How Do Staffing Agencies Work? And Why Do Companies Hire Through Staffing Agencies?

Paige Smith

Hiring can be difficult, which is why some companies turn to staffing agencies for support. A staffing agency does the recruiting and hiring legwork for your business so you can focus on running your operation. 

If you’re curious about using an agency to hire, keep reading to learn more about how staffing agencies work, what they charge, and how to choose the right one for your business needs. 

What is a staffing agency? 

A staffing agency is a company that hires employees on your business’s behalf. Some staffing agencies offer recruitment services, some offer employment services, and others offer both. In general, staffing agencies help hire for three different types of jobs: 

  1. Temporary: Short-term jobs with set start and end dates 
  2. Temp to hire: Short-term assignments that have the potential to turn into permanent work 
  3. Direct hire: Permanent jobs 

It’s important to note that for employees in temporary positions, the staffing agency is the official employer on record. As the business owner, you’ll determine the length and terms of the temporary employment, but the staffing agency is the one that pays and insures the temporary employee. 

For employees in permanent jobs, you’re the employer on record and are responsible for paying and insuring them. 

Types of staffing agencies 

Not all staffing agencies operate the same. Many have specific functions, whether it’s placing temporary workers or recruiting direct hires for specific industries. Here are the most common types of staffing agencies: 

  • General staffing agency: These agencies offer both employment and recruitment services for a variety of sectors, filling entry-level and temporary positions as well as long-term and executive roles. 
  • Specialized staffing agency: A specialized staffing agency works in certain industries, usually hiring for positions that require extensive experience or education. Think healthcare and engineering roles.
  • Temp agency: A temporary employment agency places job candidates in a variety of sectors for short-term assignments. 
  • Executive staffing agency: These agencies specialize solely in recruiting for executive-level positions across many different sectors. 
  • Remote staffing agency: Remote staffing agencies specialize in recruiting and placing remote workers from all types of industries. 
  • Student staffing agency: A student staffing agency places college students in internships, short-term jobs, and seasonal positions. 

How do staffing agencies work? 

Staffing agencies take over the bulk of the hiring process, from advertising open roles and vetting job candidates to conducting interviews and handling paperwork. Though every staffing agency has its own system, this is the typical process of working with an agency:

1. Initial conversation

After you reach out to a staffing agency, you’ll have a conversation about your business’s hiring needs and goals. You’ll explain which roles you want to hire for, what the individual job responsibilities entail, what type of experience, education, and qualifications you’re looking for in a job candidate, your timeline for hiring, and the compensation you can offer. 

2. Job description and advertising

After reviewing and processing all your information, the staffing agency will write a job description for the role you’re hiring for, and then start advertising the open position. In addition to posting the job description on a variety of recruiting websites—including LinkedIn and Indeed—the staffing agency will also share the job ad with university job boards, industry associations, or professional networking groups. 

Many staffing agencies also have a pool of qualified job candidates they stay in touch with, so they might reach out directly or post your job ad on their internal newsletters, social media platforms, and websites. 

3. Review applications and vet candidates

Once job applications start arriving, the staffing agency will begin reviewing resumes and reaching out to references, weeding out unqualified candidates along the way. Once they have a shortlist of qualified prospects, the staffing agency will schedule interviews. 

4. Conduct interviews and run background checks

The agency will conduct interviews with the final candidates and make notes to share with your business. At this point, a staffing agency can also run background checks on each job candidate if you like. Just be sure the agency follows your state’s employment laws regarding fair background checks.  

5. Present employer with final candidates

Once the staffing agency is satisfied with their top candidates, they’ll hand over all the information they’ve gathered so you or your hiring manager can make the final decision. 

If a job candidate wants to negotiate their wages, the staffing agency will handle the back-and-forth conversations and come to you for questions and approval along the way. 

6. Complete new hire paperwork

Once you choose a job candidate, the staffing agency will present them with an employment contract that outlines their job responsibilities, terms of employment, start date, compensation, and benefits. 

After the job candidate accepts the offer and signs the contract, the staffing agency will work with them to fill out other new hire paperwork, including:

If you use a staffing agency for direct hires (rather than temp roles), you’ll be responsible for reporting those new hires to your state. New hire reporting requirements differ by state, so be sure to check your state’s labor department for more information

7. Welcome the employee

Once your new hire starts working at your business—regardless of whether they’re a temporary or permanent worker—you’re responsible for delivering a positive employee experience. That includes properly welcoming your new employees, training them on their job duties, answering questions about their work, setting them up with benefits, and giving them an updated employee handbook to reference. 

Staffing agency insurance 

If a staffing agency operates as the employer on record for your temporary hires, they’ll carry the necessary workers’ compensation insurance to cover those temporary employees. 

However, if you’re the official employer on record, you’re responsible for insuring your employees. On top of following your state’s workers’ compensation coverage laws, you also need to pay state unemployment insurance taxes. 

For more information, check out our full state-by-state guide to unemployment insurance tax rates.  

What do staffing agencies charge?

Staffing agencies charge businesses a percentage of the hired employee’s wages. The exact percentage varies among agencies and also depends on whether you use an agency for recruitment or employment services. 

Recruitment services

Generally, a staffing agency takes a fixed percentage of the hired employee’s annual salary, usually between 10% and 25%. Let’s say, for example, that a staffing agency helps you place a direct hire with an annual salary of $80,000. In that case, your payment to the agency could be anywhere from $8,000 to $20,000, depending on their markup rate. 

When you make the payment depends on the agency. More often than not, staffing agencies charge a one-time fee as soon as the employee is officially hired, but some might request half upfront or let you pay in installments. 

Employment services

If you’re using a staffing agency to hire temporary employees, the agency will charge a markup of the hired employee’s hourly wages, which can be anywhere from 25% to over 75%. Staffing agencies typically charge businesses a bill rate, which represents the worker’s pay rate plus the markup. 

If, for example, you hire a temporary employee at $15/hour with a 50% markup, your bill rate to the agency would be $22.50/hour for every hour that employee works. Depending on the agency’s terms, you might have to make payments on a weekly, bi-weekly, or monthly basis. 

What determines the markup? 

Markups are determined by a number of factors, including:

  • The specific staffing agency: Like companies of all types, staffing agencies set their own markup rates based on their expertise and the work they do. 
  • Location: States like California tend to have higher average markups
  • Industries served: Many staffing agencies charge higher markups for recruiting and placing employees in highly specialized industries like healthcare, tech, or IT.
  • Relationship with your business: If you have a longtime working relationship with a particular staffing agency, or if you have a retainer contract, they might give you a discounted markup. 


Some staffing agencies also charge fees, like one-time initiation fees and contract buyout fees. That’s when you pay the agency a lump sum to buy your temporary employee out of their contract so you can hire them indefinitely. 

Benefits and drawbacks of using a staffing agency for your business

There are a lot of benefits of working with a staffing agency. Not only do you get to offload the heavy hiring work to an expert, you also get access to a larger pool of qualified candidates. Plus, the hiring process is usually much faster.

However, using a staffing agency can be expensive, especially if the staffing agency’s markups are on the higher side of average. You also have less time to forge a bond with your employee before they start working.

How to find and hire a staffing agency

Take these steps to set your business up for success: 

1. Clarify your hiring goals and needs

Think about what you’re looking for from the hiring process. Here are some questions to consider: 

  • What positions do you need to fill? How specialized are these positions?  
  • What’s your timeline for filling those open roles? 
  • What’s your hiring budget (including compensation, payroll, and recruiting costs)?
  • What are your internal hiring resources like? Do you have a dedicated HR manager, for example, or would you be handling the hiring on your own?
  • How much time and effort are you able to devote to hiring new employees at this time?
  • What’s your track record for hiring? Have you been successful at it in the past, or have you struggled? 

Answering these questions will give you a better idea of whether or not a staffing agency makes sense for you—and if so, what kind of agency you need.  

2. Do your homework to find the right agency

Do your due diligence to research and vet different staffing agencies. It’s important to have a solid partnership with your staffing agency and be able to trust that they’ll deliver the results you need. 

Look for a staffing agency that: 

  • Specializes in the specific hiring support you need
  • Gives you access to talent you wouldn’t otherwise find on your own
  • Has extensive market knowledge about your business’s niche or industry
  • Understands the ins and outs of your business’s open positions
  • Has a proven track record of placing excellent candidates
  • Communicates clearly and responds to concerns quickly 
  • Abides by federal and state employment laws, including having the correct employee insurance 

Start by searching “top staffing agencies in [your state]” on Google. In addition to reading staffing agencies’ websites and online reviews for more insight, consider reaching out to fellow business owners for recommendations or sourcing names from people in your professional groups or industry associations. 

3. Have a meeting

Once you narrow down your staffing agency options, schedule a conversation to learn more about their hiring processes and see if you’re compatible. The goal is to come away with a greater understanding of how the staffing agency works and what they can offer your business. 

You want an agency who can bring value and deliver results, while treating your business as a true partner, not just another customer. 

4. Consult your business attorney for advice on the agency contract

Before you sign a contract with a staffing agency, it’s a good idea to consult your attorney for advice. You want to make sure you have all your legal ducks in a row, from correct employee classification and payroll taxes to new hire reporting and employer obligations.  

5. Establish healthy communication from the start

Building a good relationship with your staffing agency is critical to achieving a successful experience. The more you communicate upfront, the easier it will be to prevent problems along the way and meet your hiring goals. 

Don’t be afraid to ask questions, double-check information, and communicate your preferences for the process. Some staffing agencies take the initiative to update you at every stage in the hiring process, while others wait for you to reach out and request a status update. 

As you move through the process, make sure you give feedback on what’s working and what’s not—including how your new hires are performing—so the agency can make your experience better for future recruits. 

Should you use a staffing agency to hire? 

The right staffing agency can make hiring easier, but it’s still a significant investment. For more perspective, check out our comprehensive breakdown of the pros and cons of staffing agencies. 

Paige Smith Paige is a content marketing writer specializing in business, finance, and tech. She regularly writes for a number of B2B industry leaders, including fintech companies and small business lenders. See more of her work here:
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