MSP vs. VMS in staffing: the service, the software, and what each means for suppliers
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An MSP is a service and a VMS is software. A managed service provider (MSP) is a company that takes on responsibility for managing a client's contingent workforce program: selecting and managing staffing suppliers, distributing orders, reporting, and often consolidated billing. A vendor management system (VMS) is the web-based application used to run that program: requisitions, submittals, timesheets and invoices. Staffing Industry Analysts' definition of an MSP notes that many MSPs also provide their clients with a VMS, which is why the two terms get used together.
This page compares them side by side, explains the MSP models and funding, and sets out what each means for a staffing agency that supplies into a program. For working day to day inside the software, see vendor management systems for staffing agencies.
MSP vs. VMS side by side
| MSP | VMS | |
|---|---|---|
| What it is | A company providing a service | Software, usually web-based |
| Main job | Run the contingent workforce program for the client | Record and automate the program's transactions |
| Typical tasks | Supplier selection and management, order distribution, rate cards, reporting, compliance, billing | Requisitions, order release, submittals, interviews, offers, timesheets, invoices, reports |
| People involved | A program team, sometimes on the client's site | Users at the client, the MSP and the suppliers |
| Can exist alone? | Yes, though many MSPs also provide a VMS | Yes, run by the client's own team |
| Supplier's main contact | The program office | The system's workflow and notifications |
The three ways programs are run
- Client-managed VMS. The client licenses a VMS and its own procurement or HR team runs the program. Suppliers deal with the client's program staff through the system.
- MSP with a VMS. The client outsources program management to an MSP, which runs the program on a VMS, either the MSP's own or a third-party system. This is the setup the shorthand "MSP/VMS" refers to.
- MSP without a separate VMS. Smaller programs may be managed through the MSP's own tools and spreadsheets, though reporting and billing get harder to control as a program grows.
Vendor-neutral, master vendor and hybrid MSPs
MSPs differ in how they treat staffing suppliers, and this matters more to an agency than which software is used.
- Vendor neutral. The SIA lexicon describes a vendor-neutral model as one in which the program handles tasks such as order distribution under client-defined policies that give all, or a defined set of, suppliers an equal opportunity to fill each order, or select them on the same criteria. The MSP cannot push orders to itself or a favored supplier.
- Master vendor. One primary staffing supplier receives orders first and fills what it can, passing the rest to secondary suppliers, who may be subcontracted to and paid through the master vendor.
- Hybrid. Some combination: for example, a master vendor for high-volume roles and neutral distribution for specialist ones.
| Model | For a supplier, the upside | The downside |
|---|---|---|
| Vendor neutral | Access to orders on performance, not ownership | Competing with many suppliers under submittal caps |
| Master vendor (as secondary supplier) | Access to a client you could not reach alone | Orders arrive after the master vendor has had first pick; you may be paid by a competitor |
| Master vendor (as the master) | First access to all orders | Responsibility for fill rates across the whole program |
Who pays
Programs have to be funded somehow. Some clients pay the MSP and VMS directly. In a supplier-funded model, the program retains a percentage of each supplier's invoices to cover its costs (see this explanation of vendor-funded programs). The percentage is set in the supplier agreement. For a supplier, the effect is the same either way the fee is described: your net bill rate is lower than the rate on the rate card, and your markup must be built on the net figure. The worked example in vendor management systems for staffing agencies shows how much margin a small fee removes, and how to calculate staffing markup covers the burden underneath.
Terms that get confused with MSP and VMS
| Term | What it means | How it differs |
|---|---|---|
| Managed services (ASA sense) | The American Staffing Association uses it for a staffing firm taking full responsibility for running a client function, such as a call center | Runs a function, not a supplier program |
| MSP (IT sense) | A managed IT service provider running a company's technology | Same acronym, unrelated to staffing |
| RPO | Recruitment process outsourcing: an outside firm runs some or all of the client's permanent hiring | Focused on permanent hires rather than contingent labor |
| Payrolling or employer of record | A supplier employs workers the client found | A service used inside a program, not the program itself |
| Direct sourcing | The client builds its own pool of contingent talent, often with a payrolling partner | Reduces orders sent to staffing suppliers |
When a client uses any of these words, ask who will release orders, who sets rates and who you will invoice. The answers tell you what the arrangement really is, whatever it is called.
Which does a client need?
From the buyer's side, the choice is about how much program management the client wants to do itself:
- A VMS alone fits a client with a procurement or HR team that can manage suppliers, rate cards and reporting, and wants visibility and consistent processes.
- An MSP with a VMS fits a client with a large or scattered contingent workforce and no team to run it, or one that wants an outside party accountable for supplier performance and compliance.
- Neither may be right for a client that uses a handful of agencies for occasional roles. Direct relationships and clear agreements can do the job; see how to choose a recruiting agency.
Client-sourced workers, such as a contractor a manager already knows, can be routed to a payrolling supplier within the program rather than through the normal requisition process; see payrolling services explained.
What each means for a staffing agency
| Question | If an MSP runs the program | If the client runs the VMS itself |
|---|---|---|
| Who decides if you get in? | The MSP and client, often through a supplier review or RFP | The client's procurement team |
| Who sets your rates? | Rate cards agreed between MSP and client | The client's rate cards |
| Who scores you? | The MSP, using VMS data | The client, using VMS data |
| Who do you escalate to? | The MSP program office | The client's program owner |
| Can you talk to hiring managers? | As far as program rules allow | As far as program rules allow |
In both cases, the program's supplier agreement replaces the terms you would normally negotiate. Read it for the fee, payment terms, conversion terms, candidate ownership rules and removal criteria before you accept your first order.
Questions to ask before joining an MSP/VMS program
- Is the MSP vendor neutral, a master vendor, or a hybrid? If a master vendor, who is it?
- How are orders released: to all suppliers at once, or in tiers? How do suppliers move between tiers?
- What is the program fee, who pays it, and does it apply to overtime, expenses and conversions?
- What are the submittal caps and response deadlines?
- How is a duplicate submittal decided between suppliers?
- What contact with hiring managers is allowed?
- What are the payment terms, and how do timesheet disputes get resolved?
- Which measures are on the supplier scorecard, and how often is it shared?
The answers tell you whether the program can be profitable for your agency before you invest recruiter time in it.
Questions people ask
What is the difference between an MSP and a VMS?
An MSP is a company that manages a client's contingent workforce program: supplier selection, order distribution, reporting and often billing. A VMS is the software used to run that program. An MSP usually works through a VMS, but a client can also run a VMS itself without an MSP.
Can you have a VMS without an MSP?
Yes. Some clients license a VMS and run the program with their own procurement or HR team. The software handles orders, submittals, time and invoices; the client's staff do the program management an MSP would otherwise do.
What is a vendor-neutral MSP?
A vendor-neutral MSP distributes orders to suppliers under client-defined rules that give approved suppliers an equal opportunity, or select them on the same criteria, and does not push orders to itself. A master vendor model instead has one primary staffing supplier that receives orders first and may fill them itself or pass them to subcontracted suppliers.
Who pays for an MSP and VMS program?
It varies. Some programs are paid for by the client; in a supplier-funded model, a fee is retained from staffing suppliers' invoices. The supplier agreement states the fee, and suppliers should build it into their rates.