As discussed previously, gross margins are the fuel that drives the healthcare staffing industry. Cash flow, growth, and debt financing are all greatly impacted by the slightest change in basis points. Assuming you are in the ballpark of industry standards for pricing and pay rates, there are two items that can seriously erode the margins you have worked so hard to maintain.
These two items are rates for the unemployment tax and worker’s compensation. From our earlier example of chasing better margins, these two items can easily rob you of hundreds of basis points.
The first item, the unemployment insurance rate, is a historical figure based on claims paid through identified quarters of payroll. Poor administration of these claims is the number one reason for unnecessary rate increases. The effective management of these claims does not mean attempting to deny a worker benefits that are rightfully due, but to protest claims that may not be valid.
The second margin killer is the rate for worker’s compensation. Aside from safety measures that include both mandatory and internally generated policies and procedures, proper classification of workers and their work location are critical for these annual audits. It is not unusual for one classification of worker to carry a premium percentage that is several multiples of other employees with slightly different job descriptions. If safety policies are in place and followed, the only variable that a staffing firm has control over is the proper classification of what theh employees to on their job, and where they do it.
In our next blog, we will discuss methods to keep both of these figures as low a possible.
