Have you ever wondered how much money the travel staffing company is keeping when you accept a travel healthcare contract? If so, you’re not alone.
We very often get questions about what percentage of the bill rate (the amount being paid to the travel company by the facility) should be kept by the travel company, and how much of it should go to the traveler. It’s a logical question, and we understand why travelers are curious to know. They want to make sure they’re not being taken advantage of by travel staffing companies. They want to make sure they’re getting their fair share.
Many travelers look at the situation like this: we as the healthcare professionals are doing all of the work, and the travel company is an “unnecessary evil middle man” who is taking a way bigger cut of the pay than they should be. Many travelers also jump to the next logical conclusion: maybe if we just cut out this unnecessary middle man we would make so much more money and get our fair share. This leads them down the path to considering being an independent contractor.
While I understand both of these thought processes, and went through them myself in the past: now, having looked much deeper into this topic, I’ve come to the conclusion that the financial relationship between the facility, the staffing company, and the traveler is much more nuanced than meets the eye.
While I wish the answer to the question “How Much of the Pay Does the Travel Therapy Company Keep on a Travel Contract?” (and the implied question: how much is fair for them to keep) was easy, unfortunately, it’s definitely not. The first barrier to these questions is understanding the math itself. The second barrier is looking at what costs have to come out behind the scenes before we get our pay AND before the travel company sees any actual profit. After looking at these variables, we then need to determine what we deem “fair” for each party involved.
After discussing this topic with dozens of recruiters and industry leaders over the last few years, it’s clear that even most of the recruiters themselves don’t exactly understand what all goes into calculating pay packages from a given bill rate. Almost always the calculations are done on a program or an excel spreadsheet with only a few numbers being inputted and adjusted by the recruiter.
I originally wrote about travel therapy bill rates and pay packages over 3 years ago in 2018 (currently it’s 2022 at the time of writing this). While my understanding of these topics was pretty good at that time, I’ve learned significantly more over the least 3 years about just how nuanced these topics are.
In this article, I’ll attempt to explain why determining an exact percentage that is being kept and/or should be kept by the travel company on a contract is very difficult, with lots of variables to consider.
Is the Travel Company Keeping Too Much?
Most travelers who contact us, both new and experienced, are skeptical of travel companies and recruiters. Based on stories that they’ve heard from others, they often have the belief that recruiters are always out to take advantage of them by purposely low-balling them on pay for a job. While there certainly are recruiters like that out there, based on our experience of interviewing almost 100 different recruiters since we started traveling in 2015, they’re not nearly as common as most travel therapists believe. The horror stories about really bad recruiters spread much more widely and rapidly than the less gripping stories about the really good or even just decent recruiters out there. Travelers think that the recruiters have a huge incentive to keep more of the bill rate for themselves and their company, when in reality the recruiter’s pay is often not affected by the traveler’s pay package at all. Additionally, it’s usually more beneficial for recruiters to give you their best offers up front, because they want to keep your business. So they know that by giving you their best offers possible, you’re more likely to continue to work with them and take more contracts with them, which incentivizes them to be truthful and up front with you.
When travel therapists reach out with a question about the bill rate and their pay package, usually they’re either trying to find out the bill rate in order to calculate if they got a good deal. Or maybe they somehow already know the bill rate, and they know their take home pay, and they’re trying to calculate it out to see if they’re getting screwed over.
If they know the bill rate, it often goes something like this: “I’m getting paid $1,650/week after taxes, and I just found out that the bill rate for the contract is $65/hour. That means the travel company is keeping over 35% of the money each week. Are they taking advantage of me?”
Now, on the surface, this calculation seems legit and like the travel company is keeping a lot for themselves, but in reality it isn’t as simple as first meets the eye. The traveler is simply taking the bill rate and multiplying by 40 hours, then dividing their take home pay into the product, and from there calculating the percentage that they’re receiving. Then they’re using that to extrapolate how much the travel company is keeping.
Here’s the math for this example:
$65 x 40 hrs = $2,600
$1,650 (their weekly pay) / $2,600 (total the company is getting) = .635 (63.5% = “the amount the traveler is keeping”)
1 – .635 = .365 * 100 = 36.5% (“the amount the staffing company is keeping”)
However, unfortunately this math is incorrect because it does not take into account taxes, among other factors. The big factor the traveler is forgetting in this example is that the bill rate is a gross (pre-tax) number, while their weekly take home pay is a net (after-tax) number. So simply calculating $65/hr x 40 hrs = $2600 would be an amount before taxes, while their weekly take home pay ($1650) is after taxes.
The traveler’s net take home pay amount is determined after deducting federal, state, and payroll taxes (social security and Medicare) from the taxable pay. Those tax withholdings are going to the government, not being kept by the travel company. In addition, the travel company also has to pay an additional 7.65% of the taxable pay to the government for their half of the traveler’s payroll taxes. These taxes are unavoidable, and have nothing to do with the company’s revenue or profit. Even if the traveler was working as an independent contractor and “cutting out the middle man,” they would be responsible for these taxes which would cut into their pay.
To get a more accurate representation of how much the travel company is keeping the traveler should, at the very least, account for all of the weekly monetary compensation paid to them including the taxes withheld by the government on both their end and the end the of the travel company. The math for the example above would look something like this assuming a $21/hour taxable rate and $1,000/week in stipends:
Math for this example accounting for weekly taxes:
$21 x 40 hours + $1,000 = $1,840/week gross pay
$21 x 40 hours x .0765 = $64 employers portion of payroll taxes withheld on behalf of traveler each week
($1,840 + $64) / ($65 x 40 hours) = .732
1 – .732 = .268 * 100 = 26.8% (percentage of bill rate the staffing company is “keeping” after accounting for taxes)
After doing the math this way, we can see that about 10% of the money that looked like it was being kept by the travel company was actually being sent to the federal and state government for taxes and future social security and Medicare benefits.
26.8% may still seem like a lot for the travel company to keep, but there’s more we need to consider here. This number we’ve come to still does not include the full extent of compensation being paid to the traveler and expenses paid by the travel company on the traveler’s behalf. Besides taxes paid to the government out of the bill rate, the traveler in this example is also not taking into account any reimbursements paid to the traveler (for example: state licensing, travel to/from the assignment, along with any others that might have been included in the pay package) as well as onboarding and credentialing costs that the travel company usually pays for on behalf of the traveler (background check, drug test, PPD test, etc.).
On top of those things, the travel company also pays for liability insurance and workers compensation insurance for the traveler and subsidizes some of the cost of the health insurance offered to their travelers. The travel company may also pay for access to an online service offering free CEUs like Medbridge or other smaller benefits that they pay for as well.
Once all of these taxes, reimbursements, and costs paid on behalf of the traveler by the travel company are factored in, we can see that although it initially looked like the company was “keeping” between 26 to 36% of the bill rate — in reality the amount they are actually keeping after all these costs is almost certainly closer to 15%-20% in the above scenario. Of course this amount will depend on the taxable hourly rate of the contract (which impacts the taxes withheld for both the traveler and the travel company) and the amount of reimbursements paid to the traveler and onboarding costs for that particular assignment.
Now you might be thinking 15%-20% still sounds like a lot of money for the travel company to keep after these costs are accounted for, but there are still additional factors to consider in the costs. An often overlooked factor is whether the contract was set up through a Vender Management System (VMS) or a Managed Service Provider (MSP). These are basically services that manage travel job openings and candidates for facilities to make finding a good fitting traveler easier for them. You can think of the VMS or MSP as the intermediary in large number of travel jobs and for the service they provide they charge a fee that can be up to 6% of the bill rate. The majority of travel jobs go through either a VMS or MSP, so this fee needs to be considered for many travel jobs. I discussed the impact of VMS’s and MSP’s in a little more depth in a recent article I wrote about which travel companies pay the highest, which you can find here.
Travel Company Expenses and Profit
All of the above costs are paid to or paid on behalf of the travel therapist and should be considered part of the total compensation that the traveler receives. Usually after all of this is accounted for, the travel company is actually keeping somewhere in the 15%-20% range of the bill rate. But is this how much they’re actually profiting? Is the company making tons and tons of money off our contracts?
The above percentage must go toward both covering the expenses of the travel company as well as allowing them a profit so that they’re able to stay in business. Some of the biggest expenses for travel companies include: payroll for their staff (recruiters, account managers, staff managers, payroll, HR, marketers, etc.), rent and utilities for offices, and marketing (conferences, ads, swag for travelers, and referral fees). Depending on the size of the company, which impacts the amount of staff they need and size of the office buildings, these costs can be pretty high.
Another often overlooked expense for travel companies is money that they keep aside for things like contract cancellations, short hours, and “orientation hours”. Since travel companies have a big upfront cost on contracts with paying for credentialing and some reimbursements before the traveler ever actually works any hours, if the contract is cut short early on either by the facility or the traveler, they often lose money on that contract. The risk of losing out on those costs in case of cancellations has to be accounted for in their margins. The same goes for short hours if the traveler has a 40 hour guarantee in a contract or guaranteed stipends. In some cases, the facility won’t pay the travel company for those hours, but the travel company is still on the hook for paying the traveler. This means that the travel company has to account for that by keeping some money set aside from the bill rate on each contract to be paid out to the traveler. Along these same lines, some facilities will not pay for what they consider to be orientation hours. This can be 1-2 days worth of hours that the facility doesn’t pay the travel company for at the beginning of a contract due to the facility asserting that the traveler is getting oriented and not being as productive. This may seem crazy since experienced travelers know that the majority of contracts have little actual orientation or sometimes none at all, and we’re expected to be productive right off the bat, but that doesn’t stop some facilities from sometimes refusing to pay for those hours. The travel company still pays the traveler for those hours though and this also has to be accounted for in the margins.
After everything above is accounted for, the actual profit kept by the travel company from the bill rate is probably less than 10%. The profit amount will obviously vary drastically depending on how the contract actually unfolds as well. On some it might be 10% while on others they might actually lose money if a traveler or a facility cancels the contract very early on, or if there’s some major unforeseen event that causes the facility to stop paying the travel company completely, like during the beginning of the pandemic.
How Do You Calculate How Much You Should Be Keeping From a Contract Bill Rate?
As you can see, even if you know the bill rate on a contract, determining how much the company is actually keeping and the amount of money that’s going toward other costs is a difficult task. Therefore, determining what is a fair percentage of the pay you should be keeping is even more difficult.
At the minimum, to start doing these calculations, you would need to know:
- whether the job was through a VMS or MSP
- whether the facility is paying or not paying for orientation hours
- whether stipends are being guaranteed on missed hours
- whether the travel company is subsidizing a portion of your health insurance cost
- how much they’re paying for liability and worker’s comp insurance on your behalf
- the combined amount of reimbursements and credentialing costs paid upfront
- and the amount of tax being withheld from your taxable pay and from the travel company for payroll taxes on your behalf
If you were able to find out all of this information, which is very unlikely, then you would need to deduct those costs out first to then see what’s left for you to take your fair share and the company to take their fair share.
But, if you don’t know all of these variables, then determining a fair percentage of the bill rate that you should be receiving in compensation each week is all but impossible. Because of this, most recruiters won’t even share the bill rate for a contract because, with all of the factors involved, the transparency often causes more confusion and skepticism than clarity.
Like I said, this is all pretty confusing. Therefore, a recruiter telling a traveler (especially one not well informed on all of the variables above) the bill rate usually leads to quick back of the envelope calculations that are wildly inaccurate and cause the traveler to think they’re being taken advantage of when they aren’t.
What’s the Solution?
As you can see, for a traveler working with a staffing company, there are a lot of costs and calculations that go on behind the scenes that we don’t have much control over. For some travelers, it may be worthwhile to consider being an independent contractor to “cut out the middle man” and try to recoup some of the extra money. However, for most, this is more work than they want to take on. As an independent contractor, you have a lot more to deal with, such as finding and negotiating your own contracts; setting up the legal contract itself; handling your own benefits, taxes, credentialing, liability insurance, and more. Additionally, since there is no “middle man,” there’s no safety net & no pay guarantees. You take on all the responsibilities yourself. Plus, as we outlined, there are many costs that are unavoidable (taxes, insurance, etc) that you’ll just be taking on yourself instead of the company paying on your behalf. So, you’ll really only keep a little bit more (the amount that the travel company is actually keeping). If this seems like something you’re interested in, then you’ll have to do a lot of research to determine how to make it work.
However, for most of us, we’d prefer to go through a staffing agency who takes care of all of these headaches for you. They deal with all the behind the scenes work and help you set everything up. And of course for providing this service, yes they must also have a profit. But how do you make sure they’re not keeping too much?
In order to try to mitigate this, some travelers will choose to work with only smaller companies which theoretically have less overhead and keep lower margins, meaning theoretically the traveler keeps more of the money. But there is always some give and take when you consider “big” vs. “small” companies. While big companies may keep larger margins, they also may have access to direct jobs that don’t require any VMS or MSP fees, while the smaller companies may have these fees. Additionally, larger companies may offer some additional protections, like guaranteeing stipends. This comes out of their margins, but it also means more security for you as the traveler. As you can see, nothing in the travel healthcare world is black & white. There’s no perfect solution.
Because of this, we recommend having a few recruiters at different companies (both large and small) that you can trust that will be open and transparent with you on all things regarding travel jobs and pay. That way, whether you know the bill rate or not, or whether you know the operating costs of the company or not, you can rest assured that the recruiter is going to bat for you on negotiations and paying the most they possibly can for any given job. Then, you can eliminate that factor and concern from your mind, and you can just focus on comparing the rates that each company offers you, and choose the ones that work best for you. Of course you can always negotiate and try to ask for more, but if you have a trustworthy recruiter, you really should not have to push for more. They’ll give you their best rates up front and be open and honest with you about what each job is paying and how much their company can offer for a contract.
Since finding good recruiters can be hit or miss, we created Travel Therapy Mentor to do some of this work for you in finding trustworthy recruiters and companies (in addition to all of the great educational content of course :D). We’re constantly interviewing, adding, and removing recruiters from various companies based on our interview with them, their reputation, their performance, and feedback we receive from travelers that we send to them. We do our very best to work with and send travelers to only the highest quality recruiters and companies that meet their individual needs. If you’d like recommendations to companies and recruiters that we trust to not take advantage of travelers, that should work well for your specific situation, fill out our recruiter recommendation form here.
I hope this article provides some additional clarity on pay packages and all that goes into calculating them based on a given bill rate. If you need further clarification on anything, send us an email, or let us know in the comments!
- Should You Pursue Travel Therapy as an Independent Contractor?
- Understanding a Travel Therapy Contract Bill Rate
- Why and How to Work with Multiple Travel Therapy Companies and Recruiters