As a travel nurse or allied health professional, have you wondered why you’re (usually) only receiving two-thirds of what the hospital is paying the staffing agency for you to be there? Where is the rest of it going? Is your agency really that greedy? Having met hundreds of travelers over my career, I know I’m not alone with these questions.
Travel healthcare professionals (very) often feel they’re being shortchanged.
One thing has become abundantly clear: it’s shocking how little my fellow travel RNs and I really understand about how and why travel nurses get paid what we do. Turns out, recruiters aren’t so bad after all. In fact, the majority of recruiters and agencies really do have the nurses’ best interest in mind. Let that appreciation sink in for a second. (deep breathe in… and out)
While the breakdown is not always so straightforward (and certainly not streamlined), here’s a general overview of the figures between what the hospital pays, the “mess in the middle”, and what ends up in the traveler’s pocket:
[The TL;DR here is that VMS/MSP takes 2-7%, agency overhead accounts for 17-25%, and stipends + taxes widely vary by situation.]
It starts with a hospital being short-staffed, and administration giving approval to employ travel healthcare professionals to fill the need. Keep in mind:
- Most hospitals engage with a VMS (Vendor Management System) or MSP (Managed Service Provider) to manage the staffing process.
- An hourly rate is established with their contracted VMS/MSP for each profession + specialty, commonly known as a bill rate. This rate is often fixed for the duration of their contract with that MSP and is the same for any nurse they bring them.
Upon establishing the bill rate, the VMS/MSP works to fill needs (open jobs) when posted by the hospital or healthcare facility. VMS vs. MSP processes are a little different. At a glance:
- Frequently, the MSP is also a staffing agency, so they’ll attempt to fill the need first. In theory, this would be the best case scenario for the nurse, since there is only one “hand in the pot” between the nurse and health system, but this is not always the case.
- If the MSP’s agency can’t fill the roll after a number of days, they’ll pass it along to their network of agency partners/subcontractors. Sometimes specific agencies get first pick, then it goes to a second group after a few more days, and so on. The net widens as this process continues.
- A VMS is essentially a software system that that gives many agencies access to open jobs straight from the health system at the same time.
- Occasionally, the VMS will have a tier system like the MSP, where certain agencies get early access, but most often the VMS is “vendor-neutral”. When a job is posted into the VMS, the agencies approved to access that VMS will all try to fill the position.
In either case, the VMS/MSP collects 2-7% of the bill rate to cover the costs of technology, managing multiple agencies, and filtering through potential workers submitted to fill the need.
[Side Note: Why do hospitals use a VMS/MSP anyway? In short, establishing these relationships give the HR department and nurse managers a single point of contact while enabling them to work with many agencies at the same time, which often results in filling needs faster.]
After the percentage taken by the VMS/MSP, the staffing agency overhead (cost of operations) eats up a large percentage of the bill rate. Here are some of the main costs an agency endures:
- Agencies first reach out within their network of employees (and past employees) to try and fill a position. If they are unable to find someone quickly, needs will be broadcasted on job boards and social media. This process incurs expenses through employee labor and costs associated to post needs on job boards.
- Next, agencies will cold contact leads that they have acquired and, most often, paid for.
- The cost to “buy leads” from lead generators varies significantly across channels and, unfortunately, is not always very cost-effective. Leads are often “stale” and the recruiter time spent on outreach is both expensive and time consuming.
- How much a recruiter makes from the bill rate varies and can’t really be pinned down in terms of an “average” figure. Some recruiters are paid strictly off commission, some strictly hourly, and others in between.
- Most recruiters don’t take advantage of travelers, although there are some bad apples out there. If nurses ever find that they are quoted grossly different rates for the same assignment, particularly from recruiters in the same agency, they should (nicely) question it.
- There are several costs to be considered beyond those of recruiter labor, posting on job boards, and lead generators. Additional items to consider include: paid marketing + advertising, administrative and management costs of running the business, credentialing, software tools and technologies that facilitate daily workflows for agency staff, paid referrals, benefits, insurance, taxes, payroll and payroll taxes, and reimbursements for screenings, vaccinations, licenses, certifications, education, etc.
- Any “free” benefit given such as rental cars and bonuses are ultimately coming out of the bill rate, too.
- Occasionally, agencies will also sub-contract to other agencies when they are unable to fill a need, and in turn retain a percentage of the bill rate.
The agency typically absorbs 17-25% of the bill rate to cover these expenses.
While there are some agencies out there that take advantage of nurses, these operational costs are actually quite high due to the lack of efficient tools to manage day-to-day operations in this industry – with the highest expense being the manual work involved throughout all areas of operation.
[Side Note: Why can’t the hospital just employ the nurse directly to cut costs? In short, they can, but very few do. The HR nightmare of trying to employ a traveler as a W2 employee for a short term assignment, combined with the candidate sourcing and logistical planning that goes into travel healthcare, makes it very difficult to handle staffing in house. Travelers can’t (easily) be hired as independent contractors (1099 workers) because of rules imposed by the IRS. At a high level this is because a nurse is unable to control what work they do throughout each shift, and how they do it, as they are working under the direction of hospital policy, physicians, and other higher level providers. Therefore, the majority of facilities who utilize travel nurses and allied health professionals will go through a staffing agency to do so.]
After VMS/MSP and agency overhead expenses are factored in, that leaves between 69-81% of the bill rate for the traveler. However, not all of this makes it to their bank account, as taxes and stipends need to be factored in first.
- A portion of your pay as a travel healthcare worker ends up being “tax-free”. Expenses incurred while traveling – such as daily meals and incidentals (M&IE), housing stipends, and travel reimbursements – can avoid being taxed as long as the traveler is able prove that these were additional expenses incurred as a result of the travel contract. As far as the IRS is concerned, all tax free earnings must have been used on duplicated expenses associated with traveling or being away from their home. The breakdown of what is considered a stipend vs. taxable wage varies significantly by assignment location. This GSA – U.S. General Services Administration – calculator can be used to determine permissible stipends by location.
- Beyond the tax free stipends, the remaining is set as an hourly rate which is subject to taxes. This includes state income tax in some states (average 4.5%), and federal income tax regardless of location (average 22-24%). Learn more about state income taxes here.
The percentage of a travel nurse or allied health professionals paycheck that goes towards stipends, taxes, and benefits varies greatly, but generally one should expect between 25-40%.
In the end, gaining a deeper understanding of where expenses occur between the hospital and my bank account has resulted an understanding of the staffing side that isn’t made easily available to fellow travel nurses and allied healthcare professionals. I hope this helps shed some light for all those that are reading and strengthens the important relationship between travelers and recruiters.