Working with temporary staffing companies enables employers to quickly fill team positions without going through the lengthy and costly process of in-house hiring. However, it will also cost to deploy their services, in the opinion of Charles Spinelli. Having a clear insight into these fees allows businesses to make better hiring decisions and helps determine if hiring through an agency or hiring in-house is more beneficial.
How Temporary Staffing Agency Fees Work
When a staffing company places a candidate, the agency normally marks up the worker’s hourly rate or charges an agreed-upon placement fee to the employer. This markup includes the agency’s overhead, candidate sourcing, and employer responsibilities.
Key Cost Components
- Base Salary of the Employee
The employer may pay an hourly wage, on a per-day basis, or a consolidated amount as salary per month. The staffing agency determines the hourly rate based on the market standard, skill, and qualifications of candidates, and the nature of the work.
- Agency Markup
Markups usually fall within the range of 25% to 100% of the employee pay rate. So, if a temporary worker is earning $50 an hour and an agency charges a 50 percent markup, then the employer has to pay $75 an hour to the agency.
- Payroll Taxes and Statutory Contributions
The agency deducts the income taxes, PF contributions, and ESI payments and carries out payroll processing as well. These charges get included in the agency’s rates.
- Benefits and Insurance
Some agencies provide benefits to temporary workers, such as health insurance or paid leave; thus, their prices will be included in the overhead cost of the company.
- Recruitment and Screening Costs
The agency needs to spend on advertising, background checks, and skills testing. The employer is charged for this, partly or fully, depending on their requirement.
- Recruitment and Screening of Employees
The agencies also spend a lot of money on advertisements, thorough background checks, skills tests, and interviews. These costs are included in the markup.
7. Conversion or Buyout Fees
If a company decides to hire the temporary worker permanently before the agreed period, it will pay a conversion fee to the agency because of the anticipated loss of revenue.
Cost Illustration
Here is an example for a clear understanding, where the base salary is $100 per month. The employer’s monthly expense, with a 40% markup, would then be $140. According to Charles Spinelli, this sum includes everything from the agency’s fee to payroll taxes and statutory benefits. Although the costs might seem higher compared to direct hiring, employers save time and resources.
Factors Affecting Agency Costs
- Industry Type: Specialized fields like IT or healthcare usually have higher markups.
- Positions that require rare or advanced skills will use more expensive inputs for the search.
- Short Notice: Some agencies charge higher rates for placements made on short notice.
- Contract duration: Longer work contracts sometimes get lower rates.
Cost is Worth the Price
Although costly, hiring through a staffing agency has several advantages, such as reduced time to fill the position, less administrative burden, lower employment risk, better productivity, and reduced turnover.
The price of hiring through a staffing agency also includes the following, in addition to the employee’s salary. The fee structure varies depending on the industry and type of work, but employers are often willing to pay for the convenience and flexibility it offers.
