How staffing agencies make money, how to choose a niche, the legal and insurance steps, how to price your services, how to fund payroll before clients pay and the systems you need to manage temporary workers.
A staffing agency recruits workers and places them with client businesses. In the most common model, temporary or contract staffing, the agency is the employer: it pays the workers’ wages and payroll taxes, carries workers’ compensation and bills the client an hourly bill rate that covers those costs plus overhead and profit. Other models include temp-to-hire, where the client can hire the worker after a set period, and direct hire, where the agency is paid a one-time fee for filling a permanent position.
The difference between the bill rate and the worker’s pay rate is the agency’s gross margin, out of which it pays payroll taxes, insurance, recruiting, office costs and profit.
General staffing is crowded. Most successful new agencies start in a niche where the founder has experience and contacts. Common niches include light industrial and warehouse, hospitality and events, healthcare support, construction labor, office and administrative, and IT. A niche helps you understand what clients need, recruit the right workers and price accurately. See how EZTime works with event staffing and logistics and warehousing businesses.
Write a business plan covering your niche, target clients, competition, pricing, startup costs and cash flow. Our small business plan template is a starting point. Cash flow deserves special attention, as explained below.
Most agencies form an LLC or corporation to separate business and personal liability. See what is a sole proprietorship for the simplest structure and talk to an accountant about the alternatives. Then get an EIN, open a business bank account and obtain your local business license.
Agencies usually price with a markup on the worker’s pay rate. The markup must cover the employer’s payroll taxes, workers’ compensation, any benefits, recruiting and overhead, and still leave profit. Here is an illustration with made-up figures:
| Item | Per hour |
|---|---|
| Worker pay rate | $18.00 |
| Employer payroll taxes and workers’ comp (illustrative) | $3.60 |
| Agency overhead allocation (illustrative) | $3.00 |
| Profit target (illustrative) | $2.40 |
| Bill rate to client | $27.00 |
| Equivalent markup on pay | 50% |
Your real costs depend on your state, industry and insurance rates. Our labor burden calculator helps estimate the true cost of an hour of labor. Remember to bill overtime at a higher rate: when a temporary worker works overtime, you owe time and a half, and your margin disappears if the client is billed at the regular rate.
This is where many new agencies struggle. Temporary workers are often paid weekly, while clients commonly pay invoices 30 days or more after receiving them. That means you may pay several weeks of wages before receiving any payment. As you grow, the gap grows too.
Options include starting with savings or investor capital, a business line of credit, or payroll funding and invoice factoring, where a finance company advances money against your invoices for a fee. Model your cash flow carefully before taking on a large contract.
You need two pipelines at once. On the worker side: job postings, referrals, community partnerships and a fast application and onboarding process. Workers choose agencies that pay correctly and on time and offer steady shifts. On the client side: start with businesses you know, offer to fill urgent needs and deliver reliably. A few dependable clients with recurring needs are worth more than many occasional ones. Our guide on onboarding hourly employees applies directly.
Because you are usually the employer, you are responsible for:
Launch checklist complete.
Clients may also be treated as joint employers in some situations, which is another reason to define responsibilities in the contract.
Staffing agencies sometimes assume the client handles safety because the worker is at the client’s site. OSHA says otherwise:
Before the first placement at a new client, walk the site, ask what hazards the job involves and confirm who provides training and protective equipment. Put the answers in the service agreement. A short site check protects your workers and your workers’ compensation rates.
Time records drive both payroll and billing in a staffing agency, so errors cost twice. You need a way for workers to clock in at each client site, for hours to be tagged by client and job, for client supervisors or your coordinators to approve them, and for reports to feed payroll and invoices. EZTime lets workers clock in by mobile app with a GPS stamp, NFC tag or kiosk, tags hours to jobs and clients and exports payroll-ready reports. Scheduling with open shifts helps fill last-minute requests. See job and client tracking.
It depends on the state and the type of placement. Some states license, register or require a bond for employment or staffing agencies. All agencies need a local business license and employer registrations. Check with your state labor department.
Costs vary widely, but the largest requirement is usually working capital to cover payroll before clients pay, plus insurance, licensing and recruiting costs. Build a cash flow model before you start.
In temporary staffing, the agency bills the client an hourly bill rate that covers the worker’s pay, payroll taxes, insurance, overhead and profit. Direct-hire placements usually earn a one-time fee.
Usually the staffing agency, as the employer, pays overtime to the worker. The client contract should set an overtime bill rate so the agency recovers the cost.
Both the staffing agency and the host employer have responsibilities. Agree in the contract on who provides general and site-specific training, equipment and supervision.
Most new agencies win their first clients through direct outreach in their niche: calling operations managers, visiting job sites, and offering to fill one hard position quickly. Fast, reliable fills on small orders turn into larger contracts. Referrals from satisfied clients usually become the best source.
Common coverages include workers’ compensation for your placed employees, general liability, professional or errors and omissions liability, and employment practices liability. Some clients also require bonding or crime coverage. Requirements depend on your state and your clients’ contracts.
As soon as you have hourly staff, two jobs take more time than most owners expect: recording hours accurately and building a schedule everyone can see. Under the federal Fair Labor Standards Act (FLSA), employers must keep accurate records of hours worked and pay non-exempt employees overtime for hours over 40 in a workweek, and some states add daily overtime or meal-break rules. This is general information, not legal advice.
EZTime covers all three with a time clock app, employee scheduling and payroll-ready exports, from $2 per employee per month. See pricing and start a 14-day trial.
EZTime lets placed workers clock in by GPS app or kiosk, tags hours by client and exports timesheets for billing and payroll.