.
Agency’s fees
Up to this point, the customer understands the costs. They realise that there are additional costs on top of the salary the employee receives. But then there are the agency fees…
There is a perfectly reasonable explanation for these. All companies, including temporary employment agencies or secondment agencies, must make a profit to continue to exist. Their continued existence is not just for the employee’s benefit (and the shareholders), but also for the client’s. A supplier with whom you can build a long-lasting relationship can understand better and quicker what kind of people you need. You certainly don’t want the agency to go bankrupt while you are working with them.
It is also logical that the agency earns more than just the cost of the employee. There is a lot of hard work involved during the recruitment and selection process, and then continuing throughout the term of the secondment. Skills, time and knowledge are required to provide the service, and there is also a considerable risk involved.
Out of this profit, the agency has to pay many overheads: office costs, consultant’s salaries, training, activities, initiatives for international recruitment, and so much more.
You may disagree on how high that profit should be. Still, usually, the following applies: the higher the added value that an agency delivers, the higher the margin. Providing a bunch of shelf stackers – easy to find, low selection conditions – will obviously pay, as a percentage, a smaller profit than finding a Senior mixed-signal IC Design Engineer with 10 years of international experience. That’s the definition of a needle in a haystack! There is also a difference in the amount of guidance and support needed during the secondment period. An average temporary employment agency gives little to no aftercare support. In contrast, specialised secondment agencies provide extensive continued guidance. Agency fees vary widely as a result.
Summary of the hourly rate
In summary, these are multiple elements that go together to determine the hourly rate. The division of this pie can vary depending on the policies of the secondment agency. Positions that are difficult to fill require higher margins, while more risky positions may demand higher insurance reserves.
Hourly salary vs hourly rate
The hourly rate for a seconded employee is therefore not the same as the average monthly wage divided by the number of hours. Although it forms the basis of the calculation, there are many more elements involved.
More information? Would you like to know how much the hourly rate for a function in your team would be, or do you want more information about the cost/price rate structure? Don’t hesitate to ask us!
