Staffing Agency

How staffing agencies work

Staffing agencies sell three main services, often from the same branch:

• Temporary staffing: the agency recruits, hires, pays and handles payroll taxes for workers who perform work at the client's site. The client pays an hourly bill rate. See temporary staffing for how assignments work in detail.
• Temp-to-hire: the worker starts as a temp, and the client can hire them permanently after a set period, often around 520 hours (13 full-time weeks), sometimes with a conversion fee if converted early.
• [Direct hire](/glossary/direct-hire/): the agency recruits and the client hires the candidate from day one. The agency charges a fee, typically 15 to 25 percent of first-year base salary for most roles, with a guarantee period during which the agency replaces the hire or refunds part of the fee if they leave.

Larger agencies also provide on-site management for big temporary workforces, payrolling for workers the client has already found, and managed services for clients with many suppliers.

How pricing works: markup and bill rates

For temporary staffing, the agency's price is the markup on the worker's pay rate. Markups for light industrial and clerical roles commonly fall around 25 to 60 percent; specialized professional, IT and healthcare roles can run higher. The markup is not profit. It has to cover employer FICA, federal and state unemployment insurance, workers' compensation (which can be expensive for warehouse and manufacturing roles), any benefits the agency offers, paid sick leave required by state law, recruiting costs, and the branch's overhead.

When comparing agencies, ask for the bill rate broken into pay rate and markup, and confirm what is included: overtime billing (usually the overtime pay rate times the same markup), drug tests and background checks, safety equipment, and on-site supervision. A low markup with every extra billed separately can cost more than a higher all-inclusive rate.

Staffing agency vs recruitment agency

In US usage, the terms overlap, but there is a practical difference. A staffing agency places workers who are often employed by the agency itself, usually for hourly, temporary or contract roles in industrial, clerical, healthcare and IT work. A recruitment agency (also called a search firm or headhunter) finds candidates for permanent roles that the client hires directly and charges a placement fee; it rarely employs anyone on assignment.

Many firms do both. The question that matters for a buyer is who employs the worker. If the agency does, the agency runs payroll, withholds taxes, carries workers' compensation and handles employment paperwork such as Form I-9, while the client typically directs the day-to-day work. That split creates shared legal responsibilities, discussed below.

When to use a staffing agency

• Volume spikes: seasonal peaks, product launches, a new site ramping up, or covering a hiring wave the internal team cannot staff fast enough.
• Uncertain demand: when you are not sure the work will last, temps let you scale down without layoffs.
• Hard-to-reach labor pools: agencies with local branches often have a bench of available workers.
• Try before you hire: temp-to-hire lowers the cost of a bad hire for roles with high early turnover.

Agencies are usually more expensive per hour than direct employees for long, stable roles. If a temp has been on assignment for over a year in a role you clearly need permanently, converting or hiring directly is often cheaper and better for retention. If you are interviewing account managers or recruiters to join an agency, use our staffing agency interview questions.

Legal points: co-employment and safety

When an agency employs the worker and the client controls the work, both may be treated as employers for some purposes. This joint employer or co-employment relationship can make both parties responsible for wage and hour compliance, discrimination and harassment claims, and workplace safety. OSHA's position is that the staffing agency and the host employer share responsibility for temporary workers' safety, with the host usually responsible for site-specific hazards and training.

Some states have specific temporary worker laws. Illinois' Day and Temporary Labor Services Act and New Jersey's Temporary Workers' Bill of Rights, for example, add notice, pay and equal-treatment requirements. Rules vary by state; check them before contracting.

How to manage agencies well

• Track fill rate, time to fill, first-week no-shows, assignment completion and quality ratings by agency, not just price.
• Give agencies accurate job details: pay, shifts, physical demands, PPE, and the real reasons temps get ended early.
• Limit the supplier list. Two or three agencies that know your site well usually outperform ten competing for the same orders.
• Review markups annually against market rates and changes in state wage and leave laws.