How Do Staffing Agencies Pay Employees?

Hiring can be a complex and time-consuming process, especially when you urgently need staff.

Recruiting is a complex process. Companies looking to hire must determine salaries, write job descriptions, and sift through applications – and still possibly come to the realization that the search hasn’t yielded the right candidates. Recruiting can be drawn out and expensive, which is why many turn to staffing agencies to get the job done quickly and efficiently.

So what are the real savings associated with partnering with a staffing agency and how do employees get paid? In this edition of nSider, Arthur Ransier, Director of Business Strategy at nTech shares how staffing agencies pay their employees and what that means for partner companies.

What Is the Difference Between the Pay Rate and the Bill Rate?

When companies need help finding employees, staffing agencies can offer a world of experience and expertise. When working with staffing agencies, there are different payment arrangement options. One option is for the staffing agency to act as management and HR, both paying and providing benefits for the candidates. In return for this work, the staffing agency retains a percentage of what they are paid by the company receiving the staffing. This amounts to the difference between the pay rate vs. the bill rate.

According to Ransier, “The bill rate is, of course, usually higher than the pay rate, and the difference between what the staffing agency is paying the employee, the pay rate, and what the company is paying the staffing agency, the bill rate, is how staffing agencies like nTech make money.”

The bill rate is effectively made up of two components: “a fee for finding the person and providing the employee” and “their wages for the work that they do.”

How Much Money Do Staffing Agencies Make?

The profit of any given staffing agency will vary from company to company. But the earnings may differ from contract to contract, since, Ransier says, “it depends on a lot of different factors such as the job, the industry, the location, and any contractual terms between the staffing agency and the customer that might limit those fees.”

The staffing agency will retain a percentage based on the nuances of the search and management parameters. Ransier explains this idea further: “Let’s say a company uses the staffing agency to find a Salesforce administrator to work for them and the staffing agency charges the company $60/hr for the employee services. If the staffing agency pays the employee $40/hr, then the staffing agency makes $20/hr, or what we would call a 50% gross margin. However, the amount that the staffing agency makes is then reduced by many business expenses.”

As with any business, a staffing agency will have operating costs that it must pay out before there is a profit. Ransier notes these can include things like “the cost to recruit, the technology they use as well as more straightforward expenses like your FICA taxes or any of the benefits that they’re providing to the employee.”

Staffing agency benefits are one element that can be a major asset to businesses that can rest assured that their workers are well taken care of, but these benefits as well as the other associated services have a cost associated with them.

Ultimately, Ransier says, “It is important to remember that staffing agencies are providing a very important service to the community, both to the client that needs people to get work done, as well as to the job seekers.”

What Is the Best Way to Hire Temporary Help?

One of the best ways to hire temporary help in a timely and cost-effective manner is by working with staffing agency experts. Some of the "...benefits of working with a staffing company might include the expertise of working with an organization of that particular specialty in finding, engaging, and bringing in talent, specifically outside talent. Staffing organizations tend to stay abreast of industry best practices,” states Ransier. 

Staffing agencies will “Still allow you to interview the individual if you so choose, which is usually important. I always tell people, that recruiters are not experts in the field they’re recruiting for.” One of the most compelling advantages of partnering with a staffing agency is the ability to leverage their expertise in identifying and implementing optimal solutions for your team, thereby enhancing your reach, minimizing costs, and ensuring high-quality outcomes. 

Are Staffing Agency Benefits Worth the Costs?

When discussing pay transparency, it’s important to know the costs and benefits associated with working with a staffing agency. When deciding if working with a staffing agency is right for any given business, Ransier looks at it objectively: “It depends, if you’re running a business, you know your business best, and making that decision is largely based on where you are with your growth. If you’re scaling, what budget do you have available for hiring? Is cost or time a greater concern?”

Working with staffing agencies can have huge benefits. As Ransier notes, “They handle many aspects of the hiring process from finding to screening people, the actual hiring, payroll benefits, and they can certainly save an organization money during periods of up-sizing or right-sizing.”

One of the biggest advantages of working with a staffing company is the flexibility afforded to the internal talent acquisition team. Instead of retaining a staff of 5-10 recruiters throughout the year on salary, an external staffing company can fly in and out only when the search volume is such that additional help is warranted

If you are interested in partnering with a staffing agency for upcoming hiring needs, reach out to nTech Workforce today.