I could do a blog on just staffing software and the arithmetic of staffing because the topic generates no small number of questions.
When my dad taught me the arithmetic of staffing some 30+ years ago, it didn’t take a CPA to understand.
Bill – Pay = GP
Back then we enjoyed profit margins large enough that we didn’t sweat the twists like employer taxes and worker comp whose rates were so low we could count them as overhead. Today, those little twists have grown into profit-destroying monstrosities and turned our simple calculations into a Gordian knot. Consider how we do gross profit arithmetic today.
1. Start with the bill rate. Accommodate non-standard overtime rates, unit rates and salary bill rates. If medical, factor in callback and charge-nurse rates. Determine 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, industry specific payments or charges. Apply overtime rules that vary by state. Determine ‘hidden’ payroll costs: franchise fees, employer taxes, liability insurance, and worker comp.
3. Calculate miscellaneous costs. If you are receiving funding, determine its cost. Figure in any rebates. If your client pays by credit card and requires you to absorb the fee (let’s hope you’re getting paid immediately if so), determine the fee percent for that card type.
4. Calculate splits. If your job orders get shared, kind of like 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 get filled by its accounting division who in turn fills it through an outside agency. Now split the bill and cost components between the parties (60%, 30%, 10% for example).
5. We’re almost done here. 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 kind of work the employee is doing on a particular day. 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.
That’s it! Here’s your GP report. We’re done! Or are we? Whoops, we forgot employee benefits. There. Done!!! Um, no again. We need to split employer payroll costs into the separate transactions for checks cut from multiple assignments.
For staffing software providers, the problem gets worse, not better. We serve clients who come to us with their own pesky bill and pay processes that impact GP. After all, if they weren’t unique, they wouldn’t succeed. Right?