Staffing agency business overview
What is a staffing agency?
A staffing agency is a business that searches for workers on behalf of other organizations. They help these clients with temporary and/or permanent roles. (And they help job seekers find jobs.) Personally, I find this definition from Law Insider to be the most helpful:
“Staffing agency means any person who undertakes, with or without compensation, to recruit, refer or place individuals for employment, or to procure opportunities for work, or to with an employer.” – Staffing agency definition from Law Insider.
For temporary jobs, the staffing agency acts as the “employer of record” or legal employer and provides workers wages and benefits. For permanent jobs, the staffing agency operates as an extension of the HR team by helping them recruit, screen, and interview talent for permanent jobs within the company. This model, often called “direct hire,” is different in that the recruited person is never an employee of the staffing agency.
Staffing agencies tend to specialize in a particular kind of service or talent. For our part, we mostly focus on office and professional roles.
What else do you call staffing agencies?
Staffing companies are called many different things, some of which include:
- Employment agencies
- Recruitment companies
- Consulting companies
- Staffing firm
All of these terms are interchangeable and it’s mostly a matter of preference which label a staffing company prefers using.
Additionally, the service performed, staffing, is itself sometimes called different things, such as:
- Staff augmentation (often associated with information technology staffing projects)
- Consulting services (often associated with IT when the workers are 1099 contractors, not employees)
- Temp service (usually associated with short term, less experienced positions)
- Contingent labor (often associated with project-based staffing)
- Employee leasing (this is a somewhat outdated term referring specifically to temporary employment)
These terms are also all interchangeable.
How much do staffing agencies cost?
Staffing agencies make money through temporary staffing, temp-to-permanent staffing, or direct hire staffing. Each of these models generate revenue for the agency a little differently.
- Temporary staffing: the client is charged an hourly “bill rate” that accounts for costs associated with the employed individual. These include: wages, benefits, insurance, risk, operating costs, and profit. Costs might also be expressed as a “markup rate” or “markup percent.” For example, an employee makes $50 / hour and the markup rate charged by the agency is 50%. The bill rate is therefore $75 / hour ($50 + $50*.5).
- Temp-to-permanent staffing: the client is charged an hourly “bill rate” as they are in normal temporary staffing. However, the client can hire the person on directly if they’re a good fit for the organization. If this happens, the client is charged a placement fee that decreases over time the longer the employee works temporarily.
- Direct hire staffing: the client is charged a percent of the first year’s annual salary for the selected candidate. This is sometimes called a “placement fee” For example, if a person makes $100,000 / year and the placement fee is 25%, the amount charged is $25,000. Sometimes, a client asks for “executive search services.” This model is virtually identical except is usually a harder and more involved search reserved for leadership roles. It also typically costs more.
Actual out-the-door costs for staffing vary within the industry and is subject to negotiation based on a range of factors. The good news is that it usually doesn’t cost anything to have a staffing agency look for talent. It only costs if you decide to bring someone on board.
For our part, you can schedule a time to go over pricing with one of our business development team.
Is temporary or direct hire better for me as a client?
Different organizations will prefer various staff augmentation models. Generally, there are several key questions to ask yourself:
- Is this project-based or short term? If so, I recommend temporary staffing.
- Do I want to try the worker out? If so, I recommend temporary-to-permanent staffing.
- Do I want help recruiting for internal roles? If so, I recommend direct hire.
- Do I want to pay up front or spread out the cost? If up front, I recommend direct hire as a straight forward, one time fee. If spread out, I recommend temporary-to-permanent.
Who uses staffing agencies?
Many organizations use staffing agencies. Government, companies, nonprofits–most organizations use or have used staffing agencies to solve business needs such as finding talent quickly or completing projects.
Why hire a staffing agency?
This is the question I get asked the most: “Why would I hire a staffing agency when I could just recruit myself?
Some of the top reasons organizations hire staffing companies include:
- Try before you buy: if you want to try out someone on a temporary basis before committing to hiring them, this can be a great reason to utilize temporary or temp-to-permanent models.
- Unable or too busy to find talent yourself: sometimes you need help finding someone. Whether you need a whole bunch of people for a time sensitive project or are struggling to find a hard-to-find candidate, staffing agencies act as an extension of your HR to find and send you talent.
- Cost effectiveness: it can actually be cheaper to bring on temporary personnel instead of paying staff by the time you account for wages, benefits, cost to train, and other hidden employment costs. This is especially the case if the work is not constant and you’d be struggling to find things for another extra employee to do. Similarly, it can be cost effective to utilize direct hire if not having someone in role is costing you money. In both cases, utilizing these services can also cut down on costs related to advertising jobs and employing recruiters.
- Reduced organizational risk: whenever you employ someone, you’re taking on risk. A staffing agency absorbs the cost of workers compensation and health insurance. They’re also liable for unemployment claims. Finally, should any labor disputes arise, it is usually the staffing agency that is held accountable.
- Access to their talent pool and expertise: staffing agencies spend all day, every day recruiting. Your HR team, by contrast, may only do it once in a while. When you sign up with a staffing agency, they often have recruited for similar previous roles before and perhaps have some candidates already ready to go. They can often find talent faster than you can and access talent that was not visible to you.