How to Hire a Staffing Agency (101)

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. In fact, only 1 in 5 business owners plan to hire over the next year.

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.

Here are the step-by-step instructions explaining how to hire a staffing agency.

Table of contents

1. What does a staffing agency do?
2. Staffing agency benefits
3. How to hire a staffing agency: step-by-step tips
4. Determine your hiring needs
5. Create a hiring budget
6. Research staffing agencies
7. Evaluate the recruiting service packages
8. Analyze the tax and legal aspects of hiring
9. Lock in the scope of engagement
10. Conclusions
11. FAQ (Commonly asked questions)

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

Here’s how.

Last updated: Mar 2023

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What does a staffing agency do?

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.

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 do 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.

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.

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.

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 staffing agencies
4. Evaluate the recruiting service packages
5. Analyze the tax and legal aspects of hiring
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).

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.

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.

What is the average cost per hire in 2021?f

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.

• 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.

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%.

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.

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.

Commonly asked questions (FAQ)

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

Last updated: Mar 2023

Start your LLC the easy way

Forming your LLC is a checkbox that needs to be ticked. Easy, fast and worry-free. We reviewed the 13 most popular LLC formation services to figure out who truly understands what new founders need. Our recommendation:

LLC Formation: $39 + state fees

Pricing:

Turnaround Time:

Help & Support:

Customer Satisfaction:

Ease of use:

We don’t make up scores.

Best LLC Service 2022

• Formed 1,000,000+ LLCs
• $39 formation includes registered agent service
• Fast formation & same day filing
• Exceptional customer reviews

Visit Northwest

Last updated: Mar 2023