How Bundled Fees Lead to Higher Costs and Lower Quality
Bundled fees are a single rate that includes the candidate's wages, the staffing supplier's fees and the Managed Service Provider (MSP) fees. As discussed in this article (link to article 5), bundling fees creates a lack of transparency for the purchaser of these services.
Although it appears to be an easy solution - one bottom-line number - a hiring company doesn't know what is being paid to the person doing the actual work, or the one who found the candidate, or the entity managing the process. Bundled fees are also a great way to hide potentially large MSP fees or below-cost wages. And underpaid employees often result in high turnover and/or lower-quality candidates.
If a contractor is paid a bundled amount, there is also no way of knowing what you're getting in terms of quality, and most importantly what you're paying someone to do the work. For example, if we were to hire a contractor to remodel a bathroom. The contractor may say it will cost $20,000 in material plus a 10% or 15% markup. That is clear. But if the contractor says it will cost $23,000 without defining the markup, the contractor could subcontract it, pay very little to an unskilled laborer and pocket the rest.
When rates are bundled into a card, the employer doesn't get access to all of the information required to make an informed decision as to the value of the service provided. There is a lack of much needed transparency.
For instance, when comparing two MSPs, if they both provide the same bundled hourly rate, perhaps $65, the hiring company is unable to determine which is the best value. If, however, the rates were clearly spelled out, a hiring company might find that MSP No. 1 has a fee of 1% while MSP No. 2 has a fee of 6%. The company would realize that it is paying six times the cost for the same service should it go with MSP No. 2 But since the bottom line fee is the same, where did the difference come from? Something else in the equation has to give. And, often, the first casualty is the candidate's wages. By offering lower wages, MSP No. 2 will likely retain lesser candidates. All of this information can be kept hidden from the hiring company with a bundled fee. Which is great for MSP No. 2. Not so much for the candidates or the company looking to hire.
While it may be cliché sunlight is the often the best antiseptic. One way to avoid the problems of hidden fees is by having organizations require that MSPs provide detailed fees in their request for proposals. Bundled fees lack transparency and should be avoided. With detailed fees, everyone knows where the money is going.