How Do Staffing Agencies Make Money?
When you engage a staffing agency to fill a position in your business, you pay a fee for its services. Different staffing agencies have different fee structures, and their own methods and benchmarks for earning their money. Staffing agencies also collect significantly different fees based on the type of position filled, with executive and niche placements commanding much higher compensation than entry-level jobs. The staffing agency you select, and the way it structures its fees, can have a considerable impact on how much you pay for staffing services.
Staffing agencies make money by charging a percentage of the employee's salary, although some charge flat fees. The employer pays the charge.
Almost always, it is the employer who pays for agency jobs. Employers offset the costs associated with hiring, such as advertising job openings and initial screenings of candidates, by using a staffing service.
Many staffing agencies make their money by taking a percentage based on the employee’s salary. A temp agency, for example, charges your business an hourly rate for the employee’s work, then pays the employee a considerably-lower amount. For this type of position, the hourly or salary rate you pay the agency includes the agency's fees.
Though staffing agencies typically mark up an employee’s hourly or salary rate by 25%, some agencies charge significantly more. This is especially true for highly skilled and hard-to-find talent. Markup can reach up to 75% in some markets_._
When a staffing agency places an employee directly into your business rather than having the employee work for the agency itself, many agencies still collect an amount based on the employee’s pay. Rather than collecting payment on an ongoing basis, agencies that directly place employees typically request a percentage of the amount the employee will make during the first year.
This percentage can range up to 50% for specialty and executive positions. Depending on your agency's contract, you may pay the fee in a bulk payment or over time, starting either when the position is filled or when the employee has been in the role for 90 days.
In a temp-to-perm arrangement, the worker begins as a temporary employee for a short period before becoming a permanent employee. Your staffing agency may request a hybrid payment for this type of employee, collecting a percentage of the employee’s pay during the temporary period and a lump sum upon hiring.
Some agencies simply charge a flat fee for their services. These agencies typically work on a retainer basis, charging a fixed monthly fee until the position is filled. They often work in very specialized and niche industries, and may be retained to identify and refer extremely hard-to-find talent.
Retained agencies frequently work to fill very high level executive positions, rare science and engineering jobs, or to produce candidates with specialized medical talent. A retained agency typically must refer a predefined number of qualified candidates, but may continue charging a monthly fee until either producing the required number of candidates or filling the position.
Unless a staffing agency charges a flat fee or a retainer, you typically do not pay for services until your position is filled. Check with your agency for specifics on when payment is due and how it is collected.