Thinking About Using a Staffing Agency? Here's What You Need to Know
Nicole Fallonbusiness.com Member
Updated Oct 20, 2020
A staffing agency can save your business time and money and find well-qualified candidates.
A staffing agency acts as a middleman between employers and workers, helping to match qualified candidates with companies that have current job openings.
If your business needs additional labor, working with a staffing agency can save your company time, plus it offers other benefits as well, including flexibility and reduced potential legal risks.
Staffing agencies charge a markup that typically ranges from 25% to 100% of the hired employee's wages.
This story is for business owners and hiring managers who have never worked with a staffing agency previously but are looking to grow their business's team by partnering with one.
Finding qualified talent remains challenging for many small companies. Reviewing applications, interviewing candidates and negotiating salaries all take precious time away from a business owner's existing obligations, which may end up hurting the business in the long run. That's why some employers partner with staffing agencies, which take a lot of the time and effort out of the search for candidates by providing their own workers for open roles.
Using a staffing agency isn't the right choice for every business, but if you're considering working with one to meet your hiring needs, here's what you need to know about the process.
What is a staffing agency?
A staffing agency recruits employees for businesses that are seeking to fill certain positions. When you need new staff and choose to work with a staffing agency, the process typically goes as follows:
The employer contacts the staffing agency. First, you'll reach out to an agency that specializes in your industry, specifying information like the job responsibilities, the number of employees needed, the timeline to hire new workers and the wage or salary rate.
The agency creates the job description. The agency then writes up a job description and advertises it for your business. They might also reach out to potential candidates individually if the candidate is a good fit for the job.
The staffing firm vets candidates: Once candidates begin applying for the open position, the staffing agency reviews their experience and qualifications before scheduling and conducting interviews. They then choose the most qualified individuals to introduce to the hiring manager at your business.
The employer makes the final decision. The hiring manager or business owner will interview the staffing agency's choices before making a final hiring decision. This saves you and your staff hours that you would otherwise spend sorting through countless applicants.
The agency takes care of the paperwork. Most agencies handle all the paperwork associated with new hires, like contracts, taxes and other payroll tasks.
Key takeaway: A staffing agency is a middleman that eliminates most of the time-consuming hiring process so that business owners can allocate their efforts elsewhere.
How much does a staffing agency charge?
Staffing agencies typically charge 25% to 100% of the hired employee's wages. So, for example, if you and the staffing agency have agreed on a markup of 50%, and the new employee earns an hourly wage of $10, you will pay the agency $15 per hour for their work.
In addition to the markup you will pay, you may be expected to cover additional fees for filling the position or a contract buyout fees, if you hire a temporary worker permanently.
Key takeaway: Businesses can expect to spend 25 to 100% of the hired employees' wages to a staffing firm, as well as other fees.
What can a staffing company do for you?
As employers increasingly turn to part-time, freelance, and temporary workers to fill in their workforce gaps, staffing agencies have become a valuable resource for finding that talent quickly and efficiently. The following are just a few of the many benefits the right staffing company can offer your business.
The job market has changed considerably over the past several years, and the hiring process is longer and more difficult than in years past.
"Great talent becomes harder to find, and it becomes extremely time-consuming for managers to review résumés and conduct interviews, all while still being responsible for their day-to-day operations," said Matthew Rowles, business development manager at staffing company Kavaliro. "Turning to a trusted staffing partner can save time and money. A staffing firm can prescreen and qualify candidates to ensure the manager is always interviewing candidates that are a fit for the role.
AJ Brustein, CEO and co-founder of on-demand staffing platform Wonolo, said that many companies are holding back on hiring for full-time positions for several reasons. However, a focus on leaner operations has a lot to do with it, Brustein said.
"Companies are trying to be more productive and only have workers when they are absolutely needed," Brustein told Business News Daily. "They need to find ways to make sure every dollar they spend is going to help the business. Temp staffing allows them to only have people when they need them, and those people are being productive."
Jason Leverant, chief operating officer of national staffing franchise AtWork Group, said employers have come to realize the value of having a fluid workforce that can be dynamically adjusted to meet their hiring needs on an ongoing basis.
"The flexibility [of using a staffing agency] became the primary driver in the push to bring on a workforce that can adapt with the ebb and flow of a client's business demands," Leverant said.
There are a lot of legal responsibilities involved with being an employer, like covering certain taxes, providing insurance coverage and following labor laws. From a financial and operational standpoint, hiring employees also comes with financial risks, especially if someone has to be fired or unexpectedly leaves. When you use a staffing firm, the agency assumes many of these liabilities for you.
"Staffing firms are generally considered the employer of record when it comes to the temporary associates that are placed, so ... [staffing firm clients] appreciate the fact that, for the most part, the staffing firm maintains full responsibility for the employees while they are on assignment," Leverant said.
Key takeaway: A staffing agency can save businesses time in quickly identifying candidates, they offer flexible temporary staffing arrangements, and they reduce the potential legal risks if a candidate is let go.
How does it work?
In a blog post on Snagajob, author Amy White outlined the major types of jobs that staffing agencies help companies fill: temporary (an assignment with a set start and end date), temp to hire (an assignment that's initially temporary, but is used to help an employer determine the temp worker's long-term fit with the company) and direct hire (a permanent position in which the staffing agency acts as a recruiter).
White also explained the process of how staffing companies fill positions. If the agency doesn't have an existing employee who is a good fit for an open role, it will typically advertise the position on job boards and other places job seekers would likely look. From there, it will accept applications and conduct interviews and a background check if required, just as any other employer would. Once the right candidate is found, that person is hired as an employee of the agency (except in the case of direct-hire positions). The worker's paycheck and benefits, if offered, are issued by the staffing agency, but the length of employment is determined by the client, White said.
Alternatively, you can sign up for on-demand hiring platforms like Upwork, Freelancer.com and Wonolo, which give you access to independent professionals who are ready to work, usually remotely. These platforms operate a bit differently, in that workers who come through these sites are considered independent contractors – you're responsible for paying them directly and issuing a 1099 tax form at the end of the year. However, as with staffing agency employees, you are still relieved of official employer obligations (payroll taxes, benefits, etc.) when using these workers, assuming they are properly classified.
Key takeaway: Staffing agencies help fill temporary positions, temp-to-hire positions and direct-hire positions by matching existing employees who are well suited for the role or advertising the role for qualified job seekers to see.
What are common misconceptions about staffing agencies?
One of the most widespread misconceptions about hiring a staffing agency is that it's too expensive to be worth it. Why pay extra in recruiting fees when you could hire someone yourself? You might think you're saving money upfront, but in the long run, using a staffing agency might save your company money.
"Many companies will only look at the agency's fees to determine the cost but typically fail to realize the value and savings they can provide as well," Rowles said. "Time to hire is an important factor when it comes to how much an open position can cost a company. The longer a position is open, the higher the cost, due to a loss in productivity and diverting resources. Working with a staffing firm can help decrease the time to hire and help decrease a loss in productivity."
"Our clients see the base pay rates they pay their employees, and then they see our bill rates and assume that we are making the difference as profit," Leverant added. "Many forget that we have the same payroll taxes, unemployment and workers' compensation premiums that all employers here in the U.S. have."
The other common myth about staffing firms involves the quality of their employees. Some companies may believe that workers who come through staffing agencies are only there because they couldn't get hired anywhere else. That's not necessarily the case; in fact, temporary employees are often overqualified for the jobs they're doing, Brustein said.
"These workers decide to work temp jobs because they value flexibility or they are trying to get into a different field, or maybe they just want a big change and temp positions are often easier to land initially than permanent ones," he said. "We often see MBAs doing entry-level temp work because it helps them get a better sense of businesses at the field level."
Key takeaway: While they might seem like an expensive investment, staffing agencies can often save businesses money. Additionally, employees hired through staffing agencies are often overqualified for their roles.
How to work with a staffing firm
Ready to hire a staffing company? Find the right one, and with our experts' advice, start a great professional relationship.
Find the right company.
Before you can find quality employees, you have to choose a staffing firm that's right for your business. Leverant emphasized the importance of finding a company that has a stellar reputation for abiding by good business practices.
"Make sure you're working with a reputable firm that takes pride in the employees it sends," he said. "That includes making sure that their employees have all of the proper credentials verified, including, but not limited to, reference checks being conducted. You also want to make sure that they are carrying the proper insurances, including general liability and workers' compensation insurance."
As with all business relationships, a staffing firm also needs to provide value to you to be worth the investment.
"Sit down with a staffing firm, and truly find out if they can bring value to your organization," Rowles said. "As a small business, each employee's importance and cost associated with recruitment is amplified, so ... find a firm that treats [your organization] as a business partner, not just a client."
Similarly, if you decide to use an on-demand staffing platform instead of a traditional staffing firm, check reviews and make sure the site is trusted by other business owners and workers before you sign up or make any payments.
Be clear about your needs.
Good staffing companies want to help you find the best workers for your organization, and they won't be able to do that if you don't communicate clearly and thoroughly about your company, your position, and the type of person you want for the job. Beyond discussing the basic responsibilities and required skills for the job, specify any business policies (dress code, hours, breaks, etc.) as well to give the staffing firm representative an idea of your corporate culture and what kind of professional would succeed there.
"When you feel you've clearly defined your needs, let the recruiter know," the author wrote. "He or she will start the search immediately."
Check over the legal aspects.
Depending on the types of positions a staffing firm will help you fill, check that employment-related legal details, like worker classification and payroll taxes, are taken care of. For temporary and temp-to-hire roles, the staffing firm is the official employer for tax purposes, so the agency should confirm that the workers you use are, in fact, employees and not independent contractors, Leverant noted.
"Additionally, you want to review the contracts that are in place to ensure that there are proper provisions in place regarding indemnification, preferably, a 'dual indemnification' clause, which protects both parties from issues that may arise," Leverant said.
Maintain a good relationship.
It may take some trial and error to find the right staffing company for your business, but once you've found one that provides high-quality service and well-qualified workers, stick with it. In addition, discussing new workers with your agency representative can help both you and the company with your future talent searches.
"Whether you tap into on-demand staffing solutions for unpredictable needs or traditional staffing solutions for predictable needs, always ensure you have staffing agencies who have proven themselves to be reliable, so you can focus on growing your business," Brustein added.
Key takeaway: When hiring for a staffing agency, be clear about your expectations review legal aspects and stick with the same company if satisfied.
Additional reporting by Sammi Caramela.