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Thinking About Using a Staffing Agency? Here’s What You Need to Know

Nicole Fallon
Nicole Fallon
Updated Sep 30, 2022

A staffing agency can save your business time and money and help you find well-qualified candidates.

  • A staffing agency acts as a middleman between employers and workers, helping to match qualified candidates with companies that have job openings.
  • If your business needs additional labor, working with a staffing agency can save your company time, and it offers other benefits as well, including flexibility and reduced legal risks.
  • Staffing agencies charge a markup that typically ranges from 25% to 100% of the hired employee’s wages.
  • This article is for business owners and hiring managers who want to know how staffing agencies work with companies.

Hiring for a small business is not an overnight process. Reviewing applications, interviewing candidates and determining salaries take precious time away from a business owner’s regular obligations, which may end up hurting the company 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 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. They help companies hire for different types of jobs: 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). 

If the agency doesn’t have a readily available and suitable candidate in its talent pool, it will typically advertise the position on job boards like Indeed and other places where job seekers would likely look. The agency can also reach out directly to suitable candidates through professional platforms like LinkedIn, which allows them to filter search results by keyword, job function, location, industry and more. This approach is particularly effective when hiring a niche specialist with a specific skill set. 

The agency will then 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 business. [Check out the best background companies.]

Key TakeawayKey takeaway: taffing agencies help fill temporary, temp-to-hire and direct-hire positions by matching existing workers who are well suited for the role or advertising the role to qualified job seekers.

What is the staffing agency process?

Finding qualified talent remains challenging for many small companies. In fact, according to ManpowerGroup’s research, 69% of global employers – a 15-year record high – are struggling to find workers with the right mix of technical, soft and personal skills. A staffing agency can help your business overcome that challenge.

When you need new staff and choose to work with a staffing agency, the process typically goes as follows.

  1. The employer contacts the staffing agency. First, you’ll reach out to a staffing agency that specializes in your industry, specifying information like the job responsibilities, the number of workers needed, the timeline to hire new workers, and the hourly wage or salary.
  2. The agency creates the job description. The staffing agency then writes a job description and advertises it for your business. It might also reach out to a potential candidate individually if there is someone who is a good fit for the job.
  3. The agency 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.
  4. The employer makes the final decision. The hiring manager or business owner can interview the staffing agency’s top candidates before making a final hiring decision. This saves you and your staff hours that you would otherwise spend sorting through countless applicants.
  5. The agency takes care of the paperwork. Most staffing agencies handle all the paperwork associated with new hires, like contracts, taxes and other payroll tasks.

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’ll pay, you may be expected to cover additional fees for filling the position or contract buyout fees if you hire a temporary worker permanently.

What are the advantages of using a staffing agency?

As employers increasingly turn to part-time, freelance and temporary workers to fill their workforce gaps, staffing agencies have become a valuable resource for finding talent quickly and efficiently. Below are just a few of the many benefits the right staffing company can offer your business.

Fast hiring

The job market has changed considerably over the past several years, and the hiring process is longer and more difficult than in previous decades. Working with a staffing agency makes it quicker and easier.

“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, senior manager of talent acquisition operations at Coca-Cola Consolidated. “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.”

Reduced team workload

One of the upsides of employing the services of a staffing agency as opposed to assigning hiring responsibilities to a member of your team is that it frees that individual to concentrate on critical role-specific tasks. A staffing agency can focus on the hiring process; that is its main function, after all. But if your employees have to dedicate some of their work time to vetting and interviewing numerous candidates, it might disturb their day-to-day routine and reduce productivity. A staffing firm solves that problem.

Did you know?Did you know?: A staffing agency can take on most of the time-consuming tasks involved with the hiring process so business owners and managers can allocate their efforts elsewhere.

Flexibility

AJ Brustein, co-founder of on-demand staffing platform Wonolo, said that many companies are holding back on hiring for full-time positions for several reasons. A focus on leaner operations has a lot to do with it.

“Companies are trying to be more productive and only have workers when they are absolutely needed,” Brustein said. “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, president and COO of national staffing franchise AtWork Group, said that 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.

Specialized hiring

According to Monster’s Future of Work Report 2022, more than 9 out of 10 employers are struggling to fill a position due to a skills gap. If you’re looking to hire a niche worker with specific skills, a specialized staffing firm can make the process more painless. 

For example, some agencies solely focus on recruiting employees in the tech or legal fields. They have the necessary connections, resources and accumulated pools of passive candidates looking for new opportunities, allowing them to locate a perfect fit for your role. Additionally, their extensive knowledge of area-specific salary ranges and market history, and their ability to spot red flags during the screening process, can save you money in the long run. 

Reduced risk

There are a lot of legal responsibilities involved with being an employer, like covering certain taxes, providing health insurance coverage and following labor laws. From a financial and operational standpoint, hiring employees also comes with financial risks, especially if someone new 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. [Read related article: Business Liabilities Every Owner Should Know]

What are the disadvantages of using a staffing agency?

While there are plenty of benefits when using a staffing agency for simplifying and accelerating your hiring process, it’s important to be aware of the potential risks and downsides. 

Additional hiring costs

There is no getting around it: Using a staffing agency comes with, on average, a 15% to 25% annual salary fee that varies depending on the industry and other factors. On the other hand, Zippia research shows that having an in-house HR team can increase a company’s hiring costs by more than 50% when you factor in those team members’ annual salaries. It’s also worth considering the productivity, time and resource investment that comes with handling hiring internally. Each company has to ask itself which is the real disadvantage.

Wide culture gap

While a good staffing agency takes time to get to know your business and its values, it will likely lack deeper insight into your company’s culture. This means that its proposed candidates, while possessing relevant skills and experiences, might end up clashing with the rest of your team when it comes to ethics and attitude. However, this can be mitigated by introducing an internal culture screening process in addition to the agency’s vetting procedures. 

Reduced team bonding

The traditional in-house hiring process usually involves several rounds of interviews conducted by different team members. This method allows the staff to get to know the prospective candidate and form a certain bond with them before they become an employee. Using a staffing agency to primarily fill the role of interviewer means that a new hire often comes to your business as a complete stranger and will require additional time to build relationships. This downside can become even more problematic with temporary workers, who might be unfairly perceived as inferior to permanent employees. 

Reputation consequences

Establishing a stellar internal hiring process can help strengthen your company’s reputation with both prospective and current employees and become an integral part of your culture. Even if a candidate doesn’t receive a job offer, they can still spread the word about their positive experience with your organization. But if you decide to use a staffing agency, you are relying on its established brand, reputation and professionalism. In that case, if a candidate has a poor hiring experience when interacting with the agency, it can reflect poorly on your own business.

Did you know?Did you know?: The best online reputation management services can help ensure your company’s reputation remains positive despite negative reviews from past, current or prospective employees.

What are common misconceptions about staffing agencies?

Though there are certain disadvantages of employing the services of a staffing agency, some perceived cons can, in fact, be blessings in disguise. Here are rebuttals to two common misconceptions about outsourcing your hiring.

Too expensive

One of the most widespread, albeit inaccurate, beliefs 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? However, while you might think you’re saving money upfront, using a staffing agency might save your company more in the long run.

“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.”

Lower candidate quality

Some companies may believe that workers who come through staffing agencies are only available 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.”

TipTip: Some managers lack recruiting skills and experience, leading to a less efficient hiring process and increased stress for your employees. A staffing agency eliminates those issues.

How do you start working with a staffing agency?

Ready to hire a staffing firm? Here’s expert advice on kick-starting the relationship. 

Find the right agency.

Before you can rely on a staffing agency to find quality employees, you have to choose a firm that’s right for your business. Leverant emphasized the importance of selecting a company with a stellar reputation for abiding by sound 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 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 agencies want to help you find the best workers for your organization, but 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 role, specify any business policies (dress code, hours, breaks, etc.) to give the staffing firm representative an idea of your corporate culture and what kind of professional would succeed at your company. 

Once you’ve clearly defined your needs, let the recruiter know so they can start the search. If at any point your needs and preferences change, be sure to update the agency so they can adjust their search accordingly.

Check the legal aspects.

Depending on the positions a staffing firm is helping 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 agency is the official employer for tax purposes, so they should confirm that the workers you use are in fact employees and not independent contractors, Leverant noted.

“Additionally, you want to review the contracts 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.

Finding the right staffing agency for your business may take some trial and error, but once you’ve identified one that provides high-quality service and well-qualified workers, stick with it and give feedback along the way. Discussing new workers’ performance with your agency representative can help both you and the firm 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.

How much should you rely on a staffing agency?

Whether or not you should solely rely on a staffing firm in your hiring process depends on your business’s needs, the urgency of filling the role and the budget. While some agencies offer full-cycle recruitment support from the initial job brief to the new employee’s onboarding, you might consider including at least one internal vetting stage. 

For example, you can have an informal chat or a final interview with the prospect and their future direct line manager or an executive team member. This can help ensure the potential employee is a culture fit and would give the candidate an opportunity to ask questions that an agency might not be able to answer. 

Some companies choose to use a staffing agency solely for initial screening purposes to sort through the vast number of incoming applications. Those businesses then opt to handle everything else themselves. In contrast, others also rely on external firms to help with interview scheduling or job placement and advertising. Businesses can even choose to continue in-house recruitment efforts in conjunction with staffing agency services to get the best of both worlds, so to speak.

Is a staffing agency a good choice for your business? 

Using a staffing agency can help accelerate your hiring process, reduce the workload for your current employees, offer flexibility regarding the type of hires and mitigate legal risks. At the same time, its services come with an additional fee that can be as high as 100% of a worker’s annual salary, and they are less likely to be a suitable culture fit. 

It can be a good idea to combine an agency’s efforts with additional internal vetting to ensure the optimal fit. If you decide to solely use a staffing firm, make sure to carefully assess your business needs, goals and budget; conduct an extensive reference and reputation check; and clearly communicate your hiring requirements.

As an alternative to using a traditional staffing agency, 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, so 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.

Ultimately, it’s up to you to determine the extent of a staffing agency’s involvement to maximize efficiency and suitability for your organization’s particular needs.

Nadia Reckmann and Sammi Caramela contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

Image Credit: Weedezign / Getty Images
Nicole Fallon
Nicole Fallon
Nicole Fallon has written hundreds of B2B-focused articles on topics such as marketing, business technology, leadership, and HR/organizational management. In addition to covering small business trends and software reviews, Nicole runs a digital marketing agency, where she and her team create high-quality content for a wide range of B2B and B2C brands.