How Do Staffing Agencies Make Money?
If you've spent time online looking for a job, you've probably run across postings from staffing companies. However, if you've never worked with one before, you may be wary.
Job seekers are often suspicious of recruiters, and much of this stems from misconceptions about how they make money. In this article, we'll pull back the curtain on how staffing companies operate so that you can determine whether working with one makes sense for you.
The Business of Staffing
Sometimes job seekers incorrectly believe they'll be charged a fee if they work with a staffing company, but in reality, employers pay fees for staffing services.
Companies hire staffing agencies for many reasons. Some outsource recruiting because they don't have the in-house staff or expertise necessary to do it themselves. Others need help filling niche positions, while others just want to reduce the time spent screening candidates so they can find the best employees quickly.
Whatever the reason, lots of companies find value in partnering with staffing agencies for support with recruiting and hiring, and they're willing to pay for it. Fees are usually structured based on whether the company is looking for contract-to-hire, direct placement, or contract talent. Let's look at each model and how costs are typically structured.
Contract-to-Hire
The most common business model for staffing companies is called the "contract-to-hire" or temp-to-perm model, where a company hires an employee for a temporary period with the option to convert the employee to a full-time, permanent position.
In this model, staffing companies earn money by charging a fee to the employer for the contracted placement, and if the employee is converted to a permanent position, the staffing company will typically earn another fee. This fee is usually a percentage of the employee's annual salary.
Direct Placement
The "direct placement" model is also commonly used in staffing, where the staffing company provides a direct hire solution to the employer by finding and placing a candidate in a full-time, permanent position.
In this case, the staffing company earns a fee based on a percentage of the employee's first-year salary, which is typically higher than the fee charged in the contract-to-hire model. This model is typically used by companies that need to fill high-level positions that require specialized skills and expertise, and the fee charged is meant to reflect the increased level of difficulty in finding the right person for the job.
Contract Positions
Staffing companies can also make money by providing contract staffing services by placing a worker with an employer for a specific project or assignment.
Because the employee is considered a contract worker, they are paid by the staffing company, which in turn charges the employer a fee for the service. This model is often used by companies that need to quickly ramp up their workforce for a specific assignment but don't want a long-term commitment. The fee charged by the staffing company is typically based on the length of the assignment and the skill level of the worker.
What's In It for You?
To make money, staffing companies must be able to quickly and efficiently place workers in the right jobs. This means that they're incentivized to build long-term relationships with job seekers and help them become the best candidates they can be.
Job seekers aren't charged for staffing services but often receive a lot of complimentary perks like help with resumes, interview prep, post-interview feedback, or training.
To attract the best contract and contract-to-hire talent, reputable staffing companies offer competitive pay, benefits, development opportunities, and a positive work environment.
A staffing agency that treats its employees right builds a reputation as a trusted and reliable source of job opportunities. This leads to job seekers referring friends and family, leading to an even larger pool of qualified candidates for the staffing company to place.
While businesses pay for staffing services, it's clear that there are many advantages for job seekers to work with them as well. If you decide to connect with a recruiter, do your homework by looking at online reviews to ensure their organization is respected and experienced, like those at FrankCrum Staffing. We're here to help you not only find a job but get you moving toward your career goals.