A staffing agency acts as a liaison between organizations and the workforce by matching workers to businesses looking to fill specific positions. Staffing agencies charge somewhere between 20% and 30% of the first-year salary of the placed resource as a recruitment fee for their staffing services. For a hiree earning $100,000 annually, the staffing fee would be roughly $20,000 to $30,000.
Staffing agencies can also function as employers, taking care of salary, benefits, and overhead involved in hiring. When using this model, employees are on the payroll of the staffing agency and usually work with clients for short stints.
Finding the right talent is often one of the biggest obstacles faced by small businesses that don’t have a full HR department. Creating job postings on job boards, going through applications, conducting interviews, and negotiating contracts takes time and effort, which is why many businesses work with staffing agencies.
This article can help you understand if working with a staffing agency is the right move for your business by giving an overview of pricing methods and typical rates charged.
Staffing agency pricing overview
Businesses collaborate with staffing agencies in several ways, with the terms for collaboration depending on the payment model of the particular agency. The most common payment models are:
- Retainer
- Percentage
- Bill rate
Recruitment services
- Retainer. Retaining a staffing agency is a slow and lengthy process, but it can be cost-effective in the long run. Sometimes, the quality of services improves when one staffing agency works with a business in a dedicated role for a long period. The payment for a retainer model is split into two components. The first part is paid while signing the contract, while the rest is paid for as long as the staffing agency is retained.
- Percentage. The percentage model is simple, so it’s a widely deployed pricing model for staffing agencies. Usually, an agency takes a fixed percentage of the hired candidate’s annual salary as their cut for recruitment. This percentage can run anywhere between 15% and 25% depending on the position and industry.
Employment services
Bill rate. The total amount the agency bills the company for providing workers is known as the bill rate. This includes the pay rate to the individual plus a markup over the pay rate. While this pricing plan allows the client to compare the fee structures from different agencies easily, it may lack transparency, as there isn’t always clarity on the details within the bill rate. This model frees the client from the additional tasks of payroll maintenance, legal complications, and other staffing-related responsibilities.
Staffing agencies typically charge a markup between 20% and 75% of the salary for temporary employees and between 10% and 20% of a permanent employee’s salary. While this allows you to get full-time workers for a relatively low rate, the markup on temporary employees can be high.
For instance, if an IT company has hired a software engineer at the rate of $50 per hour on a contractual basis, then the total per-hour rate paid to the staffing agency could be around $75.
How staffing agencies work
Staffing agencies have a straightforward business model—they gain revenue each time a client hires an employee through them. Staffing agencies earn money by helping companies with job openings find qualified candidates that meet their expectations. The placed resources can work on a temporary, part-time, or full-time basis.
Staffing agencies have two operating models. They may render their services through either recruiting or acting as an employer of record.
The journey begins right from receiving the requirements to finding the right talent, mapping and evaluating them, upskilling them (if required), and successfully placing them. There can be other additional steps, depending on the industry and the position to be filled.
Let’s look at a brief overview of the steps of the staffing agency process.
1. The business reaches out to staffing agencies
When a company is looking for fresh talent, it may outsource the staffing process to an agency. While businesses may reach out to many staffing agencies, it’s crucial to vet the agencies and see some of their reviews. If someone in the business’s network has used an agency, they may be able to provide feedback and speak about their experience.
After the business has selected the agency it wishes to work with, the agency then receives the brief from the employer, which consists of:
- Job title. This is the role that the employer is keen to hire for
- Job description. This states the job duties that the candidate will be required to execute.
- Education and work experience. This informs the staffing agency about what a typical candidate would be expected to have completed.
- Salary and other perks. This is what the company is willing to pay the candidate it hires through the staffing agency.
- Expected turnaround time. The company lets the staffing agency know how soon it wishes to close this opening.
2. The staffing agency spreads the word
Once all the prerequisites are in place, the recruitment agency starts building a talent pool where they create job descriptions and share them across their networks, often using online mediums and job portals. Sometimes, they also leverage paid advertising if the position needs to be filled quickly.
3. The staffing agency receives applications
As word spreads, the staffing agency starts receiving applications from job seekers interested in the open positions. The next task is to create a pool of these candidates and map them according to the company’s hiring needs.
After that, the agency takes responsibility to verify or vet the details submitted by the applicants. At times, the agency will conduct a brief preliminary evaluation and background check before including a profile in the talent pool.
4. The staffing agency creates a shortlist
It’s time to pick the best candidates from the lot. Once the talent pool is in place, the employment agency conducts screenings to zero in on the best-suited contenders.
The agency screens for basic information, such as where the candidate lives and whether they’re willing to relocate if they were offered a job. The agency also screens for educational and work experience.
However, this screening can also be done on the client’s end. During the screening process, the candidate also learns about the company’s expectations, work culture, pay, benefits, and scope for growth.
5. The business makes final hiring decisions
After the staffing agency has given the company a list of relevant candidates, the business is free to conduct interviews with the candidates to check whether they would be a good fit for the role. While the staffing agency might provide the business with multiple candidates and give their recommendations, the business is the one making the final hiring decision.
When the ideal talent is found, the agency initiates the paperwork. The contract, new hire’s details, and financial information are then sent to the company’s HR team. The onboarding process involves induction, orientation, and training. In the case of contractual hiring, these documents remain with the agency.
Do staffing agencies take a cut of the worker’s pay?
Simply put, staffing agencies don’t take a cut from the worker’s pay. Instead, the financial agreement is between the staffing company and the employer that pays the agreed-upon agency fees based on the nature of the contract.
However, a staffing agency may charge individuals seeking work for services they request or need, such as resume writing and interview training. This arrangement would be made separately from the job itself.
How much do staffing agencies charge for a direct-hire?
In the case of a direct hire, the agency charges a one-time fee from a company. It’s usually around 10% to 20% of the placed worker’s annual compensation.
A direct hire isn’t employed or paid by a staffing agency but instead works directly with the business as a permanent worker on the employer’s payroll. Direct hires become full-time staff members receiving all the benefits and perks of a regular employee. Since companies often want to retain these employees for an extended period, they’re sometimes willing to invest more in their development.
In the operational context, the staffing agency does all the work right from the pooling and screening stage to placing the suitable candidate with the employer. The agency charges a one-time fee for these services.
Staffing agency alternatives
While hiring a staffing agency can save time and effort in your staffing process, it can be an expensive process. After all, you’re often paying more than you would otherwise. As a result, it might be more beneficial financially to consider other options for hiring professionals.
Go online
Online job portals, such as LinkedIn and Indeed, and remote talent marketplaces like Upwork are the modern version of classified ads. With 97% of candidates stating a preference for remote work, online portals have become an essential tool for hiring remote workers.
Digital staffing initiatives allow employers to take advantage of the global nature of the web and find suitable workers regardless of their geographical location.
Leverage your network
Chances are that you’ve created a substantial network during your journey to building a successful business. By recruiting within your network, you have a chance of sourcing candidates who understand the industry, are credible, and have a proven track record. Networking is also helpful when recruiting passive job candidates, in other words, people not actively searching for a new job.
Start a referral program
If you’ve already built a team, you can deploy a referral program. This has the added benefit of onboarding human resources who are already at least partially vetted. Not only is this a quick alternative, but your per-hiring cost will also be considerably low compared to hiring a dedicated recruiting agency for the same role.
According to a CareerBuilder survey, 82% of employers stated that employee referrals provide the highest return on investment.
Use Talent Scout
When you need expert help with your hiring process, Talent Scout™ might be exactly the place to look. Talent Scout recruiters on Upwork are highly experienced and can understand your business’s needs. When you have new or changing business resource requirements, they’ll prepare a shortlist of pre-vetted talent with the right skill sets for you to review.
Combining machine learning with personal assessments, they’ll ensure that you find applicants with the most suitable capabilities in a cost-efficient and timely manner.
Incorporate automation
Automation in recruitment allows companies to make their staffing activities more efficient by reducing cost per hire and time to fill. Data-driven screening helps recruiters by sifting through hundreds of resumes—a task that can take up to 23 hours for a single hire—and allows for more accurate decision-making.
Find cost-efficient staffing solutions
While hiring is an integral part of a company’s growth, optimizing the staffing process can improve operating margins and maximize profitability. Businesses have many options for recruiting talent, ranging from staffing agencies to online job portals.
Another cost-effective staffing solution to consider? Talent Scout. Our recruiters can help you build the team of your dreams by including freelance talent. We’ll help you find exceptional talent to fill skills gaps as your business grows. Take the guesswork out of staffing by working with Talent Scout recruiters today.
