Inside the murky world of agency margins
Saturday, 18 January 2003
The longer someone has been contracting, the more agency margins play on their mind. A new contractor is often so happy just to get a job that what the agency is taking doesn’t bother them. With more experience, a margin that is perceived as too high can ruin the relationship between a contractor and their agency. In extreme cases, it may lead to the contractor leaving their job, or the agency attempting to replace them.
It's surprisingly difficult to find information about margins in the Australian market. Searching the internet reveals little. Talk to agents about their margins, and the conversation can quickly turn nasty. I’ve heard of agents taking 75% of a naive contractor’s billed rate. I’ve also seen them go as low as 8% for contractors who found their own job and shopped around for an agent to work through.
So what is a standard or fair rate for an agent to take? This is a much easier question to answer in the UK market, where the standard is widely perceived as 15% of the billed rate before VAT (the equivalent of GST). Some UK agents will charge a little less, some a little more, but 15% is about average. Of course some will take whatever they can get.
In Australia, most contractors have no idea what their agent should be taking. Some agents refuse to say what their margins are, even making clients sign non-disclosure agreements.
In my last contract, the agent took 25% before GST. I was happy with the job, so didn’t argue with them too strenuously until renewal time. At that time, getting them to lower the rate was like getting blood from the proverbial stone. They argued, pressured, threatened to replace me, and called my manager saying I was refusing to renew. They accused her of breaking the contract by revealing my rate to me. After days of stressful negotiation, they agreed to drop their rate to 21.5%. Needless to say, I wasn’t impressed.
To better understand the market, I contacted more than twenty agencies before writing this article. I sent detailed questions and said that I wanted to put forward their point of view. Only two agents cared to comment, so before we continue, well done to Duncan Amos from Hays IT and Penny Walsh from eurolinkglobal.
“In today’s market, margins are often fixed by the client,” Amos says. “Clients will have preferred suppliers with whom they will negotiate pricing arrangements. These arrangements vary from client to client and usually depend upon the volume of business and exclusivity being offered. Clients know that the power has shifted to them recently and they are becoming tougher on agent’s margins. Government contracts always operate on fixed margins.”
“Agencies no longer have a free rein in the selection of margins,” according to Penny Walsh, “they are dictated by the clients under preferred supplier arrangements. The days of high margin business are long gone.”
The costs that agents have to cover when you work though them depend upon the type of contract that you have. If you are working directly for the agent, they will have to keep money for PAYG income tax, super (currently 9%), insurance and workers’ compensation. If you are going through an umbrella company, or your own limited company, the only mandatory cost is payroll tax of 6%. On top of that, agents have to cover overheads such as office rental, phone costs, salaries, advertising and profits.
“The margin really equates to the service the agency provides,” Walsh says. “A professional, reputable agency acts in the best interests of both candidates and clients. An agency puts time and money into finding good roles and matching them with candidates with suitable skills and experience, and who are a correct cultural fit into the organisation.”
Agencies do provide a valuable service, for which they should receive a fair price. They bring in the work, vet candidates, and give contractors advice. They also often pay their contractors before they themselves have been paid by the client. Cash flow risk is of large concern to recruitment agencies. If the client dawdles with paying their invoice, they can be out of pocket for weeks after they have already paid the contractor.
A fair margin to cover these costs and risks is around 10-20% after on-costs (PAYG, super, payroll tax etc). If your agent is charging more than that, you should try to negotiate the margin down.
Before signing a new contract, ask your agent what their take of the pie is. Try to get it in writing, if possible. If the agent refuses to reveal this information to you, it should be regarded as suspicious. It will be up to you whether you want to take the contract under those terms. In rare cases, the client may refuse to let the agent reveal the margins. You should definitely tell other contractors and your managers what occurred and who the agent was. If agents understand that their customers regard this practice as unacceptable, they’ll soon feel the pressure to be more forthcoming.
“I’m more than happy to disclose margin information and explain why we charge what we do,” Amos says. “To be honest though, in today’s market, not many people ask me.”
“If [agencies] are providing the best possible services then they can justify their margins,” Walsh adds. “Here in the Australia, clients and contractors are far more in tune with wanting to know what the agency margins are. Eurolink has operated under an open book policy for years; we have certain clients whereby we have signed 3 way contractual agreements, in which all rates, terms and conditions, are exposed.”
If you’re not willing to ask your agent about their margins, you shouldn’t be surprised if they are higher than you think.
To help address the lack of information available on this subject, Brainbox is conducting a survey of agency margins. Whether or not you know what margin your agency is taking, please email us at brainbox@consultant.com. Specify your current rate (after GST and agent’s margin), location, and what your agent’s margin is. All submissions will be confidential and displayed anonymously. I will not store any emails I receive on this subject and will delete them after updating this page. I will add them below as they arrive.
| Location | Rate after GST and agent's margin | Agent's margin |
| Sydney | $60 hr | $20 hr |
| Melbourne | $92.95 hr | $18.15 hr |
| Melbourne | $65 hr | $10 hr |
| Sydney | $55 hr | $12.10 hr |
Paul Knapp (editor@brainbox.com.au)
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Recruiter HypeWhat a load of marketing rubbish. Why should the 'agency cut' be a percentage at all? It should be the same flat administration fee based on the type of contractor they are (ie. one that has their own company vs one that doesn't) irrespective of the rate the contractor is being charged out at. They provide exactly the same service (after on-costs) to a contractor that gets $30/hr as they do to a contractor engaged at $100/hr. Why should the cut differ? Does the agency do any extra work in providing their service for the more expensive contractor? A resounding No. Flabbergasted, 07/28/2005 10:01:46 PM
Payroll tax rortI've been contracting for over ten years... I once worked through a small agency in North Sydney who included payroll tax in their cut even though I have a payroll tax exempt coimpany. I had never ending arguments with them about this... I fear they were simply pocketing the extra cash, as they were already pocketing ~$20/hr... They ended up screwing me at renewal time, and misrepresented me with the client. I fired them, and went to another agency after grovelling to the client. The agent I ended up going through only charged ~$10/hr, so even at a lower charge in rate, I took home more dollars. In short, don't trst agents. They are like leeches... :) Mike, Canberra, 02/09/2009 05:15:04 PM
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