“Staffing agencies cost too much.”
“It’s cheaper to hire employees ourselves.”
“Their markups are so high.”
We hear these statements a lot — and as a staffing partner to many successful, local companies, we want to set the record straight.
When companies weigh the costs of outsourcing staffing to agencies against hiring directly, they often assume that agencies are more expensive.
However, this isn’t always the case.
Let’s dive into how staffing agencies structure their pricing and uncover the hidden savings they offer.
Staffing Agency Costs: Perception vs. Reality
Many employers perceive staffing agency fees as high because they compare them directly with an employee’s salary or hourly rate. However, this comparison often overlooks several costs associated with direct hiring that your company pays for, such as:
- Taxes
- Benefits
- Risks (e.g. unemployment, workers’ compensation)
- Fixed recruiting expenses (e.g. recruitment software, advertising, onboarding, recruiter salary)
Alternatively, when you partner with an agency, your staffing provider absorbs these costs because they serve as the employer of record instead. In reality, it could very well cost you less to partner with a staffing agency.
Consider this example, which demonstrates an hourly savings of $1.10 per employee, amounting to over $2,200 annually:
Understanding the Cost Components of Staffing Agency Bill Rates
Staffing agencies don’t just pull numbers out of thin air. Their bill rates are composed of various factors:
- Hourly Pay Rate: The base rate paid to the employee.
- FUTA (Federal Unemployment Tax Act): Federal taxes that cover unemployment insurance.
- Workers’ Compensation: Insurance that provides wage replacement and medical benefits to employees injured in the course of employment.
- SUTA (State Unemployment Tax Act): State-level unemployment taxes.
- FICA (Federal Insurance Contributions Act): Taxes for Social Security and Medicare.
- Employee Benefits: Health insurance, retirement plans, and other benefits.
- Recruiting & Administrative Costs: The expenses involved in finding and managing employees.
What About Their Profits?
After all the costs are factored in, net profits likely aren’t as high as you might assume. In the example above, the agency’s true net profit was just 81¢ per employee, per hour — or 3.1%.
Depending on the staffing scenario (temporary vs. direct placement, industry, competition, etc.), the average agency net profit percentage is about 3.3% according to the American Staffing Association.
Beyond The Billing Rate
When you think about how your company prices its products and services, profit is obviously an important factor for sustainability and growth.
But we’re willing to bet that you also take great pride in non-tangibles, like maintaining your client and vendor relationships, your employer brand, and your overall reputation. Without these things, your company would not be successful (or in business at all).
Staffing agencies are no exception.
So with an understanding of what’s behind the billing rate, it’s also worth exploring the non-monetary benefits of partnering with a staffing agency.
Priceless Perks of Using Staffing Agencies
- Quick Hiring: Staffing agencies that invest in recruitment technology and AI quickly attract, engage, and vet candidates — delivering a streamlined hiring process.
- Candidate Quality: Agencies that match candidates based on skills, work ethic, and cultural fit deliver more reliable talent.
- Improved Productivity: With quick and careful candidate placement, agencies ensure that your team remains productive with little to no interruption.
- Reduced Turnover: Productive and reliable candidates that are proactively managed throughout their assignment by their staffing agency create higher retention rates, saving you from frequent hiring cycles.
- Deep Relationships: The best staffing agencies aim for strong partnerships, not a transactional one. They are committed to making sure the relationship is the right fit for both parties.
- Custom Staffing Solutions: Look for agencies that can customize every project to ensure you get the right service for your unique needs.
- Local Workforce Expertise: Local agencies live, work, and volunteer in your community. They care about local businesses, understand the local market, and have the expertise to coach clients on how to maximize their workforce.
As you can see, your company can also benefit from a staffing agency’s specialized tools and expert knowledge, allowing you and your team to concentrate on core business functions.
A strategic staffing partnership not only streamlines your workforce management but also curtails related expenses, creating a continuous loop of cost savings and added value.
Discover the Hidden Value of Staffing Agencies
While not every staffing scenario will result in significant cost savings, understanding the cost structure of staffing agencies reveals their value. They offer more than just temporary staff; they provide cost-effective solutions that encompass various expenses often overlooked in direct hiring.
They also provide steadfast support and consultative expertise for better workforce management.
Just like your business, staffing agencies provide a needed service and take pride in helping others succeed. Partnering with one means investing in a relationship that positively affects your employer brand, productivity, and bottom line.
And that kind of partnership is priceless.
Want More Insights?
For more insights on hiring, onboarding, and boosting employee retention, explore the Bonney Staffing blog.
Need customized staffing solutions? Learn more about our consultative, hands-on staffing services that give you the right-fit candidates you need today so you can build for tomorrow.
