Ever wonder how an offer is made through a staffing service? Wonder what motives a recruiter has, or doesn’t have, to place you? Wonder who makes money there and how? If you answered yes to any of these or similar questions, please allow me to help! Too often candidates come through my office here at a staffing service with this mantra, “Well…I didn’t know how it worked with a staffing service…” Usually, there is some level of disdain in their voice when they say this too. It’s nearly becoming a life goal of mine to make it clear how staffing services work.
Obviously I can’t speak for every service in the world. I imagine, however, that most of us operate in some semblance of similarity. The basic premise of service for a staffing agency is this: recruiters “serve” two parties- their clients and their candidates. (Their candidates being people seeking employment.) In doing so, they make a profit above the amount paid to the employee based on a per hour or salaried amount.
Recruiters are middle-men. They are the voice between. Think of it this way: Company X wants Person A. The recruiter helps Company X find Person A, meanwhile making Person A happy because they were looking for a job like the one Company X has open. Depending on the type of placement (temporary, temp-to-hire or direct-hire) the recruiter then earns a percentage over the person’s hourly or annual pay for making that match. Make enough successful matches and voila, you have a profitable business!
One common misunderstanding is where the profit comes from for the agency. Often times my employees tell me that they “know” part of their check will go to the agency. This idea is completely false. In our example for instance, let’s say that Company X hires Person A on a temp-to-hire basis. While Person A is a temporary employee they are considered an employee of the agency, not of Company X. The agency then is responsible for the worker’s compensation risk, unemployment tax and all other taxes associated with employment. On top of that, the agency spent the advertising dollar and staff time to find Person A for Company X.
The agency saved Company X a lot of time and money. Therefore, the agency charges Company X a fee essentially above the amount that they are paying the employee. No money is taken from the employee. An invoice to Company X might look something like this:
Let’s say Person A is paid $5.00/hr. Let’s then say the agency has a 2.5 percent fee (which would be extremely high, but just for example sake). Company X would then be billed $12.50/hr (5 times 2.5 percent). Company X is paying the hourly rate to Person A, paying the agency a service fee for the time and resources it took to find Person A, and covering a portion of the government required employment taxes and fees.
It might sound like a lot of extra expenses for an employer. However, should the employee not turn out to be a fit, the employer assumes none of the risk. Company X would not be responsible for unemployment pay-out, worker’s compensation, etc. The company wouldn’t even have to be the bearer of bad news in firing Person A if they didn’t want to. In many cases, a staffing agency rids their clients of ever having to be a “bad guy”. Let’s say Person A does get fired. They have the staffing agency there to help them find a new, better employment fit. Agency recruiters hold everybody’s hand through all sorts of situations- they are there to serve their clients while maximizing employment potential for their candidates.
So now you can see that staffing services do not take a portion of the employee’s income, and they can actually be quite helpful for both parties. Hopefully that staffing service myth is now completely dispelled for you. Check back next week to see what the next staffing service myth we dispel is.
What are your thoughts on staffing services? Did you previously think that they took part of your income for their profit? Let us know in the comments section below!
IMAGE: Courtesy of Rhizome