Staffing agencies, also called employment agencies or temp agencies, connect job seekers with temporary, part-time, or full-time positions and assist employers in finding qualified candidates. They search through their database of candidates for those that match the requirements of the employer’s job openings.
Staffing agencies typically continue managing temp workers after placement, since the worker is an employee of the staffing agency not the end client, handling employment matters like termination. However, for direct hires, once the candidate joins employment with the end client, they no longer receive support from the staffing agency.
The process works as follows:
- Employer contacts staffing agency regarding employment needs
- Agency works with employer to identify job requirements (e.g., necessary skills and salary range)
- Agency searches for potential candidates within their talent pool and by advertising on job boards and social media platforms
- Candidates are screened (e.g., skills tests, background checks, and reference verifications)
- Screened candidates are matched with available positions based on qualifications and experience
- Matched candidates are endorsed to employer for interviewing and assessment
- Staffing agency provides guidance to candidates throughout the recruitment process
Types of Employee Placements via Staffing Agencies
Staffing agencies provide companies with temporary, temp-to-hire, and direct hire placements. These agencies act as a bridge between employers and job seekers, streamlining the hiring process while offering flexibility.
- Temporary workers: Commonly hired to cover short-term needs, such as seasonal demands, special projects, or employee absences
- Temp-to-hire arrangements: Employee starts on a temporary basis, but has the potential to be hired directly if their performance meets expectations
- Direct hire employees: A straightforward placement; the agency matches your job description with potential candidates and the worker enters your workforce as an employee if they meet the qualifications
When hiring temporary employees through a staffing agency, the agency is technically the employer. This means that it handles employment-related tasks, such as new hire reporting, payroll management, benefits (including both fringe and mandatory), and workers’ compensation insurance.
As the Employer of Record (EOR), it reduces a company’s administrative burden and employment liability. For instance, if a temp worker’s assignment ends or their performance isn’t satisfactory, the staffing agency is responsible for the termination, not the end client. Since the staffing agency handles compliance tasks and insurance, the company is shielded from liabilities that come with employment.
While these agencies do charge fees beyond the employee’s wages, these costs cover the services provided, including risk management, legal compliance, and insurance, making it a cost-effective solution. At the same time, companies retain full control over a temporary worker’s day-to-day duties and performance. This balance allows businesses to focus on core operations, while the staffing agency handles the backend employment responsibilities—providing a flexible and low-risk staffing solution.
Cost of Hiring a Staffing Agency
Because the staffing agency does all the prep work of finding and qualifying candidates for you, there are fees associated with hiring a staffing agency. These fees are generally charged to the employer, whereas the job seeker can use the services of a staffing agency to find employment for free.
Staffing agencies do not normally charge a fee upfront to use their services. Instead, they charge a percentage (average 10% to 30%) of the salary or hourly rate of the employee the company hires.
Our table below shows how this breaks down for each employee type at an agency rate of 20%. Note the payments you make to the staffing agency are your all-in costs. There’s nothing additional you need to pay directly to the worker unless and until you hire them directly as an employee.
Employee Hourly Rate/Salary | Payment to Staffing Agency | |
|---|---|---|
Temp | $10/hour | $12/hour |
Temp-to-Hire | $10/hour, while temporary $28,000/year | $12/hour $5,600 |
Direct Hire | $55,000/year | $11,000 |
Per our example above, if you hire a temporary employee for an hourly rate of $10, you can expect to pay the staffing agency somewhere around $12 an hour. If you decide to hire an employee as a temp-to-hire, you will pay the adjusted hourly rate while the employee is temporary and then pay a percentage of the employee’s hiring salary once you bring them on as your hired employee. For a direct hire, you would simply pay the percentage of the annual salary as a one-time fee.
While these fees may sound like a lot, your company is saving money by not having to look for employees, post open positions on job boards, and spend hours of time screening resumes of individuals who are likely not qualified for the position. A staffing agency handles your recruitment management for you, making it one of the best ways to find employees you’ll love. Additionally, if you are hiring temporary employees or seasonal workers, the staffing agency is handling all the paperwork for you, including paying the employees their salaries.
Pros & Cons of Using a Staffing Agency
There are many benefits of hiring a staffing agency for both employers and job seekers. For employers, staffing agencies have a large pool of potential candidates. For job seekers, staffing agencies offer access to a wide range of job opportunities that may not be advertised elsewhere. However, on the flip side, when vetted by the agency and not your company, the candidate may not be a good cultural or skills fit.
| PROS | CONS |
|---|---|
| Efficient recruiting process. Hiring a staffing agency streamlines the recruiting process. The agency handles everything from advertising to screening candidates, saving you valuable time. | Higher costs for highly compensated roles. Staffing agencies charge a percentage of the candidate’s salary as a fee. This can become expensive for high-paying positions. |
| Access to a large candidate pool. Staffing agencies have extensive databases of potential candidates. This means you can find qualified candidates quickly, which is particularly useful for urgent hires. | Potential cultural mismatch. Candidates vetted by a recruiting agency might not always fit your company’s culture. This can lead to higher turnover rates and reduced employee satisfaction. |
| Flexibility in hiring. Staffing agencies offer various employment options, from temporary and part-time roles to direct hires. This flexibility can help you meet seasonal demand or fill long-term positions. | Variable skill levels. Some candidates provided by staffing agencies may not have the exact skills your business requires. It’s important to communicate your needs clearly to the recruitment agency you choose. |
| Expertise in hiring. Recruitment agencies are skilled at finding the right fit for your job openings. They also provide additional services like interview preparation and resume tips for candidates. | Longer hiring times. While agencies can quickly provide candidates, finding the right match for highly specialized roles can take time. This delay can impact your business operations. |
| Cost savings. By using a staffing agency, you can save money on advertising and recruitment costs. Agencies also handle payroll and benefits for temporary employees, reducing your administrative burden. | Limited control over screening. When the recruitment agency handles the screening process, you have less control over which candidates are selected. This might lead to mismatches in skills and qualifications. |
So when should you use a staffing agency? It depends on your unique needs and budget, but here are some situations when it might be helpful, or not, to use a recruitment agency.
| When to Use | When Not to Use |
|---|---|
| You need to fill a position quickly and don’t have time for an extensive hiring process | You have a highly specific company culture and need candidates who fit seamlessly |
| You require temporary or seasonal staff to meet fluctuating demand | You need to fill a highly specialized or senior role where the cost of the agency fee is prohibitive |
| You need access to a large pool of candidates for a specialized role | You prefer to have full control over the screening and hiring process |
| You prefer to outsource payroll and administrative tasks for temporary employees | You have the time, budget, and resources to conduct an in-depth hiring process in-house |
How to Hire Using a Staffing Agency
Hiring from a staffing agency follows the same basic outline as hiring an employee yourself. The main difference is that instead of handling the primary screening and job posting, you simply sift through the candidates that the agency vets for you, usually a handful or less, saving you incredible amounts of time and effort.
It is important to outline the requirements for your open positions. The staffing agency will then use its network and resources to find potential candidates who meet those requirements. If interested in any of the candidates presented, employers have the opportunity to interview them and decide whether or not to hire them.
Here are more details on how hiring from staffing agencies works:
1. Determine Your Budget
When hiring through a staffing agency, budgeting is critical. Companies need to account for not only the employee’s wages but also the staffing agency’s fees, which cover services like payroll processing, benefits administration, and workers’ compensation insurance if you’re hiring on a temporary or temp-to-hire basis.
If you’re hiring directly, you’ll pay a lump sum fee to the staffing agency. These fees are often a percentage of the worker’s hourly rate or annual salary. While it might seem costly upfront, the reduced liability and administrative burden offset the expense.
2. Determine the Type of Employee You Need
This depends on the position you are hiring for and the length of time you need the employee. Staffing agencies can help employers fill positions that are temporary, temp-to-hire, or direct-hire.
3. Provide Details About the Job Opening
Start by providing a complete job description that includes all the necessary skills, experience, responsibilities, and qualifications required for the position. You should also specify any special requirements, such as language proficiency or specific certifications required for performing certain tasks, and provide information about work hours and location.
4. The Staffing Agency Will Find and Vet Candidates
The staffing agency will use various channels to advertise your open positions, including online job boards, social media platforms, and candidates from their own pool of qualified job seekers. Once potential candidates apply for the position, the staffing agency begins screening them based on their qualifications and experience.
5. Interview Selected Candidates
When the staffing agency finds qualified candidates, they will forward their resumes to your company for review. From here, you will select the candidates with the best qualifications and skills and conduct your own internal interviews.
6. Hire Candidates and Pay the Staffing Agency
Once you decide which candidate or candidates to hire for your open positions, the staffing agency will draw up contracts with the candidate. For temporary employees and temp-to-hire employees, the staffing agency will pay the employee and handle all employer-of-record procedures. For direct hire employees, you will pay the staffing agency a fee and then the candidate will become an employee under your company.
How to Find a Staffing Agency
When partnering with a staffing agency, research and evaluate different firms based on their expertise and experience—look for agencies that specialize in your industry or have experience working with similar companies. Check their reputation by reading reviews from previous clients or asking for references from other businesses.
The type of staffing agency you select may also depend on the type of employee you need. If you need a temporary in-house employee, a local staffing agency may be best for your business. But, if you want to hire a remote employee, a national agency may be right for you.
How Staffing Agencies Work Frequently Asked Questions (FAQs)
Yes, partnering with a staffing agency can be an excellent idea for small businesses. Recruiting firms save you time and effort by handling the recruiting process, from advertising the position to screening candidates. They have access to a large pool of potential candidates, which can help you find qualified talent quickly. They also offer flexibility in hiring, allowing you to bring on temporary, part-time, or direct hire employees.
Any time your budget allows. The pros often outweigh the cons. Specifically, if you need to fill a position quickly, if you need to hire a temporary or seasonal worker, or if you’re looking for specialized skills, a staffing agency can tap into a broader network to locate the right candidates for you. Using a recruiting agency can not only help you save on recruiting costs but it will also help you reduce the administrative burden of handling payroll and benefits for hourly employees hired through the agency.
It can be beneficial, especially for small businesses—but only till a certain point. Recruiting firms provide expertise and resources that you may not have in-house, helping you scale your workforce quickly and efficiently, adapt to changing business needs, and access a wider talent pool.
However, it’s essential to balance the use of staffing agencies with your internal hiring efforts to ensure you maintain control over your company’s culture and long-term hiring goals. Eventually, when you have the budget and human resources capability, you may shift to an in-house recruitment team to have more control over the recruitment process.
Recruitment firms work with small businesses by first understanding their hiring needs and job requirements. They search their candidate database and advertise the position to find potential candidates. The agency handles the screening process, including initial interviews, skills tests, and background checks, to ensure candidates meet your qualifications. Once they identify a handful of suitable candidates, you’ll interview them and make a selection. This process allows small businesses to focus on their core operations while the agency manages recruitment and administrative tasks.
Bottom Line
Hiring a staffing agency can help you save time and resources by pre-qualifying candidates that match the skills and experience needed to fill your open positions. The staffing agency will do all the legwork for you and present you with a few candidates that meet your needs. From there you simply interview the candidates and choose the perfect match.
