Being a travel nurse prior to founding Nurse First Travel Agency in 2017, I have always felt it is critical that travel nurses not only know what their contracts entail but understand their contracts as well as understanding why they are what they are. It is never okay to accept responses to your questions from agencies who just simply tell you “that is just how it is.”
One of the topics our team receives the most questions on, and I have even seen recent posts on social media, is that of the financials of being a travel nurse. Particularly, as those financials relate to pay packages. I am going to keep this complex topic as short and simple as I can but forgive me as this will be a bit lengthy. However, I hope it helps you better understand the flow of money within our industry.
Why the bill rate is not as relevant as many travel nurses believe
Before I digress in to why the bill rate isn’t as relevant to you, the travel nurse, as you may believe, it is important to understand what the bill rate actually is. The bill rate is simply what the facility pays for each billable hour that a travel nurse works. Unfortunately, it is quite rare that the company sees every dollar of this due to combinations of the below factors:
–Vendor Fees: a % of the hourly rate that the agency must pay the “middle man” for having a contract through them, if it is not a direct contract with the facility
–Factor Fees: a % of what the agency invoices hourly in order to receives funds within a day or two opposed to waiting upwards of +60 days for facilities to pay for your hours worked
–Unbillable Hours: often times facilities will not pay, per their contract, the agency for your first X hours worked in the contract; this can vary from 0 to 40 hours
Once these fees and deductions are taken from the bill rate, you then arrive to the Total Margin, in which the agency builds your pay package from. THIS IS WHAT YOU SHOULD BE CONCERNED WITH. THIS IS WHERE ALL PAY PACKAGES START.
Bill Rate = $100
Vendor Fee = 5% ($5)
Factor Fee = 2% ($2)
Unbillable Hours = 16 hours (if it is a 36 hr x 13 week contract that is a total of 468 hours that you are paid. The agency is only paid for 452 of those hours. Take 452 billed hours / 468 nurse paid hours and you see that the agency can only bill for 96.5% of the hours. Thus, another 3.5% (100%-96.5%) is lost from the bill rate for a total of another $3.50
To find the Total Margin, use this formula:
Bill Rate – Vendor Fee – Factor Fee – Unbillable Hours = Total Margin
$100 – $5 – $2 – $3.50 = $89.50
Yes, you read that correctly. Over $10 was lost prior to arriving to what the agency “sees” of the bill rate; i.e. the Total Margin. Think of this as the “Total Pie” and of this comes your “piece of the pie” as well as the company’s.
The agency’s piece of the total margin pie
The first thing each agency does once the total margin has been established is to take out their “piece of the pie” in what we refer to as the Profit Margin. This is the money used to keep their doors open and grow.
Let’s use Nurse First as an example and we take JUST a 10% profit margin. That simply means that Nurse First takes 10% of the total margin and in the example above that would be:
10% x $89.50 = $8.95 for each standard hour that the travel nurse works goes to the Nurse First. This is all of the money Nurse First makes, off of your contract, to cover:
-Internal Salaries (for NFTA, roughly $32k/mo)
-Corporate Insurances (for NFTA roughly $10k/mo)
-Software / Supplies (for NFTA roughly $15k/mo)
-Marketing (for NFTA roughly $5k/mo)
$89.50 – $8.95 = $80.55 is left for your pay packages and the salary burden that comes with employing / paying you.
The travel nurse’s “piece of the total margin pie”
Finally, we have arrived to the travel nurse’s “piece of the pie.” Unfortunately, many sources lead many travel nurses to falsely believe that the travel nurse should receive all of the remaining piece (the $80.55 above) between the travel nurse’s standard wages and tax-free stipends. Although this would be wonderful, it is just simply not possible. The reason being what is to be covered in the remaining “piece of the pie” is:
-The travel nurse’s taxable wages
-The travel nurse’s tax-free stipends
–The salary tax the employer incurs for paying the travel nurse
-The Worker’s Comp the employer incurs for paying the travel nurse
Total remaining piece of the pie = $89.50
Travel nurse’s stipends = $40/hr ($1,440/wk for 36 hours/wk)
Travel nurse’s wages = $43.03/hr
Employer’s Salary Tax for travel nurse’s wage = $5.17 (12% of your taxable wage)
Worker’s Comp Cost = $1.30 (3% of your taxable wage)
As you see, their is $5.17 + $1.30 = $6.47 of the remaining “piece of the pie” to taxes and worker’s comp that is lost! I know many of you may be asking yourselves why these fees are deducted from the remaining “piece of the pie” and not from the agency’s profit margin. The reasoning is quite simple, if the Agency “ate” those costs from their profit, the agency would only make:
$8.95 – $6.47 = $2.48/hr the travel nurse works
From the numbers I listed above, for Nurse First’s costs of over $62k/mo, if each travel nurse worked just 36 hrs/wk and we only made $2.48/hr per travel nurse, that would take 160 travel nurse just to break even, let alone grow.
After all of these deductions from the remaining piece of the pie are accounted for, a gross of $83.03/hr is left to go towards the travel nurse’s taxable wage and tax-free stipend. WHICH IS ABOUT 83% OF THE INITIAL BILL RATE!
***NOTE: This example above also shows you that there is never “extra money” to give, unless it comes from the agency’s profit margin (which many agencies take substantially larger margins than Nurse First does, so they can).
***ADDITIONAL NOTE: You also see that each taxable dollar costs roughly 15% more to pay than a tax-free dollar does. Meaning, to give a travel nurse an extra $1 taxable, the agency must deduct $1.15 of tax-free money to get the travel nurse there!
I hope this helps clear up what goes in to making a pay package for travel nurses without confusing you more! Please, feel free to comment with your questions below if you happen to have any.