Talent Agents and Sports Agents Charge Much Less Than Staffing Agencies

May 7, 2009 – 3:06 pm

Temporary Help Agencies are Very Expensive –

Let’s say that you are an independent professional and you work on temporary projects under the terms of a contract that you negotiate and sign with your clients. Let’s say also that you bill $100 per hour for your consulting services.

You are an independent contractor, so when your clients pay you, they do not deduct payroll taxes or withhold income taxes from the money they pay you. Paying taxes is your responsibility as an independent contractor. If you bill $100 per hour, the client will pay you $100 per hour.

Now, let’s say that you use a staffing agency to find a temporary job. The staffing agency will bill the client $100 per hour because that is what your services are worth to the client. The staffing agency will then employ you and pay you a gross wage.

You should understand that the staffing agency will NEVER pay you more than $65 per hour. That is because staffing agencies virtually always take at least 35% of the billing rate off the top. Many staffing agencies routinely shoot for a margin of 50% or more as their gross profit.

Some of the staffing agency’s margin is unavoidable. For example, employers must pay the employer’s share of Social Security and Medicare taxes, which self-employed independent contractors must also pay. Employers must also pay for unemployment insurance and workers compensation, which self-employed professionals seldom pay. Additional costs include overhead for invoicing, collections and payroll processing, which self-employed professionals must also bear.

From my experience as an employer of independent professionals at Solo W-2, Inc., these payroll related costs amount to about 15% of gross wage. In other words, if gross wage is 65% of billings, then [15% * 65% =] 9.75% of billings is related to payroll overhead. In this case, the staffing agency’s margin is 35% of billings, so its fee for the service it performs is [35% - 9.75% =] 25.25% of billings. If we plug in a staffing agency margin of 50%, we arrive at a fee for service equal to 42.5% of billings.

Staffing agencies do, indeed, charge a fee for helping independent professionals find temporary work, and the true fee for that service is 25.25% of billings on the low side and 42.5% - or more - on the high side.

Other Job Matching Business Models Charge Much Less

In my previous post, I wrote:

“Not only do staffing agencies charge the independent professional for finding a temporary job, what staffing agencies charge for finding that job is disproportionately high compared with the fees charged by Hollywood talent agencies, that find work for creative artists, and the fees charged by sports agents, who find work for professional athletes.”

I will document two examples that support my assertion.

AFTRA, the American Federation of Television and Radio Artists, represents professional actors, dancers, singers and broadcasters. Paragraph 3 of the Standard AFTRA Exclusive Agency Contract states the following:

3. (a) The Artist agrees to pay to the Agent a sum equal to _______ per cent (not more than 10%) of all monies or other consideration received by the Artist, directly or indirectly, under contracts of employment entered into during the term specified herein as provided in the Regulations. Commissions shall be payable when and as such monies or other consideration are received by the Artist or by anyone else for or on the Artist’s behalf.

AFTRA franchised talent agencies that find work for AFTRA members may charge no more that 10% of received monies. Compare that with the 25% (or more!) that staffing agencies charge for performing essentially the same service.

The National Football League Players Association mandates the fee schedule for NFL sports agents (called contract advisors) who represent players in the National Football League. The following is from NFLPA Regulations Governing Contract Advisors, Section 4: Agreements Between Contract Advisors and Players: Maximum Fees.

(1) The maximum fee which may be charged or collected by a Contract Advisor shall be three percent (3%) of the “compensation” (as defined within this Section) received by the player in each playing season covered by the contract negotiated by the Contract Advisor, except as follows:

(a) The maximum fee which may be charged or collected by a Contract Advisor shall be:

(i) Two percent (2%) for a player who signs a one (1) year tender while subject to a Franchise or Transition designation, or as a Restricted Free Agent;

(ii) One-and-one-half percent (1.5%) for a player who signs a one (1) year tender while subject to a Franchise or Transition designation for the second time he is tagged; and

(iii) One percent (1%) for a player who signs a one (1) year tender while subject to a Franchise or Transition designation for the third time he is tagged.

(2) The Contract Advisor and player may agree to any fee which is less than the maximum fee set forth in (1) above.

Yes, folks, the maximum that an NFL sports agent can charge a player is 3% of compensation unless it is 2%, 1.5% or 1%. Moreover, NFL players are free to negotiate a fee that is lower than the recommended maximum. What a concept!

Can there be any doubt that the fees charged by traditional staffing agencies are hugely disproportionate to the value of the temporary job matching service they provide for temporary workers?

In future posts I will discuss how it is that traditional staffing agencies can get away with charging as much as they do. And, no, the reason has nothing to do with a need for union representation. However, it does have everything to do with the need for transparency and full disclosure of billing rates and fees by staffing agencies.

James R. Ziegler, Ph.D.