Staffing Markup

How staffing markup works

The markup is a pricing shortcut. Instead of quoting a different dollar amount for every pay rate, an agency agrees a percentage with the client, often by job category, and applies it to whatever the worker is paid. If the pay rate rises from $17 to $18, the bill rate rises automatically.

What the markup has to pay for, in rough order:

1. Statutory burden. Employer FICA at 7.65%, federal and state unemployment insurance, and workers' compensation. Together these usually take a large slice of the markup on their own. See burden rate.
2. Required benefits. Paid sick leave where state or local law requires it, ACA-related health coverage costs for applicable large employers, and any benefits the agency chooses to offer.
3. Operating costs. Recruiters, background checks, drug screens, onboarding, payroll processing, invoicing, credit risk on unpaid invoices.
4. Profit. Whatever is left.

Markup vs margin

This is the most common source of confusion in staffing finance. Markup is calculated on the pay rate. Margin is calculated on the bill rate. The same deal gives two very different percentages.

• Pay rate $20, bill rate $30
• Markup = $10 ÷ $20 = 50%
• Gross margin before burden = $10 ÷ $30 = 33.3%

To convert between them:

• Margin = Markup ÷ (1 + Markup)
• Markup = Margin ÷ (1 − Margin)

A quick reference: 25% markup is a 20% margin, 33% markup is 25%, 50% markup is 33%, 67% markup is 40%, and 100% markup is 50%.

Most agencies report performance as staffing gross margin, which subtracts burden as well as pay: (bill rate − pay rate − burden) ÷ bill rate. Clients and MSP programs negotiate in markups. Agree on which one you mean before you argue about a number.

Typical staffing agency markup percentages

Ranges commonly seen in US staffing, by segment:

• Light industrial, warehouse, manufacturing: about 30% to 55%
• Office and clerical: about 35% to 60%
• Contact center: about 35% to 55%
• Skilled trades: about 40% to 70%
• IT and engineering contract: about 40% to 80%
• Healthcare: varies widely with demand, shift premiums and travel stipends

Markups sit at the low end on large, steady, managed programs and at the high end for small orders, urgent fills, hard-to-fill skills and states with expensive workers' comp or unemployment insurance. A markup below about 25% on hourly labor rarely leaves real profit after burden.

A worked example across two states

An agency serves a client with sites in two states and is asked for one 38% markup on a $19 pay rate for general warehouse labor. Bill rate: $19 × 1.38 = $26.22. Spread: $7.22 an hour.

In State A, burden for this role is about 17% of wages: $3.23 an hour. The agency keeps $3.99 an hour for overhead and profit, a 15.2% gross margin on the bill rate.

In State B, higher unemployment insurance and a pricier workers' comp classification push burden to about 26%: $4.94 an hour. The agency keeps $2.28 an hour, an 8.7% gross margin. After recruiting and payroll costs, State B may lose money.

The fix is either state-specific markups or a blended markup priced on the actual mix of hours. Agencies that quote one number without this check find out at quarter-end.

How clients should judge a markup

A lower markup is not automatically a better deal. Ask what is included: does the agency provide paid sick leave, health coverage, safety equipment, on-site supervisors for large programs, or a replacement guarantee? Compare the bill rate with the fully loaded cost of employing the same worker directly, including your recruiting cost and early turnover.

Watch how suppliers react to rate pressure. Agencies squeezed too hard often lower pay rates where they can, cut recruiting effort, or send their best candidates to better-paying clients. Your fill rate and show rate will tell you before the invoices do.

Common pricing mistakes

• Mixing up markup and margin in a negotiation or in a profitability report.
• One markup for all states and job codes without checking burden in each.
• Not repricing when laws change, such as new paid leave ordinances or minimum wage increases.
• Applying the markup to overtime premiums without agreeing it in the contract.
• Ignoring MSP and VMS fees deducted from invoices. A 3% supplier-funded fee on a 35% markup takes a big share of the profit.