Staffing agencies have two primary clients: The employees we place in jobs and the employers that hire them. At Artisan Talent, we appreciate both and work hard to deliver on our promises to employers and the talent we hire for them.
But a frequent question asked by both employers and creative talent is what does the staffing agency bill the employer and how much profit does the agency make?
There’s certainly a difference between what we bill the client and what our employees are paid, however, the assumption is often that the difference is pure profit for the recruiting firm. That couldn’t be further from the truth. This article will dispel the misinformation and shed light on what staffing agencies really do, how they bill, and what’s in it for both of our clients.
Pure Profit? Understanding Staffing Billing
Here’s a scenario that sometimes occurs in the staffing world: The employer or contract employee discovers that the hourly bill rate paid by the employer is higher than the employee’s hourly paycheck. Incorrect assumptions make the math look something like this:
Employer Bill Rate − Employee Paycheck = Talent Agency Profit
We have two (very polite) words for these assumptions: We wish.
It’s a common complaint, particularly from contract workers who believe they’re missing out on higher salaries because the staffing agency is somehow skimming too much off the top. This misunderstanding arises because many employees and Hiring Managers don’t understand the volume of overhead costs that go into the services that talent agencies provide.
The staffing firm, as the employer of record, handles the vast majority of liability, risk, and expenses in the employer-employee relationship. Significant costs go into recruiting and hiring, as well as the ongoing payroll process that the staffing firm must handle.
Here are the costs that typically go into the employer’s billing:
- Payroll Costs
When a staffing agency assumes the burden of paying an employee, they also must handle payroll taxes, including FICA (Social Security and Medicare), local, state, and federal unemployment taxes, as well as worker’s compensation. This is complicated accounting because rates vary by geography, however, Bullhorn says generally the “total payroll burden can be significant at more than 10%.”
In 2018, employers paid about 82% of company-provided health insurance premiums. For employees contracted through a staffing agency, this means they’re carrying a big chunk of the healthcare load. These rates are rising at a rate of 3% to 5% annually. That’s actually good news for companies that partner with staffing firms; transferring these responsibilities saves the employer up to 25% on annual employment expenses.
- Recruiting and Operational Expenses
Think about all the internal staff time it takes to hire one employee. Advertising and marketing, recruiting, interviewing, testing, paperwork, and then finally, hiring. But there’s also company management, payroll and HR, training, administration, and general overhead that keeps the lights on and the doors open.
- Employee Rate and Markup
Finally, we get to the employee rate, which is the hourly take-home rate the worker actually receives.
So, if we update the same mathematical formula to accurately illustrate a recruiting firm’s bill rate, it would look more like this:
Employer Bill Rate - Employee Paycheck - Payroll Fees - Recruiting
and Operational Expenses = Talent Agency Profit*
*Assuming the employee is signed by the employer and stays past the 90-day mark. See what we mean about the talent agency handling most of the risk?
The ASA says the average net profit is just over 3% based on their ASA Staffing Operations Benchmarking Survey.
Now that we’ve killed your dreams of getting rich by starting your own staffing firm, let’s talk about why employers find the staffing agency model so attractive when trying to find the help they need.
Getting What You Pay For—Understanding Employer Fees
Ask any Hiring Manager and they’ll tell you the job market is tighter than a clam with lockjaw. Nationally, the unemployment rate is now less than 4%, and that means almost everyone with the skills you needed yesterday is already hard at work somewhere else. Finding talent is a full-time job, which is where staffing agencies come into play.
For employers that wonder what goes into the upfront fees they pay to staffing/talent agencies to source candidates, here’s a breakdown of the services these firms provide:
- Sourcing and Recruiting
This is the entire behind-the-scenes effort to identify talent, including recruitment marketing, hunting for candidates, and “selling” the role.
- Talent Evaluation
Assessing the skills of a candidate helps recruiters understand the employee fit to an organization. It can include professional assessments like coding tests or personality profiles, as well as resume reviews and reference checks.
- Selection Process
Phone, video, and in-person interviews are all standard in the industry. The first round happens with the recruiting team; then the selected few candidates are sent over to the employer for their final vetting process.
- Long-Term Candidate Management
A good hiring agency partners with the employer throughout the hiring process, often handling payroll and benefits and long-term candidate management. They are also additional eyes and ears in specific competitive industry sectors, such as IT, where there is a shortage of talent.
The good news here is the value of staffing agencies that immediately expand your talent networks by introducing passive candidates into the hiring pool. Passive candidates are the ones that aren’t really looking but could be persuaded. These are the strategic candidates that have highly sought-after skills, are currently employed, and you don’t typically see applying for job openings. These candidates generally have more stable job histories and higher performance. As a result, there’s more competition in the market to find these workers. Staffing firms have made networking their business, which is why they can still find talent when your internal talent teams come up dry.
Whether you’re a candidate looking for your next role or an employee seeking a match for an open seat, Artisan Talent is the staffing firm in the creative trenches every day. We specialize in finding the perfect match for creative talent and employers, and value our partnership with both categories of our clients. Call us today to find out more.