Everything you need to know about MSP Staffing

Nov 21st, 2016
Everything you need to know about MSP Staffing

Most contractors working through staffing agencies don't interact with MSPs- except if they are self-sourced and payrolled through them. This article is for companies looking into hiring a MSP for their staffing programs and for staffing agencies to learn about what MSPs are, how they work, and how to work with them.

What are Staffing MSPs?

Staffing MSPs, Managed Service Providers or Managed Staffing Providers are outsourced agencies for companies that use staffing agencies to hire large numbers of non-employees (contractors). MSPs oversee the entire lifecycle of the process of hiring temporary - from collecting the open requirements through payment to the approved staffing agencies for the workers time. They are the main point of contact for hiring managers at the client company and for the staffing agencies. MSPs help buying companies by standardizing processes, ensuring correct worker classification, regulatory compliance and leveraging their staffing industry knowledge and experience from doing this for hundreds of companies.

Why do Companies use MSPs?

Unlike the old days when companies did everything themselves, many companies feel that contingent staffing is better done when outsourced to specialists. Manufacturers don’t own and operate their own trucks to ship goods and instead rely on UPS or FedEx. Similarly, companies began feeling that the legal, HR, compliance, and regulations involved in managing staffing agencies to hire contractors was too cumbersome and not very strategic for the company.

At the same time staffing agencies were looking to upsell their clients with services. With the high demand for turnkey outsourcing, the MSP concept was easy to sell. They started demonstrating how MSPs standardized processes, saved money and reduced the risks of being non-compliant and the value proposition was strong enough for Chief Procurement Officers, (CPOs) and CFOs to adopt it. Estimates are that 60-80% of Fortune 500 companies have adopted the MSP model for staffing.

What are the different models of MSPs?

MSP programs are implemented in 3 primary models depending on what the client needs, characteristics of the skills they hire, thier current staffing vendors and what they feel is best for them.

Vendor Neutral Model- In this model the MSP is not allowed to particpate in the staffing program as a vendor to avoid potential conflict of interest. Many MSPs now don't have staffing arms or have been completely divested from the business of staffing. Example- ZeroChaos, ProUnlimited

Hybrid MSP Model- In this model, the MSP provider also participates in the staffing program either directly or through its staffing arm. These programs may happen where the client and other staffing agencies are comfortable that the MSP is going to play fair or is not very dominant ro aggresive. Example- Yoh, InSync Staffing

Vendor On-Premise/Sole Staffing Provider- In this model, the client selects the primary staffing supplier as the MSP also. That agency is then responsible for all the resources provided. They may or may not partner with other staffing agencies to support delivery. Example- Tesla/West Valley Staffing, GE/TechWorkers

What does an MSP look like in practice?

The MSP at a client site is a small team consisting of a Program Manager who oversees the program, a few category specialists who make sure every open position is getting attention and administrative personnel to take care of the paperwork of selected contractors and ensuring payments to staffing agencies.

The reason for this is that most of the complex part of an MSP program like selecting vendors, implementing the new systems, change management at the client and the transition is been done upfront. Also the MSP team uses a VMS (Vendor Management system), a software tool that is a combination of an HR system, ATS (Applicant Tracking System) and a Payroll and Payment system to conduct all staffing transactions from distributing requirements to billing. The VMS system gives a dashboard to the MSP to track how the program is running and quickly identify problem areas.

The local MSP team does tap into a shared pool of legal, workplace and industry experts for best practices, advice and troubleshooting if required.

How does a client company select an MSP provider for its staffing program?

MSPs are mostly hired by large companies with large volumes of contract hiring and complex staffing needs. So companies pick an MSP based on

Area of Expertise- Different MSPs specialize in different skills. Some focus on Healthcare, others on IT, Manufacturing or Warehouse Labor.

Size- Large companies that need to hire thousands of workers will pick someone that offers them the scale they need.

Geography- Clients often need a MSP to be local and have physical offices in their locations. So if the client has a cereal factory in Des Moines, IA, a software company in Silicon Valley or a warehouse in Atlanta, GA, they need an MSP that knows that region and has offices there.

Often this limits their choice to a few National or Multinational MSPs. If a client has only one location, they can go with a smaller or diverse MSP as they get better service for being the big client of a small provider rather than a small account for a large MSP.

Small and Mid-Sized companies can also benefit from MSPs which will be the next wave in Staffing. The benefits for small and mid sized busines is that MSPs can bring in expert staffing agencies for niche skills. This is different than why large companies use MSPs which is mostly standardization, cost reduction and compliance.

Who selects the staffing agencies in a MSP staffing program?

In large companies MSPs start with a list of current staffing agencies from the client’s category manager for contingent labor. These will include vendors selected based on past performance, strategic reasons or diversity reasons that the client wants to retain. To minimize disruption, MSPs will try to keep all the important and significant ones from this list in the RFP. It will often influence the client to add their own vendors to shake things up and add some competition.

How do staffing agencies get selected into an MSP Program?

Companies usually send out RFIs Request for Information to hundreds of companies which asks for brief highlights about the company like location, size, customers, etc. Then they downselect the list and send more detailed RFPs or Request for Proposals which asks more specific questions related to performance and abilities. This is followed by interviews of the executive team, potential team members and reference checks with other clients of the vendor. Finally a list of 5-10 staffing agencies are selected to be the preferred vendors for each skill category based on volumes. Here is an example of what the preferred vendor list will look like.

Sometimes two or three different MSPs are hired if the work is sufficiently different (Engineering vs Admin).

If the client company is a defense contractor like Northrup Grumman or relies on Government contracts like Ford or GM, it may have internal targets on how much of their spend needs to go to minority, women owned or other types of diverse owned businesses. In such cases, the companies may route their entire contingent staffing spend through a Diverse MSP business.

Strategies if your client is switching to an MSP model to manage it's contingent staffing program

If you are already a staffing vendor at the company implementing a new MSP program, there will be an RFP by the company to downselect from the hundreds of existing staffing suppliers to around 5-10 for each skill category after the MSP program starts. This is 'make or break' time and you need to work hard to be selected as it is much harder to get back in later.

To get selected the most important criteria are Best Performer, Largest Provider, Niche Provider, or Diverse vendor. Think about which of these applies to you, figure out who your competitors are, and then go lobby the Category Managers and the MSP team.

If you've received the RFP you should be able to figure out the key decision makers as they are listed in the document. They are usually the ones that run the RFP introduction/FAQ meeting before the RFPs are due. While the category managers may be wary about meeting you and there may be 'do not approach during RFP' guidelines, the incoming MSPs (especially if they are new) are eager to learn about how staffing runs at the company and will be happy to talk to you. Sharing information with them is a good way to earn their trust and develop a rapport with the MSP team.

If you are an existing vendor and have been performing well, make sure your hiring manager pushes for your case with really strong recommendations for why you are needed. Procurement and MSPs don't want to upset their stakeholders. They listen to the hiring managers as they are also trying to get buy-in too. If the hiring managers are upset and start rejecting candiates from the new program vendors or complain strongly the entire MSP program could be at risk. If you've been operating under the radar from Procurement, this is the time to come out and become their friends because the MSP is going to discover your 'shadow spend' soon.

If you are not an existing vendor at the company, but an important vendor in the city, you need to make a case for how you are different and can add value, either by cost, quality or strong references.

If you are not an existing vendor, but an existing staffing vendor for the MSP, and you have developed good relations with the MSP, they should have invited you. If they didn't, you need to start networking with more people within the MSP to make your company known. Participate actively at networking events the MSP attends.

If you are not an existing vendor for the company, and not part of the MSP's aligned vendors, nor an important staffing player in that city or skillset, maybe MSP is not the right strategy for you yet. To cover your bases, register at the MSP's portal but this is most likely a waste of time as most MSPs have long lists of interested vendors that they don't know what to do with.

Register on OnContracting.com so MSPs and Client Companies researching the preferred vendor lists of other companies discover you and invite you for the RFP. We host the largest and most accurate public list of preferred staffing agencies and MSPs for Fortune 1000 companies.

How is a staffing agency's performance measured in an MSP program? What are the Key KPIs and metrics?

At a high level, staffing agencies are measured based on how fast they submit candidates, To avoid gaming of metrics, they are also measured on the quality of their submissions and adherence to the target rate cards. These are the most common Key Performance Indicators (KPIs) or metrics used by MSPs to measure supplier performance which is reviewed every quarter is as follows

Number of Submissions - Representing total volume of submissions

Positions submitted against- Represents coverage, so vendors are not cherrypicking easy or lucrative positions only.

Average Time for Submission- Time to find and submit candidates. Typically 1-3 days is considered good. Sometimes Time to First Submission is measured to check speed.

Submission to Interview Ratio- Represent how good a match submitted candidates are to the job description based on them being selected to be interviewed

Submission or Interview to Hire Ratio- Sometimes a good resume may be shortlisted only to discover the candidate is bad in the interview which could be due to embellishing resumes.

Total Hires- Staffing agencies should be closing positions with their candidates. If a vendor is not making any placements, there must be something wrong.

Backouts and Declined Offers- Represents whether the staffing agency has really understood the candidate's needs and are diligent before submitting candidates.

Attrition and Termination- Represents unfavorable non-employee turnover. Attrition is how many many contractors leave the assignment before the end date and Terminations are how many contractors were let go because their performance is unsatisfactory.

Compliance to Target Rates- Staffing agencies are typically given target rates for every skill and expertise level based on the MSP's kowledge of market rates. Staffing agencies are expected to stay close to the average rates of the rate card. The reason for this is that a staffing agency could attract and pay its contractors higher rates than market, charge the client higher rates and end up getting the most closures (hires) as hiring managers don't necessarily know the billing rates as they assume these are negotiated by Procurement. So while this sounds good in theory for the staffing agency and contractor, it will cost the client more money.

How can you find the Staffing MSP for any Fortune 1000 company?

OnContracting is the only place on the Internet to list the Staffing MSP for any company. We do this to help staffing agencies research and connect with the right MSPs and Staffing Category Managers. Just search for a company you are interested in the search bar, go to the Company's page and look under the category of 'MSP, VMS & Payrolling' and find the MSP that company uses. You can also search for a MSP agency on our site, go to the MSP company's page and see the list all the clients they serve. If you see something missing or incorrect, please send us feedback directly from the page using the 'Tip for us' feature.

Does the MSP get involved in selecting the contract worker?

No. The selection of contractors is done between the client’s manager, contractor and staffing vendor. The MSP’s role is that of a gate-keeper and they are not directly responsible for or involved in the sourcing, screening or selecting of candidates.

What are the Pros of MSPs

MSPs make sourcing contract workers very efficient by consolidating all the open contract worker requirements at a company and increasing competition.

MSPs provide companies a better overview of their non-employee usage and spend which may be distributed and hidden in various POs, projects, SOWs and HR systems.

MSPs help companies stay compliant with labor and other regulations (ACA, worker classification, etc) as they have better knowledge, information and processes than a typical procurement or contingent labor category manager.

MSPs help reduce costs from increased competition and as they can benchmark with hundreds of their own clients for market conditions.

MSPs keep vendors honest with the threat of kicking out non-performing vendors and bringing in new vendors from other programs.

MSPs give smaller or less 'sales heavy' staffing agencies a level playing field as they don't need relationships inside the company to get business.

MSPs can be used for payrolling pre-identified contractors by the client for very low markups.

What are the Cons of MSPs

MSPs oversee the program and are not directly responsible for the candidate quality, rates, candidate selection. If things go wrong, MSPs can lay the fault on the client's difficult needs or the staffing agency's delivery problem and still get paid.

MSPs commoditize staffing agencies who are relegated to source and submit candidate resumes from the same job boards based on the same job description that many other agencies are also working on.

Staffing agency's margins are squeezed from the increased competition. There are now 10 agencies competing for the same position approaching the same candidates and requiring to hit a target rate.

Staffing agencies feel lost as they can't talk to the hiring managers and get no feedback on why their candidates are not making it. They don't get to build relationships with clients to understand their needs better or offer suggestions for improvements. If they do offer suggestions or seek clarifications, the changes or clarifications may benefit their competitors.

MSP staffing model works best for low cost providers leveraging offshore models with less regard for quality. High quality staffing providers that put more effort into the search and find better candidates fail in MSPs because they lose out on speed and cost.

The MSP's list of vendors is often sub-optimal as the best and highest paid agencies and recruiters would rather work on contract or full-time positions that demand higher quality, higher human interaction, higher pay, and are more profitable with less competition.

MSPs create a large risk for client companies that has recently been overshadowed by the talk of Total Talent Management. MSPs and VMS systems now document the entire hiring lifecycle of every type of contractor- independent contractor, temps, consultants working on SOWs and contract workers, from job distribution to interviews to through termination which was impossible to do before. It has duration of projects, hourly rates, individual names, performance, reason for termination, etc. It is an HR system for non-employees. This was never available before and while this great for companies, it is also now available should the Labor Department, EEO or IRS want that information to investigate worker misclassification or other regulatory compliance issues. It is also now easy for disgruntled non-employee workers to call up in cases of worker misclassification, missed benefits or hiring discrimination allegations.

MSPs consolidate the number of staffing agencies in their MSP program in an effort to give more business to fewer players. The unintended consequence is that the preferred agencies, then create their own sub-MSP because they aren't able to hire all the contractors needed, so they further subcontract down to other agencies. These additional layers add additional risks for the client company. Many preferred vendors flout the no-subcontracting rule creating more risks for the clients.

The automated and non-personal style of MSPs leads to an overall spammy experience for clients and contractors. In an effort to be efficient, staffing agencies with low cost offshore recruiting operations scrape jobboards, spam candidates and submit candidates with minimal vetting in the hopes of getting lucky with one of their submissions. This leads to a bad experience for managers that have to screen more candidates. It also creates issues for candidates who have multiple vendors calling them for the same job, not knowing if these vendors are real or some identity thiefs (many are recruiters from India with very little knowledge of the position), if they were actually submitted or if they committed to an agency who didn't submit them, and mostly never hearing back from these agencies. This leaves a poor impression of the client company.

Some MSPs are not vendor-neutral and do staffing themselves. This creates a conflict of interest as MSPs do have some influence in the program.

MSPs learn about a staffing agency’s most guarded secrets including its strategy for finding candidates, seeing the candidates with contact details coming through the VMS, strength and weakness of the staffing agency, billing rates, markups, etc. that staffing agencies would never share otherwise. An MSP employee can join a competitor with all this insider knowledge about their competitor creating a breach of confidentiality and anti-competitive issues for the client and staffing agencies in the program.  

In many cases the MSP is treated as a vendor of the client and the staffing agency providing the contractors is a subvendor. Staffing agencies often face trouble getting visas approved in these situations as their clients are staffing companies too.

Many staffing agencies consider the MSP fees as coercive, rent-seeking and not worth it.

What do Staffing MSPs charge companies and who pays for them?

At a typical Fortune 1000 company, the MSP charges a standard 2-3% of the Staffing Spend. This is added to the staffing supplier’s invoice to the client. Staffing suppliers bake this markup onto the hourly rates of contractors. Even though MSPs are supposed to be 'supplier funded', their charges are ultimately funded by the contractor or the client.

Some companies have a fixed fee program depending on the cost of the MSP team and some companies work on a Cost plus model where the the companies see the salaries of the contractors, markups of staffing agencies and includes a prenegotiated fee from the MSP.

Are Staffing MSPs profitable?

MSP’s contracts with the clients are volume (cost) based and not success (deliverable) based. Their focus is low risk-high efficiency-small but assured margin. This is the opposite of their competitors- BPOs or consulting companies that take on staffing projects in an outsourced (SOW/deliverable) basis with a high risk-high variability- high reward strategy.

For example- If a client company spends $100M/year to hire 1,000 contract workers, The MSP fees would be approximately $2M/year (2%). The MSP will have a 5-10 member MSP team which would cost them $1M. Depending on what they consider as revenue, the gross profit margin is 50% of Net Revenues if considering only MSP Fees as revenue or 1% gross margin if the entire Contractor Spend is counted as Revenue.

What is the future for MSPs?

MSPs are very established in large companies, so they are likely to stay around in one form or another because of the convenience they provide. The structure of these MSP engagements could change very rapidly though especially as fulltime hiring picks up in 2017 and hiring contractors gets tougher and staffing agencies try to diversify away from MSPs to seek better margins. There are also other risk to the MSP staffing model.

Threats to the MSP Staffing Model

Staffing companies trying to become MSPs themselves. If a staffing company dominates the staffing program at a company it may be able to convince the client to award it the entire business on a SOW/BPO model with cost/profit sharing.

Consulting companies like Accenture, Infosys, etc. coming into the staffing space though project work and SOW based staffing. This has happened in many business functions like desktop support, call-centers and finance backoffice work where the work is projectized and then offshored.

Freelance Management Systems FMS (inhouse talent pool) have started competing with VMSs as the place to host all of a company's contractors. If they become widespread and house enough talent, companies may decide to skip using a staffing agency, VMS or MSP and just use the FMS platform as it does most of what the VMS and MSPs do (communication, payment and even ratings).

Freelance Marketplaces (public talent) like UpWork have also started allowing clients to hire or bring their own contractors from all over the world and host them - including in a W2 (salary) model.

Finally Client companies themselves are looking into self sourcing contingent workers with the variety of new tools and options they have. There is still a lot of inefficiency and friction in this staffing space still and a great model is yet to emerge.

Click here for a list of top MSPs in staffing

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