Executive Summary: When it comes to commission calculation, the staffing industry faces problems like splitting of placement fees, clawback adjustment, keeping track of large datasets, etc. This article explores these common challenges in detail and features ways you can solve them.
Every industry has commission calculation issues. The staffing industry, in particular, struggles with challenges like splitting placement fees, delays in commission payment due to certain caveats, team-based revenue targets, and more.
While these issues are common, not every agency has found the perfect solution.
Agencies that use spreadsheets to manage commissions should consider using commission automation software to tackle these issues. These can make calculations easier and error-free and bring more transparency to the entire process.
In this article, we’ll cover the most common commission challenges that staffing agencies face. You’ll also find some fantastic benefits of using commission software and a perfect alternative to spreadsheets.
7 Commission Challenges in Staffing Industry
In the staffing industry, commission management can present its own unique set of challenges. Here are seven common commission challenges faced by staffing agencies:
1. Placement fee split is complex
Staffing companies often split the placement fee based on three factors:
- They source the client.
- They source the candidate.
- They source both clients and candidates.
Here the split could be complex if the staffing agency owns the client, but they referred to other agencies for candidates. Conversely, they could refer their own candidates to other clients.
This results in a split of the placement fees between the involved parties. And that’s why you need to keep multiple data here, like the source of each client and candidate, split ratio, and more. This can quickly snowball with the increasing number of candidates, clients, and salespersons involved in the equation.
2. Type of employment
The commission rate could vary depending on if the candidate is on a temporary or permanent placement.
When a candidate receives a permanent placement, salespeople typically earn an upfront fee. This fee could come with its own stipulations, such as the candidate having to spend at least three months before the commission will be credited.
This again requires the staffing agency to keep track of this due date and ensure that they send the invoice to the client on time. Once they receive the commission amount, they have to add it to the total commission the salesperson will receive.
3. Payment of commission
The payment of commission becomes more complex when the candidate is placed on a temporary or contractual basis.
Let’s quickly see what these challenges are:
- The client pays the staffing agency, and then they pay candidates on an hourly basis.
- The payment of commission happens after a certain time has passed, for example, 30 days after the start date or payroll period.
- Raising the client invoice on time and the invoice being realized.
These conditions put the commission earned into limbo.
And maintaining data like commission amount, start date, and other information on a spreadsheet can be a hassle. Plus, there’s no way to track each date except by going through it manually.
Sounds exhausting? We know!
4. Clawback
Commission clawback in staffing and recruiting is a provision under which if a placement fails, then the client fee has to be refunded. This means the staffing agency needs to deduct or claw back the paid commission amount from the future commissions of the salesperson.
This situation can easily become tricky if the staffing agency follows a tiered commission structure.
How?
Imagine each deal is placed one on top of another – creating a stack. The higher you are on the stack, the more commission rate you earn. Now, if you remove a block from the bottom, the tower automatically shifts down.
So, suppose a salesperson was supposed to earn commission based on these tiers:
- Tier 1: 10%
- Tier 2: 12%
- Tier 3: 15%
However, the entire commission needs to be recalculated as deal X fell through. For some deals that were initially calculated at 15% now, the commission will be calculated at 12%.
5. Payment of signing bonus
Some agencies offer a signing bonus to the salesperson to motivate them to close a deal.
While this allows the sales rep to immediately see the monetary impact of closing the deal, it can create cash flow problems for the agency if there's a significant delay between the signed agreement and the first payment.
Moreover, if this amount is a significant portion of the compensation package, it may require adjustments to commission rates, quotas, or targets to maintain the desired balance between fixed and variable pay.
6. Team-based revenue targets
The demanding nature of staffing agency work involves a lot of team effort and hierarchies.
So, to compensate each rep, you need to determine the appropriate split ratios. This can depend on factors like each team member's level of involvement, contribution, or responsibility.
You also need to consider the changing team dynamics. Sales representatives may join or leave the team, or the team structure may evolve based on project requirements or client demands. Managing commission splits effectively amidst these changes requires flexibility and adaptability in the commission calculation process.
7. Scalability
Lastly, one of the biggest challenges that the staffing industry faces is scalability.
For each placement, the staffing industry needs to keep track of the following:
- Managing the split of placement fees.
- Determining commission rate and the hourly billing rate for contract employees.
- Keeping track of the agreement signing and first payment dates to timely release the commission.
- Calculation of tiers, margins, and clawback.
Now, add hundreds of candidates to this equation. *inaudible gasp*
Exactly!
This makes correctly mapping and tracking the placement data to the right sales all the more complicated.
So what can you do?
Look for a solution that helps you automate commission calculation, take of stipulations like clawbacks, and also nudge you when it’s time for payouts,
And commission software can help you do just that!
How Can Commission Software Solve Staffing
With its advanced features and capabilities, commission software can help overcome the commission disputes faced by staffing agencies in their commission management processes.
Let's take a closer look at how commission software addresses these challenges and provides practical solutions for staffing agencies.
- Automated Calculations: Commission software automates commission calculations based on predefined rules, commission structures, and other variables.
- Elimination of Errors: Automatic calculation reduces the reliance on manual calculations that can be prone to human errors.
- Handling Complex Commission Structures: These tools can easily manage complex commission structures involving multiple factors, such as revenue thresholds, varying commission rates, or different commission splits for different services.
- Ease of Use: Staffing agencies can configure and customize commission rules based on their specific requirements. It can accommodate different commission structures and be tailored to align with the agency's compensation plans and unique business needs.
- Improved Transparency: Commission automation tools offer detailed reports that show how commissions are calculated, including factors like revenue generated, placements made, or specific performance metrics. This transparency helps sales representatives understand how their commissions are determined, fostering trust and motivation.
- Enhanced Security: Staffing companies store and manage sensitive data like which candidate’s personal details, which companies are hiring, how much they’re offering, and which candidate is earning how much. Commission software helps safeguard sensitive data through measures like data encryption, user access controls, compliance with data protection regulations, and more.
Where can you find such a tool?
Luckily, ElevateHQ ticks all the boxes!
ElevateHQ is a commission automation tool suitable for small to medium-sized businesses. It offers some amazing features like:
- Flexible rule definition: From tiered commissions and placement fee splits to clawbacks and bonuses, ElevateHQ can handle any level of complexity.
- Timely and accurate payouts: Set up custom rules for payment disbursals, then kick back and relax while our solution takes care of the rest.
- Manage team dynamics: Add or remove team members, change teams, roll-up structures, or assign new clients without breaking the accuracy of earnings calculation.
- Reconcile with collections: Can keep your payout calculations in tandem with actual collections made on the accounts as and when applicable.
- Manual updations: Provision to manually update your clean data if you’re maintaining it on spreadsheets.
Wrap Up
In the fast-paced world of staffing agencies, effectively managing commissions is crucial for driving sales performance and motivating sales reps.
However, placement fee splits, clawbacks, team-based revenue targets, and other complexities in the commission calculations pose significant challenges.
This is where commission software like ElevateHQ emerges as a game-changer.
Sign up for ElevateHQ’s free demo and transform commission management today!
