How to Hire a Staffing Agency
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How to Hire a Staffing Agency (101)

A step-by-step guide to hiring and working with staffing firms.

Finding the right person for an open position at your company is one of the greatest challenges of running a business.

The hiring process is a resource-intensive endeavor that requires a significant investment of time, energy, and money.

After all, you need to sift through the applications, interview promising candidates, and then decide who to extend the job offer to.

The situation is especially burdensome to small business owners who have too much on their plates as it is. But guess what?

You can outsource staffing to a staffing agency. That way, you won’t have to worry about recruiting strategies and human resources anymore. The staffing firm will handle everything.

Want to learn how to get qualified new employees without bothering with the hassle of the hiring process?

Here’s how.

Working with a staffing agency can help you find top-performing employees.
Working with a staffing agency can help you find top-performing employees.

What does a staffing agency do?

Staffing firms specialize in connecting qualified job seekers with companies that have open positions that they want to fill.

Here’s what a staffing agency can do for your business:

  • Hire temporary, part-time, and full-time employees. Whatever your business needs are, these agencies can provide staffing solutions.
  • Run the hiring process for you. The procedure includes creating and posting job ads, going over the job applications, reaching out to people that seem like they might be a great fit, interviewing them, and extending job offers.
  • Vet and interview relevant candidates. It includes doing background checks, reaching out to previous employers listed as references, and interviewing the candidates.

It’s worth noting that while the hiring process is at the core of the staffing agency business model, certain types of arrangements can also include extra things such as onboarding.

Staffing agency benefits

There’s a reason why the global staffing industry has been steadily growing for a decade up until 2019, when it reached $497 billion in revenue: outsourcing the hiring process makes sense.

The global staffing industry has been growing for a decade until it took a hit due to the Covid-19 pandemic.
The global staffing industry has been growing for a decade until it took a hit due to the Covid-19 pandemic. Source: Statista.

Here are some of the benefits of working with a staffing agency:

  • HR savings. The median HR manager salary in the United States is $106,144. Hiring one might not be financially feasible for a small business. Outsourcing to a staffing firm might make more sense.
  • Better candidate pool. A staffing company probably has access to a larger pool of candidates with higher quality than you do. Especially true for the agencies specializing in a particular niche.
  • Faster hiring process. Staffing companies have streamlined hiring processes. That means that partnering with them can help you fill out open positions faster than you would have by yourself.
  • Increased flexibility. Staffing companies can provide you with temporary employees whenever you need extra help. It allows you to adjust the size of your workforce according to the needs of your business.
  • Help with onboarding. Some staffing companies offer to train new employees for you.

In short:

Hiring a staffing agency can help you save time, energy, and money.

How much staffing agencies charge?

It depends on various factors. For instance, the type of workers you’re looking for and the open positions you want to fill.

However, staffing agencies that provide temporary workers typically charge their clients the worker’s hourly wage + a fee between 25% and 100% of that hourly wage.

For example:

If the employee is paid $10/hour, the agency might charge you a fee between $12.50/hour and $20/hour, so you would pay a total of $22.50 to $30 for every hour of labor they provide.

Meanwhile, staffing agencies specializing in direct hires typically charge a flat fee that equals 10% – 20% of the new employee’s annual salary.

For example:

The median software engineer salary in the United States is $70,702.

So if that is your budget for this role, you can expect to pay somewhere between $7k and $14k to a recruiter that helps you find a software engineer.

The median software engineer salary in the United States.
The median software engineer salary in the United States. Source: Salary.com.

How to hire a staffing agency: step-by-step tips

Now that you understand the benefits of working with a staffing agency, the question is, how can you find one that is right for your business?

Here are six steps to hire a staffing agency:

  1. Determine your hiring needs
  2. Create a hiring budget
  3. Research different staffing agency types
  4. Evaluate the service packages
  5. Analyze the tax and legal aspects
  6. Lock in the scope of engagement.

1. Determine your hiring needs

You must know what you need if you want the staffing agency to provide the right people for the open positions at your company.

There are different types of workers that you can have onboard:

  • Freelancers and consultants that you hire as independent contractors.
  • Temporary employees you hire as either part-time or full-time employees for a specific period.
  • Temp-to-hire employees to whom you might offer a permanent position at your company if they perform well.
  • Part-time employees. According to the Bureau of Labor Statistics, working 1 to 34 hours per week is considered part-time employment.
  • Full-time employees. According to the Bureau of Labor Statistics, working 35 hours per week or more is considered full-time employment.

Each of these worker types has its advantages and disadvantages.

Generally, the tradeoff you’re making is between reliability and money, with the continuum running from freelancers (least expensive, least reliable) on the one end to full-time employees on the other end (most costly, most reliable).

For example:

Hiring a freelancer for a specific project is likely to be less expensive than hiring a full-time employee.

However, that freelancer is likely to be less reliable because they have less investment in your company. As a result, this might lead to lower work quality, project management issues, missed deadlines, and other unexpected outcomes.

Of course, this doesn’t mean that you should never hire freelancers. The point is that you need to understand the tradeoff that you’re making.

2. Create a hiring budget

Now that you have determined your hiring needs, it’s time to create your hiring budget.

Calculate how much money you can spend on new worker compensation each month.

Research what is the average salary for each open position. Want to hire locally? Use Salary.com and Glassdoor.

Want to hire remotely? Check out Dynamite Jobs and RemoteOK.

Dynamite Jobs is one of the leading job boards for remote positions.
Dynamite Jobs is one of the leading job boards for remote positions. Source: Dynamite Jobs.

Decide how much you’re willing to spend on each role. The better the compensation that you offer, the more choice of qualified candidates you’ll have.

One thing to keep in mind is that while full-time employees may have lower hourly rates, there are other overhead costs that you need to take into account.

Be careful not to overlook expenses such as training, equipment, healthcare, benefits, vacation days, sick days, maternity and paternity leaves, etc.

How to calculate cost per hire?

Cost per hire is a metric that shows how much money, on average, your company spends on hiring new employees.

The formula is straightforward:

  1. Add internal recruiting costs and external recruiting costs.
  2. Divide that sum by the total number of hires.
Cost per Hire formula.
Cost per Hire formula. Source: Harver.

What is the average cost per hire in 2021?

We don’t have the average cost per hire data for 2021 yet.

The most recent data appears to be the SHRM’s 2017 “Talent Acquisition Benchmarking Report”, indicating the average cost per hire in 2016 was $4,425.

Meanwhile, when it comes to the average fee per hire of staffing firms, a 2018 survey found that the most expensive industry was professional/management staffing, where the average cost per hire was $2,422.

This discrepancy demonstrates that staffing agencies have much more efficient hiring processes than other types of businesses.

3. Research staffing agencies

Once you have worked out your hiring budget, you should research staffing agencies.

There are different types of staffing agencies:

  • Traditional recruitment companies specializing in direct hires. They will prepare and post job ads, interview the candidates, and then either present the most promising ones to you or hire the person that they think is the best fit.
  • Digital matchmaking services such as HeyTalent. These companies provide platforms where employers can fill open positions with the help of “matchmakers” who tap into their networks to find the best talent.
HeyTalent is a network of “matchmakers” that helps connect talent with employers.
HeyTalent is a network of “matchmakers” that helps connect talent with employers. Source: HeyTalent.
  • Temp agencies providing businesses with temporary workers as well as temp-to-hire workers. Typically the staffing firm acts as the employer of these workers, which means that you don’t have to worry about payroll and taxes.
  • Niche agencies that serve a particular niche. For example, some agencies focus on the hospitality industry, others on the light industrial sector.

You might want to check out Forbes’ “America’s Best Professional Recruiting Firms 2021” to learn more about the leading staffing companies in the United States.

4. Evaluate the recruiting service packages

Now that you know what type of staffing agency you want to work with, it’s time to start evaluating the service packages of various agencies.

How does a staffing agency work?

Typically a staffing agency will provide one of these two types of workers:

  • Temporary employees employed by the agency working at your company for an agreed-on time, typically on a short-term basis.
  • Direct hires recruited by the agency employed by your company as either part-time or full-time employees.

What recruitment service packages can a staff agency offer?

As you would expect, the more tasks you outsource to the agency, the more expensive the service package will be.

Temp agencies tend to offer straightforward service packages because the agency handles everything as the employer of temp workers.

However, if you go the direct hire route, the staffing agency might offer to take care of:

  • Preparing and posting job ads.
  • Reaching out to potential candidates individually (via LinkedIn, for example).
  • Sorting out through the applications to identify qualified candidates.
  • Interviewing qualified candidates.
  • Picking the person that seems to be the best fit for the job.
  • Onboarding and training the new employee.

You need to decide which of these tasks you want to outsource. That is going to determine how much you’ll have to pay to the agency.

5. Analyze the tax and legal aspects of hiring

When you work with a temp agency, you don’t have to worry about labor laws and employment taxes for the temp workers because you’re not their employer. The agency is.

However, if you use an agency to fill part-time or full-time positions at your company, then as an employer, you’ll need to adhere to both federal and state labor laws and pay employment taxes.

Also, note that you need an Employer Identification Number (EIN) to employ someone legally.

What percentage does an employment agency take?

Temp agencies that provide temporary workers typically charge their clients the employee’s hourly wage + a fee somewhere between 25% and 100% of that hourly wage for each hour of labor.

For example:

If the temp worker’s wage is $10/hour and the agency fee is $5/hour (50% markup), then you’ll have to pay the agency $15/hour for each hour of labor that they provide.

Meanwhile, agencies specializing in direct hires typically charge a flat fee that is a percentage of the new employee’s annual salary, usually 10% – 20%.

For example:

If you use an agency to find a senior software engineer to pay a $100,000 annual salary, the agency might charge you $10,000 – $20,000.

6. Lock in the scope of engagement

It’s crucial to ensure that all the i’s are dotted and all the t’s are crossed before you sign the contract.

Here are some of the things that you may want to do:

  • Reach out to the agency’s previous clients and ask about their experience working with that staffing company.
  • Reach out to the agency’s previous employees and ask what their experience working there has been. Note that treating clients well but employees poorly is a major red flag.
  • Get a lawyer to go over the contract with you and explain each clause to know precisely what you agree to.

Also, start with the minimum possible commitment, then gradually increase that commitment over time if the partnership is working well.

FAQs about hiring a staffing agency

Here are the answers to some of the most frequently asked questions about hiring a staffing agency.

FAQs about hiring a staffing agency

Who pays a recruitment agency?

The company that hires a recruitment agency pays the agency.

The payment is typically either the temp worker’s hourly wage + the agency fee or a flat fee that is a percentage of the new employee’s annual salary.

Can agency workers become permanent?

Yes.

This arrangement is called temp-to-hire:

You hire temporary workers from the agency to understand that if their performance is good, you might offer them a part-time or a full-time position at your company.

How much does it cost to use a staffing agency?

It depends on what type of staffing service you opt for: temp work or direct hiring.

In the case of temp work, the agency will probably charge you the temp worker’s hourly wage + the agency fee (usually between 25% and 100% of that hourly wage).

In the case of direct hiring, the agency will probably charge you a flat fee that is a set percentage of the new employee’s yearly salary (usually between 10% and 20% of the salary).

What should I expect from a recruitment agency?

First and foremost, you should expect them to provide qualified workers for your business.

Other than that, it all depends on what you have agreed on, but you should expect them to honor the conditions of your contract.

Conclusions

Let’s keep it real. The hiring process is time-consuming, expensive, and tedious.

Posting job ads, sifting through applications, interviewing candidates. You would probably rather work on growing your business instead, right?

In that case, you should strongly consider outsourcing hiring to a staffing agency so that you could focus on what you do best.

Tomas Laurinavicius

Article by:

Tomas Laurinavicius

Editor in Chief

Tomas Laurinavicius is the Editor in Chief at SimplifyLLC. He's built multiple online businesses and helped scale companies with streamlined SEO-focused content marketing operations. His work has appeared in Forbes, TIME, New York Observer, HuffPost, Adobe, and BigCommerce, among many other publications.

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