Perhaps the most complex and least understood aspect of travel nursing is travel nursing pay. Most blog posts I’ve read don’t provide a completely accurate explanation of the pay package. Some of them do a good job of explaining the travel nurse’s side of the pay package, but nobody comes close to offering a full explanation of what’s happening on the agency’s side of the equation. Understanding the agency’s side of the equation is extremely important as it will help you see right through the sly sales pitches and advertising gimmicks.
Overview of travel nursing pay package
The pay package for every assignment starts with the bill rate. The bill rate is the hourly rate that a agency can charge the facility for the nurse’s time at the facility. For example, if the bill rate is $60, then the agency charges the hospital $60 per hour for the nurse’s time. There can also be additional rates such as an on-call rate, an overtime rate, a call-back rate, a charge rate, a holiday rate, and others.
The single most important thing to understand at this point is that the bill rate is the agency’s only source of revenue, otherwise known as money. Why is this so important to understand? Because understanding this helps you realize that every single thing that a agency provides, and every single cost it incurs comes out of this rate. Nothing is “Free.” Understanding this helps us understand that we must consider every single variable that agencies are offering when comparing pay packages.
Agency revenue and costs
Like all businesses, agencies are fundamentally concerned with their “gross profit” or “gross margin.” Gross profit is the difference between revenue and cost before accounting for certain other costs. Gross margin is the same as gross profit except that it’s expressed as a percentage. So we essentially have three variables to define: 1) Revenue 2) Cost 3) Other Costs.
Revenue is very simple. Revenue is simply the total amount of money that the agency brings in. As mentioned above, an agency’s revenue is the amount of money it receives for its nurses’ time at the contracted hospitals. Therefore, revenue is the bill rate multiplied by the number of hours worked. Consider a 13 week contract for 36 hours per week with a bill rate of $60 per hour. The agency would receive $2,160 per week (60*36) and $28,080 for the entire contract (13*2160).
Defining Cost and Other Cost is a bit more difficult because agencies can employ different ways of determining these variables. However, these differences will not matter to the traveler because every cost is going to be accounted for and it’s ultimately going to have the same effect on the pay package. Therefore, we’ll provide you with a general example of how the vast majority of agencies calculate these variables.
Cost is typically defined as the total cost of the product. I hate to say it, but for a company, the travel nurses are the product. Therefore, every penny that is directly attributed to the traveler is the cost. There are two cost classifications: 1) compensation and 2) burdens.
Compensation is typically defined as any cost or payment that is going to be given directly to the traveler. These items include things like the pay rate, any tax free stipends, travel expenses, medical benefits, rental cars, reimbursements for licenses and certifications, and any other money or benefit provided by the agency and going directly to the nurse. Burdens are typically defined as costs that don’t go directly to the traveler, but are none the less attributed to the travel nurse. These items include things like liability insurance, compliance/credentialing costs, orientation fees charged by the hospital, federal payroll taxes, and workers comp, disability and unemployment insurance.
The cost of capital may also be included in the burdens. Like most companies, agencies must borrow money to meet their payroll obligations. Agencies receive weekly timesheets from their employees and they pay on either a weekly or bi-weekly basis. But for the agency, the timesheet is more than just a timesheet; it’s also a bill.
The agency sends the timesheet to the hospital and requests payment. The hospital typically pays within 30, 60, or 90 days. So the agency has to pay their nurses before it actually receives the money from the hospital. Therefore, they need to borrow to meet their payroll. As a result, the agency is charged interest, and this cost is typically included in the burdens.
“Other Cost” is typically defined as all of the costs that go in to managing and maintaining the business itself. These items include office costs like rent, telephones, computers, copiers, and faxes. They also include marketing costs like web site development, job board costs, advertising costs, and convention attendance fees. Finally, Other Cost also includes the agency’s internal staff’s payroll.
Agency profitability calculations
We have defined Revenue, Cost, and Other Cost. Now let’s take a mathematical look at how these variables are calculated.
Revenue = (Bill Rate)*(Contracted Hours)
Gross Profit = (Revenue)-(Cost)
Gross Margin = Gross Profit/Revenue (remember, Gross Margin is expressed as a percentage)
Net Profit/Loss = (Gross Profit) – (Other Cost)
These details provide us with a solid starting point. Please post questions or feedback in the comments section. You can continue to read about this important topic in Part 2 of this series.