What is a staffing agency?

Temporary and contract staffing is the core of the industry. The agency employs the worker, handles payroll, taxes and insurance, and assigns them to a client for a defined period. The client pays an hourly bill rate and carries none of the employment admin. This is what most people mean by a temp agency, and in technology it is usually called contract staffing.

Contract-to-hire places a worker on contract with the understanding that the client may convert them to a permanent employee later. It lets both sides test the fit before committing, and the agency typically charges a conversion fee at the point of hire.

Direct hire, also called permanent placement, is a one-off recruitment service. The agency finds the person, the client employs them directly, and the agency charges a fee — commonly 15% to 25% of first-year salary.

On contract work, the agency charges the client a bill rate and pays the worker a pay rate. The gap between them is the gross margin, and it covers payroll taxes, insurance, benefits, recruiting cost and profit. A bill rate of $85 an hour against a pay rate of $60 is a common shape; the agency is not keeping $25 of profit, because employer taxes and insurance come out of that spread first.

On permanent placements the agency charges a percentage of salary, usually payable once the candidate starts, often with a guarantee period during which a replacement is provided free if the hire does not work out.

This is why utilisation matters so much to an agency's economics: a recruiter's cost is fixed, and revenue only arrives when someone is working.

Speed is the honest answer. A good agency has already met candidates the employer would take weeks to find, and can submit a shortlist in days. For roles where a vacancy costs real money — an unstaffed project, an unfilled shift — that speed is usually worth more than the margin.

The second thing is risk transfer. On contract placements the agency is the employer of record: it runs payroll, withholds taxes, carries workers' compensation and unemployment insurance, and handles the paperwork when an assignment ends. For a company that needs twelve people for nine months, that is a meaningful amount of administration it does not take on.

The third is flexibility. Contract headcount can be scaled against project work without the commitments of permanent hiring.

Working through an agency on a W-2 contract means the agency is your employer. It pays you, withholds your taxes, and often offers benefits. You work at the client's site and under their direction, but your paycheque and your HR relationship are with the agency.

Agency work is not inherently worse-paid, and in specialist technology contracting it is frequently better paid than the permanent equivalent, because the client is paying for flexibility. What it trades away is tenure and, in some cases, benefit continuity between assignments. Good agencies manage that by lining up the next placement before the current one ends.

It costs the worker nothing. In the United States, a legitimate staffing agency never charges a candidate a fee — the client pays. Any agency asking a job seeker for money is a warning sign.

Behind the placement is more operational machinery than most clients see: requirements taken from clients, candidates sourced and submitted, interviews coordinated, offers negotiated, onboarding and compliance completed, timesheets collected weekly, those timesheets approved and turned into invoices, invoices chased, and consultants' work authorisation tracked so nothing lapses mid-assignment.

Agencies that run those steps across disconnected tools lose margin in the seams — hours re-typed into invoices, documents expiring unnoticed, candidates going cold while a submission sits in a queue. Which is the entire argument for running recruiting, workforce management, timesheets, billing and compliance on one system rather than five.