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Updated Jul 05, 2024

Understanding How Staffing Agencies Work

Staffing agencies provide an outlet for businesses looking to hire temporary employees quickly.

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Patrick Proctor, Senior Writer & Expert on Business Operations
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As an employer, finding the right candidate to hire for your business is a lengthy and demanding process. Even worse, the search can be resource-intensive, requiring manpower and funding to cover everything from recruiting efforts to vetting and onboarding. 

Because of this, many businesses look to staffing agencies to do the legwork. These agencies find candidates for companies, matching them with the roles and environments they’re best suited for — simplifying the process for both employers and job seekers. 

What do staffing agencies do?

Staffing agencies, also known as recruitment agencies or temp agencies, match companies that have short-term staffing needs with candidates who are looking to work for short periods or want to try out a new job. They usually specialize in a particular industry or type of work, but they tend to work similarly, regardless of the type of position or industry. 

Most staffing agencies provide employers with prequalified candidates who will work on a temporary basis for any open positions. This allows the temporary employees, or “temps,” to gain work experience and try out a job before committing to it.

TipBottom line
“Temp” positions can range from one day to one year, which is the standard limitation for what the Department of Labor defines as a temporary employee.

How do staffing agencies work?

Staffing agencies can be a helpful resource for both businesses and job seekers. Here’s how they operate.

1. The employer makes initial contact. 

Most of the time, an employer will contact a staffing agency that they feel would be a good match. The employer shares the job description, what they are willing to pay for the role, how long the assignment is expected to last and any particular concerns or details about the role, which may spill into physical, safety and/or travel requirements.

Once the details of the role are established, the staffing agency shares a service agreement (or contract) with the employer that outlines the nature of the relationship, such as how billing and invoicing works, the service charge and what to do if the employer wants to hire the worker.

2. The staffing agency assesses its portfolio. 

Sometimes the staffing agency has personnel ready to start working immediately. However, it often needs to tap into its network of temporary workers or recruit new candidates to locate the right person for the job. 

3. Candidates apply for work through the staffing agency. 

Since many staffing agencies focus on specific areas of the labor market, they often run ongoing recruitment ads with the knowledge that candidates will sign up to work and employers will seek their services. Through general recruitment strategies, candidates commonly sign up for work, and the staffing agency processes them as soon as they do. When employers call, agencies hope to have candidates prequalified and ready for interviews or work immediately.

4. The agency and employer interview candidates.

Once candidates have applied to a staffing agency, the agency will interview them, even if there is no immediate work available. This process often involves a background check, drug screen, credit check, employment verification and reference checks. Some agencies help candidates develop professional resumes, which are shared with employers.

If candidates make it past the agency’s vetting process, employers can then interview them. This process typically includes thorough job identification and information about the company, why the position is needed and how the candidate’s background matches the employer’s needs. [Here are 10 HR interview questions for employers to use when assessing candidates.]

5. The chosen candidate begins work. 

Although the staffing agency will be the temporary employee’s official employer, the company that hired them for the temp position manages them and shows them what to do to fulfill their duties.

FYIDid you know
A relationship with a staffing agency may come in handy at critical times for your business. If you’re an established client, the staffing agency might prioritize your business over others during busy seasons, which increases the likelihood of getting the help you need when you need it.

What are the types of staffing agencies?

In addition to temporary staffing agencies, there are many other types of agencies that fill needs for employers across many industries. Here are some different kinds of staffing agencies.

  • Full-service staffing agencies: Full-service staffing agencies are versatile and offer more complete services, including staffing for longer-term assignments. These agencies may deliver temporary, temp-to-hire or full-time staffing, even for highly specialized roles.
  • Retained search or executive search agencies: Retained search and executive search firms specialize in staffing for higher-level or executive roles. Passive talent looking for better opportunities will often partner with search firms, as they often focus on specific industries and are well networked.
  • Boutique staffing agencies: Some types of talent are hard to find, or a particular industry is so niche that highly skilled workers in that field, who do not often change jobs, need to be sought out by professional recruiters. Boutique agencies specialize in locating candidates who are not actively looking to change jobs.

How much do staffing agencies charge?

The convenience of having prequalified candidates at the ready comes with a cost. Staffing agencies charge a markup, which covers their costs and profit margin, in addition to the hourly rate of pay the temporary employee receives. Candidates typically do not pay fees to the staffing agencies.

Staffing agencies may charge several different rates and fees, depending on many factors. The role the temporary employee is performing, the employee’s experience and how in demand the employee’s skill set is in the marketplace will impact the agency’s charges. 

  • Standard markup: The markup can range from 25 percent to 75 percent of the temporary employee’s wages, depending on the role, hourly rate or salary, and location. For example, suppose your temporary employee’s rate is $20 per hour and the markup is 25 percent. In that case, you’d pay $25 per hour to the staffing agency ($20 for the employee and $5 for the agency).
  • Finder’s fee: Staffing agencies may also charge this fee that is not included in the markup. Depending on the circumstance, the added cost of locating the talent and filling the role could be set at a premium. Although finder’s fees are less common, they can be part of a staffing agency’s commission structure.
  • Temp-to-hire fee: With temp-to-hire arrangements, which allow you to eventually hire the temporary worker as a full-time employee, you pay a percentage of the total compensation over a given waiting period, generally six to 12 months. So, if you bring on a temp for six months but decide after one month to hire them full-time, you would still pay the staffing agency for the other five months. Of course, there is no guarantee that the employee will work out for the long term. If you notice an employee is a bad hire within the first few months, the staffing agency may offer a partial credit or refund.
  • Headhunter fee: With some agencies, the goal is not to locate temporary employees at all, but rather full-time employees who are either hard to find or have unique skill sets and experience. In these cases, fees range from 25 percent to 40 percent of the employee’s first-year salary. 

How do you find a staffing agency?

Finding the right staffing agency for your business might take some time. Start by determining your business’s needs, including the type of roles, number of new hires, desired skill sets and budget. Then aim to partner with a reputable firm that can deliver these services.

Conduct a thorough search online, looking at local and national agencies. Many directories and professional associations, such as the American Staffing Association, offer lists of credible agencies that maintain ethical standards and practices. These agencies range from those providing general staffing services to ones that specialize in specific roles or industries, such as technology or healthcare. 

Leverage contacts in your industry — especially those in businesses of a similar size — to get their recommendations. If they’ve previously used staffing agencies, they can provide valuable insights based on their experiences, helping you identify reputable agencies or advising you to avoid others.

Look at reviews and testimonials online as well. Review platforms, such as Yelp or Google, can offer insights into a business’s reliability and quality of service. However, these reviews should not be the sole deciding factor. People are typically most motivated to review when they are either highly satisfied or highly dissatisfied with a business.

TipBottom line
Spend time reviewing staffing agencies’ online presence. A well-maintained website, a blog featuring insightful posts or an active social media account can demonstrate the agency’s expertise and engagement in the industry.

What to consider when choosing a staffing agency

Partnering with a staffing agency can benefit both the employer and the employee. Employees are mainly looking for readily available work, and having fully vetted candidates at the ready is valuable to employers. Time is money, and during busy or peak seasons, you’ll want immediate solutions to your staffing needs. This speed of service during busy seasons is one of the aspects you should ask your prospective agencies about. Here are some other things to consider when you’re looking for a staffing agency.

  • Specialization: Does the agency specialize in your particular area of business? It may be fine if not, but its candidates must meet your needs.
  • Cost matrix: Due to their specialties or the industries they serve, some staffing agencies have a higher markup than others. Ask agencies you’re considering what their markups are and if there are penalties for hiring employees out of their agreement with the staffing agency.
  • Availability: Some staffing agencies don’t operate nationwide. Ask agencies if they offer 24/7 support or have offices near your business locations.
Bottom LineBottom line
If you are uncertain how long a staffing agency has been in business, ask to see its business license, registration and/or insurance certifications. All staffing agencies are required to offer certain benefits to their employees and have insurance, such as workers’ compensation, for everyone on their payroll.

What are the pros and cons of partnering with a staffing agency? 

Selecting a staffing agency partner should be a careful process to ensure it will meet your needs. Understanding the limitations of a staffing agency will help you set your expectations so that disappointment or surprises will be minimal.

Pros

Cons

Staffing agencies can be an excellent solution for immediate temporary staffing assistance.

Hiring a staffing agency temp as a full-time employee can cost additional money if done within a contract or service agreement.

Staffing agencies can reduce the time it takes to fill a position, saving money and preventing lost sales.

Staffing agencies do not necessarily specialize in your type of company and ensure a good cultural fit; they primarily focus on candidates’ skill sets and work experience.

Utilizing temporary staffing can help you vet and assess candidates before bringing them on permanently.

Not all staffing agencies operate nationwide. If you have facilities around the country, for example, you may not be able to use your first choice for temporary staffing help.

Sean Peek contributed to this article.

author image
Patrick Proctor, Senior Writer & Expert on Business Operations
Patrick Proctor is a human resources and people operations expert with SHRM-SCP certification and an MBA in business management. He has spent nearly 20 years leading HR for organizations of varying sizes, some international. He advises on regulatory compliance, workforce management, aligning strategic business objectives with human capital initiatives and more. Proctor is passionate about helping businesses establish employee-centric workplace cultures that increase team member satisfaction while also maintaining cost efficiency and improving ROI. He also enjoys integrating distributed teams and developing the next generation of leadership. He has written about workplace issues for publications like Entrepreneur and sits on the boards of advisors for people management company ChangeEngine and UC Santa Barbara's Professional and Continuing Education program.
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