Why does a temp staff member cost more than a permanent staff member?

If you’ve ever hired a temporary employee via a recruitment agency, you might’ve been surprised by the hourly rate you are charged for that temp.

Rest assured that most recruitment agencies is not taking advantage, even if the costs are higher than you’d imagined. 

For a variety of reasons, temporary employees can actually cost more than permanent employees. Why? 

As you might be aware, temporary workers aren’t afforded the same benefits that permanent workers are entitled to ie they don’t get annual, sick and carer’s leave.

So, to offset the fact that they do not get these leave benefits Temps usually receive a causal loading. This can make it seem like they are earning more per hour than a permanent employee.

When your permanent employee takes a two-week holiday, they are still paid at the same rate (assuming they have leave accrued). When a temporary employee takes a two-week holiday, they don’t get paid at all.

Temporary workers are entitled to a select few types of leave (as stipulated by Fair Work Australia) but these allowances are unpaid responses to extenuating circumstances like carer’s leave, domestic violence leave and compassionate leave. 

Ultimately, when hiring a temporary worker, you’re paying for the benefits of flexibility and upgrading your organisation’s skill set for a period of time.

Who decided temporary workers should be paid more?

It wasn’t your recruitment agency. 

Fair Work Australia legislates the award rates for casual employees and stipulates the leave which they are entitled to. It also protects temporary workers from the risks associated with short-term employment through casual loading - an arrangement that requires that casual/temporary workers be paid a slightly higher rate to accommodate the lack of other benefits.

What about the other costs on my invoice?

When you hire staff through a recruitment agency, you’re paying for a professional service.

While there are many benefits of hiring temporary employees, understanding the costs can be confusing.

Temporary recruitment fees can vary depending on industry, role type, how rare the required skills/expertise are and if your recruitment agency partner follows a low, medium or high pricing model.

In simple terms, the cost of hiring a temporary employee is as follows:

Candidate pay rate + on costs = total candidate cost
+ agency margin = cost to the client

On costs

These include superannuation, payroll tax, workers compensation and general insurances. 

Some agencies may include administration fees here.

As a general rule, on costs only change in three circumstances:

• When the compulsory superannuation rate increases
• When the state-based payroll tax rates change
• When the recruitment agency’s payroll administration fee changes 
• When payroll tax rebates are applicable in the not for profit sector

Recruitment agency margin

Working with a recruitment partner is a commercial relationship - this means we charge a fee to find and supply you with temporary staff. 

The Recruitment agency’s margin depends on the industry, market demands and the supplier/fee agreement in place. Standard margin percentage is 22-25% of the total candidate cost.

How much does a temp get paid?

The candidate pay rate can be hourly or daily and is impacted by:

• Fair market rates/salaries
• The relevant award
• What the candidate is happy to accept

In most cases, temporary staff are paid above the minimum/award wage, because their skills and experience are in demand and because they may be due a casual loading.

Temporary employees cannot be paid below award rates. While not all employees and roles are covered by an award, there will always be a minimum rate that applies to each role.

Your recruitment partner will discuss the candidate pay rate with you, taking the above factors into consideration.

While some roles are not covered by a modern award, your recruitment partner will help to guide you through the process of landing on an appropriate rate of pay. Your recruitment partner will also take into account budget constraints and the requirements of the role. 

In the end, if you’re still concerned about whether your recruiter isn’t charging a suitable amount, don’t hesitate to reach out for clarification. 

Disclaimer: This article was written in 2021 and may be time sensitive.