Temp agencies, also referred to as staffing agencies, can help small businesses quickly find qualified people to fill positions, both long-term and short-term alike. Many employers use temp agencies to fill in for employees on leave, seasonal work, or project work that may not have a long-term need.
Understanding how to use a temp agency and when they are right for you to help build a strategy around supplemental staffing support that will help your company get through busy and, at times, unplanned periods when you need more hands on deck.
1. Determine Which Positions You Need and Why You Need a Temp Agency
Different companies will utilize temp staffing for different reasons. Each company needs to determine when temp help is better than longer-term arrangements or adding to your payroll.
One of the on-going challenges for small businesses is ensuring that you are not over or understaffed.
If you are overstaffed, then you are paying more than needed in payroll costs or employees are not getting their needed hours, which will result in attrition. If you are understaffed, then you are pushing overtime on employees, leading to burn out and/or missed business opportunities due to lack of personnel.
Here are the four most common reasons that small businesses utilize temp staffing support:
1. Seasonal fluctuations: Within many industries, companies need to cover the seasonality of their business streams, and not in all cases is that best done by hiring seasonal employees. Temp staffers can help fill the gap through day-to-day work or longer-term seasonal work.
In terms of seasonality, think retail during the holidays. Retailers need more employees during the month of December than in January. Temp staffing can be the perfect answer for this seasonal need.
2. Coverage for employees on leave: Much of the time, temps are hired—in all levels of positions—for a couple of weeks at a time. Additionally, as employees utilize family or medical leave, temps can be called in for a couple of months to cover the gap of the employee on leave.
3. Trial service for long-term opportunity: Some employers will bring on their new staff as temp employees to see if they would be a good fit for their organization. If they decide that the employee is not a good fit, they can simply and easily end the employment contract. If the employer likes them, they can easily extend an offer of employment.
Special Note: This is a fast-growing trend among small businesses today. Companies are realizing the clever option of testing a candidate by hiring them as a temp. Employers can easily break ties for any reason, or no reason at all, if the employee is a temp worker.
If the company were to have hired the same employee, they would be required to go through a termination process, which requires documentation, legal reasons for dismissal, and so on. With temp employees, the company (customer) calls the temp agency and reports that they will no longer be requiring the services of their temp. The next day, the company can pursue other candidates for their staffing needs.
4. Cost savings: At the end of the day, companies are looking to save as much money as they can while meeting their staffing needs. For a lot of jobs involving physical labor, temp staffing can make more sense when business fluctuates greatly. It is a nimbler way to manage staffing needs than to hire everyone on payroll, not knowing if all employees will be consistently needed.
2. Budget for Temp Agency Costs
Remember, temp agencies earn money when employers hire temp workers within their portfolio. The challenge for small businesses that need temp staffing help is to not pay too much. The general rule is that most companies will pay a little more per hour for temp skilled workers since they do not have to bring a new employee on to payroll.
So, although temp staffing agency fees vary, companies should expect to pay between 1.65 and 2.10 times the temp employee’s base salary. The rate certainly fluctuates, depending on factors such as the demand for the skill sets or experience needed, the difficulty of the search, and the number of available candidates in the area or overall industry.
Here is an example of costs you may encounter when hiring a temp agency.
Please note the employee earns $30 per hour and is assigned to work in an office or administrative role (this determines their workers’ comp insurance rate, which temp agencies add into the overhead fees):
Employee Pay Rate/Hr.
State Unemployment Tax
Federal Unemployment Tax
Prorated Background Check Costs
TOTAL DIRECT COSTS
(12.1% of pay rate)
This bill rate is calculated as a mark-up over direct costs. For example, if the mark-up is set to 25%, the invoice rate would be $42.03, which equals a service fee of $8.41 per hour or $336.40 per week (under a 40 hour week). Also, remember that temp staffing saves costs on advertising or recruiting for candidates, which can get expensive fast.
3. Decide Between Local Temp Agencies or Online Options
First, you should consider the type of work you need to fill. Day labor jobs or short-term work that requires the physical presence of the temp worker means that going with a local temp agency will be the best choice for you.
If, however, you have professional-level expertise that you are seeking and do not need temp workers to physically be in a certain location, then online or global staffing agencies can be a quick and efficient way to hire temp staff that meets your needs.
When surfing online for a staffing agency, we recommend using a large recruiting brand to help guide your searches, such as Indeed and Glassdoor. Additionally, there are helpful reviews that breakdown the best staffing agencies per industry, which can help save you time and money.
4. Understanding Temp Agencies and How They Work
Just because you need additional help does not mean that you should run out and hire more employees. Temp agencies can be a nice augmentation to your strategy around building your workforce. Temp agencies really have two sources of clientele:
- Workers: They sign up to be on a temp agency’s list of “pre-approved” staff who are ready to be hired and can start work the following (or at times, the same) day.
- Employers: They call the temp agency and share what they are in need of, and the staffing agency refers to their list of individuals who have been interviewed, drug tested, and background checked.
Agencies are paid when the associates within their portfolio are hired out to employers who are also clients. The temp agency charges a fee in addition to the hourly rate of pay that the worker makes. For example, a company calls a temp agency needing an accountant. In that case, they generally will charge an hourly rate (let’s say $50 per hour), which goes to the temp accountant, plus another $15 per hour, which the temp agency receives.
So, the company receiving temp help will pay $65 per hour for their temp. Some of this is profit is for the temp agency, but a portion of it is for overhead, which covers candidate vetting, skill testing, insurance, benefits, background checks, pre-employment drug screening, etc.
Different Ways Temp Agencies Recruit
There are many ways that temp agencies can assist companies or small businesses. Some provide day laborers for physical work or seasonal work, while others specialize in executive-level positions. In addition, some temp agencies act more like consultants or recruiters who specialize in finding permanent placements for companies. Executive agencies, for example, primarily look for talent versus soliciting candidates to apply and charge the employer a fee for their services.
There are many reasons to partner with temp agencies when you have the need for additional staffing or expertise that you may only need for a brief period. Look for staffing agencies with high marks from online resources like Indeed or Glassdoor or a local temp agency that has been referred to you or that you trust. A solid temp agency partner can help offer security and support when you need it most.