In the Netherlands, approximately fifty billion euros are spent annually on flexible labor – not even including Statements of Work (SOWs) and the hiring of consultants. This amount is only increasing, partly driven by market tightness and the growth in the number of self-employed workers. For many organizations, gaining control over hiring and hiring rates is high on the strategic agenda, as this often involves tens of percent (or more) of the total labor costs. Far above any (Roemer) standard. Grip on external hiring is one challenge; another challenge is purchasing it at market-conform rates. In many cases, far too much is paid for flex, which comes at the expense of profit margins that are under pressure. Or public funds that could have been spent differently.
In the Dutch labor market, we see five different methods for determining hiring rates for self-employed workers, interim professionals, seconded employees, and temporary workers:
This is by far the most common, but also the most problematic method. The responsible manager makes a direct price agreement with the agency, based on urgency, speed of delivery, and negotiation power. These rates are often well above market rates and occur outside the official frameworks of the hiring organization.
The reality: This method leads to rates that are on average 10–15% above market level. These are precisely the agreements that drive procurement departments of large organizations to despair, as there is no control over costs, but also not over quality, duration, or notice periods. Gaining control here leads to immediate savings, prevents excesses, increases retention and support within an organization, and prevents the hollowing out of the organization. Excesses further drive flexibilization within organizations.
A widely used method in which a multiplier is applied to underlying wages (collective labor agreements and/or internal wage structures), with annually determined rates and automatic indexation. This method is mainly used for temporary workers due to legal obligations (WAADI), but also for secondment companies. For the latter category, this is much less necessary, as in many cases—especially when rates exceed 80–90 euros per hour—more wages are paid and billed for equal work. Only in well-negotiated SLAs, such as in healthcare, is indexation more logical.
The problem: Due to automatic indexation, rates always increase regardless of the labor market situation, even though this is not necessary because there are already sufficient margins in the rates of freelancers and seconded workers. Furthermore, indexation works like compound interest: the next increase also (additionally) applies to the previous one. As a result, everything gets further out of sync.
Many organizations in the Netherlands use a rate book. These are benchmark figures from companies advised based on the same benchmark rates, who then provide this data for the next benchmark. A vicious circle in which employers quickly end up paying well above market-based rates. This is partly because the rates are based on a non-representative sample of employers (profit and non-profit). In addition to the use of multipliers and indexation, rates are increased on unjustified grounds. It is also common for several larger secondment agencies to use their own benchmark as the basis for rate negotiations. These benchmarks lead to systematic overpricing because agencies use their own datasets plus an additional margin.
The pitfall: These benchmarks are not independent and create a vicious cycle where prices can only go up, and the gap with market-based rates keeps growing. Employers using benchmark rates also find it difficult to switch to market-based rates because this often means having difficult conversations with suppliers/partners and explaining internally that they have been overpaying for years.
Especially in healthcare, organizations make sharp purchasing agreements for clusters of professions via Service Level Agreements. This method works with pre-agreed rates based on cost-plus calculations.
Characteristics:
The dilemma: While this method can lead to cost savings, it often causes issues with quality and availability, as agencies struggle to attract good professionals when margins are too small.
These are the actual prices at which supply and demand meet in the labor market. These rates reflect real-time tightness and scarcity and are primarily driven by the current labor market situation.
Why this works: Market-based rates are based on actual behavior and transactions in the market. They fluctuate quarterly, driven by current demand (assignments in the market) and supply (shortages or surplus of freelancers/seconded workers). The only provider of independent rate data for freelancers and seconded workers in the Netherlands is Intelligence Group. One downside is that they (still) don’t have this data for the multipliers used for temporary workers. The advantage is that these market-based rates are available by function and experience level, allowing them to be translated into pay scales and salary structures.
The consequences of non-market-based purchasing are significant:
The central government could save at least €1 billion over the next three years by switching to market-based purchasing.
Implement a system in which all external hiring goes through one controlled process. This creates control over hiring managers who make their own agreements — the most expensive form of rate setting.
Margin on top of margin through agencies supplying each other. It started in the 1990s, but believe me, it still happens frequently. Take a critical look at your preferred suppliers: 1)allow secondment agencies to supply only their own staff, and 2) use specialized freelance brokers for providing freelancers. Any other form costs you unnecessarily more.
Switch from benchmark rates to market-based rates. These are independent, reliable, and verifiable rates based on actual transactions.
Use real-time market data and monitor at least quarterly. When purchasing tens of millions, you want to stay on top of price developments and be able to anticipate market trends. It’s about people, but it’s also business.
The labor market and recruitment are about to change drastically due to developments in AI. Anticipate this in your hiring strategy, for example, by implementing a bonus/malus system for people who do or don’t use AI and productivity-enhancing tools.
But above all: to get a grip on hiring rates, start by understanding how your rates are determined, and end by having the courage to choose a market-based, data-driven approach that is both cost-effective and high-quality.
