Most staffing services as we know them today are personnel services that place people on one day to indefinite duration job assignments. However, the Internal Revenue Service (IRS) has a very specific definition of what an independent contractor is and how that position affects payroll taxes.
How Do Staffing Services Make Their Money?
Staffing services are either employee or employer paid services. If you use a staffing service to find temporary or permanent work, that means you, the temp, are the employees of the staffing service. A temp never should pay a staffing service to find the temp a job, so stay away from staffing services that are employee paid staffing services or that charge you money for finding you work. You want to use a staffing service that is employer paid. That means the staffing service charges the business where they place you a fee for finding a temp for the business.
Do not use employee paid fee staffing services. They will charge you a fee for finding you a temporary or permanent job. There are too many employer paid staffing services that want you that will not charge you a fee. Stay away from the ones that charge you money to find you a job.
The businesses that hire the staffing services should be the ones that pay for the service, not you, the professional technical temp.
There is a mistaken perception that all staffing services will charge temps a fee to find them a job. That is not correct, and you should avoid staffing services that do charge the temp a fee. Go only to the staffing services that pay you, the temp, not the staffing services that would charge the temp money for finding work.
An employer paid service will charge the business where they place a temporary employee an hourly rate for filling that job. That rate is figured in two basic steps. Part one includes the essential required items of any person's hourly pay, such as the actual hourly pay rate plus taxes, Social Security, bond, and workers' compensation.
The second part of the rate is where staffing services make their money. After figuring what they have to pay someone per hour, the staffing service will add to that a markup or cost that allows the staffing service to make money. They will charge a business enough per hour so that the staffing service makes a profit. The staffing service is like any other business: It must make a profit to stay in business. The staffing service has to pay its own employees and cover its other business expenses. The staffing service will charge the business anywhere from 30% to 50% more per hour than whatever they are paying their temp. If you, the temp, are paid $20 an hour, the staffing service is probably billing the business where you are working $26 to $30 an hour.
Remember that the employer paid staffing service will charge a fee to the business where the temporary employee works, not to the temporary employee.
Staffing services are in business to make money, so they must include each hourly rate money that will cover their overhead (e.g., their rent, salaries of their staff) and a percentage of margin for their profit. A bank that hires the same person for the same job must factor in not only the person's salary, but the cost of providing health and retirement benefits.
A company's staff person whose annual salary is $50,000 not only costs the company $50,000 but also costs an additional 30%, or $15,000, in benefits. Benefits would include vacation and sick pay and a retirement fund. The temporary industry has grown because companies, by paying an hourly rate to a staffing service, can get the right skill, can get the job done, and do not have to be responsible for unemployment or benefits for these people.
Flat Fees versus Hourly Fees
Some companies pay a staffing service a flat fee for locating persons for them, rather than the 30% to 50% markup of hourly fees. This flat fee is usually based on the percentage of an annual salary, often 20% to 30%. For example, if a person is placed on a job at $40,000, the staffing service will charge the business hiring the person a percentage of that $40,000 (20% to 30% of the salary would be $8000 to $12,000). Some headhunters can make a very good income from charging percentages of executive salaries. A 25% fee for someone making $75,000 is $18,750. A few placements like that each year can add up to a lot of money.
As stated previously, an employee paid staffing service will charge the temporary employees a percentage of their salary for finding them a job. There are many staffing services that make their money by charging the businesses where they place temps. It makes sense to stay away from those who charge the temps money for finding them the jobs.
