The Ultimate Guide to Temp Agencies: How They Work, Costs, and More

Last Updated: July 6, 2018
 

For the better part of the past hundred years, temp agencies have provided both temporary workers and companies of all sizes an option to deviate from traditional, in-house hiring and employment practices. Though these agencies have evolved and scaled over time to better fit the growing demands of the business world, their prevailing philosophy has stayed relatively consistent—to offer a full range of businesses an army of quality laborers who are available to work on a temporary, seasonal, or temp-to-hire basis.

Temp Agencies: How They Work, Costs, and More

In the age of the gig economy, the traditional temp agency concept may seem familiar, yet foreign at the same time. What exactly does a temp agency do, and how does it differ from the on-demand career lifestyles many modern workers are embracing? We’ve put together this comprehensive guide to walk you through the functions, benefits, and potential pitfalls seen in today’s agencies, both for working temps and contracting company clients.

Curious yet? If so, delve deep into the subject of temp agencies—and other versatile employment options available to flexible and freelance workers—in the guide below.

In this guide, we’ll discuss:

And, for all of you flexible workers who are looking for something more on the “side hustle” front, be sure to check out our Ultimate Guide to the Best Side Jobs for even more options (or find out about the best side hustles straight from the experts). But, first, let’s take a closer look at what temp agencies offer both their clients and their employees…

What Temp Agencies Do for Their Clients

The main objective of temp agencies is to match qualified candidates with clients looking to fill temporary, non-employee positions. Traditionally speaking, these specialized job agencies were formed in order to provide large businesses with a large volume of talent, but many have evolved to include temp-to-hire and, in some cases, full-time position placements. In those situations, the temp agency acts as a de facto, contracted human resources department, managing the hiring of the client’s short-term and long-term workers.

In addition to placement, background checks, drug testing, reference screening, and skills training are conducted by temp agencies, particularly the larger, more all-inclusive firms.

Because the agency’s contract is on the line if it doesn’t deliver reliable talent, clients see this as an incentive that could lead to boosted productivity, particularly in the short-term. It’s not all roses, though: One of the biggest challenges companies find in working with temp agencies is that time-to-fill rates can be exceedingly long, making it an inconvenient (if not entirely unrealistic) solution for companies that frequently need to fill shifts or secure qualified talent on short notice.

What Temp Agencies Do for Their Workers

How Temp Agencies Work

The temp agency employment model has long been considered a go-to for all categories of workers, including flexible, part-time, seasonal, and temp-to-hire hopefuls. Generally, job seekers will contact the temp agency first, although some highly-skilled candidates may be recruited for specific projects. Upon completing an initial application and interview process, the agency may or may not welcome the applicant on board.

For those lucky temporary workers who do get selected, they will be entered into the temp agency’s database and will be contacted whenever a position opens up that matches their skill set, availability, and location. These jobs may last as little as one work day, or may turn into a coveted temp-to-hire position. Although the temp will usually report to work at the contracting company, they will still be paid by the agency.

One very important thing that all temporary workers should understand is that they should never pay their agency any fees or percentages up front. All temp and employment agencies should offer cost-free job placement to candidates.

The Cost of Temp Agencies for Clients

Temp-to-Hire with Temp Agencies

Because job candidates hired by temp agencies should never incur fees up front, the agencies rely on their company clients to gain revenue. These deals are brokered by both parties and vary depending on the mitigating terms of the contract; some reflect fixed-fee, hourly fee, or value-based pricing models.

These rates are known as markups, or the additional cost on top of the worker’s hourly wage that covers the agency’s costs and any benefits being provided to the temp worker – and in some cases, markups can be as much as 100% or more. For instance, at a 50% markup, the temp agency will charge the client $30 per hour for a worker that they’re paying a rate of $20 per hour.

In the case of “temp-to-hire” positions in which the client wants the option to bring on the temporary worker full-time, a contract buy-out would be negotiated. Note that temp-to-hire positions aren’t guaranteed employment; they simply give the company the option to transition a temporary worker to a full-time role after the temporary work period ends.

The Potential Hidden Costs of Temp Agencies for Workers

As mentioned above, no temporary worker should ever pay fees to an agency up front—it’s a tell-tale hallmark of a staffing company scam. But poor ethics aside, not all temporary workers get paid what they’re worth.

Let’s look at the aforementioned example, wherein the temp agency charges its client $30/hour and pays its temp $20/hour. The 50% mark-up may be much higher than the industry standard, but $20/hour might be a low wage when compared to similar job titles that aren’t offered on the temporary market.  This tends to happen when an agency accepts a deal from a client that works in the favor of the client, but not necessarily the worker. (Sure, it’s great for a temp agency to land a client, but good temp agencies should be keeping the best interests of the worker in mind, too.)

The upside for temps is, of course, the fact that the agency does the leg-work in terms of placement and negotiation.

Pro tip: If you are currently a temporary worker who is worried that you may not be earning what you’re worth, use a reputable resource, like the United States Department of Labor’s Bureau of Labor Statistics site to cross-check your salary with your field’s average.

How Taxes Work for Temporary Employees

Although temp workers – those employed by a temp staffing agency – may seem like free agents, that doesn’t mean that they are exempt from paying taxes as traditional employees.

According to information released by the IRS, it’s actually the temp agencies that are responsible for withholding and paying 50% of the temp workers’ payroll tax. Because the temp is an employee of the agency, they will be expected to file a solitary W-2 as opposed to the multiple 1099s that their freelance counterparts file – but that also means temp workers aren’t entitled to the same business tax deductions that 1099 independent contractors can take advantage of.

Different tax rules apply depending on whether a temp worker is an independent contractor or an employee of a temporary staffing agency. In the case of the latter, it’s a lot like traditional employment when it comes to taxes.

The Most Sought-After Skill Sets in the Temp Work World

As technology swiftly advances, work is evolving, including an increasing focus on task-specific and project-specific work arrangements rather than traditional, long-term employment. Temp agencies, particularly full-service ones, are hiring workers from all kinds of backgrounds – from tech to manufacturing, food service, administrative work, and beyond – to meet the demand for project-based or short-term talent as companies seek a more dynamic workforce.

In addition to skilled workers, temp agencies are also known to hire candidates with little or no experience in the workforce. Job seekers looking to sign up with an agency should inquire about its specialties and current contracts before starting the – often lengthy – application process.

What Schedules Look Like for Temporary Workers

Costs of Temp Agencies

So, what does the weekly schedule of the average temporary worker look like? Well, like most answers on the subject, it can vary greatly.

According to data compiled by the American Staffing Association, roughly 76% of temporary workers end up racking in the requisite 40 hours per week—that’s about 6% fewer than the rest of the overall workforce. That being said, 35% of those full-time temporary workers reported that the clients offered them employment, which allowed them to say ‘goodbye’ to the temp agency and slide into a more predictable work arrangement.

Of course, one of the benefits of placement through temp agencies, especially in regards to temps who want to maintain a flexible or part-time schedule, is that the worker has full control over their availability. They can tell their agency when they are and when they aren’t available, something that is not always possible in customary employee-employer arrangements.

Still, longer-term contracts with temp agencies may not offer this convenience. If a worker has a three-month contract, for instance, they’re required to show up at assigned times and work the shifts required for the full contract period, often with even less flexibility (paid time off for healthcare appointments, for instance) than they’d have in a traditional, full-time role. (Note: The specific rights of temporary workers are dependent on individual company policies as well as laws that vary from state to state.)

How Temp Agencies Provide Safety to Their Employees

Workers who are used to gaining temporary employment as freelancers know that the route can come with unexpected challenges – namely in the form of clients skipping out on payments. It’s a harsh reality which can leave independent contractors with shaky allies and few options.

Those that act as employees through reputable temp and staffing agencies, however, can rest assured that their payment will be released on time, and in some cases can be negotiated if expectations change. In addition to payment security, the worker can dip their toe into a plethora of different fields without committing to a potentially life-changing career shift first.

Now, it’s important to note that the agencies don’t just provide financial stability, they are also on the hook when it comes to physical safety as well. For instance, if a worker is placed at a factory, it is the responsibility of the agency to ensure that the work environment is suitable – a reassuring detail to those who have encountered companies that value productivity over safety.

Common Complaints from Temp Agency Employees

Though temp agencies may provide desirable safety and flexibility, working for one does come with some considerable drawbacks.

Let’s take a look at benefits, for instance. Unless otherwise arranged, most temps placed by agencies don’t receive essential benefits, like health care, retirement, or even sick leave, as mentioned previously (again, this depends on company policy and state laws). This can be a massive roadblock for folks, especially if they do, in fact, end up working a regular schedule with the temp agency.

In addition to the scant benefits, temps frequently complain of the general uncertainty that comes with being assigned work. They may be assigned to roles that aren’t the best fit when the agency needs a warm body to fill an open position. In fact, one of the biggest challenges facing temp agencies today is the need to fill positions quickly, and without the right talent pool, these agencies are ill-equipped to meet those needs.

And in some cases, they may feel isolated from the full-time staff. And, if you’re looking for full-time employment while working at a temp job, finding the free time for job hunting can be difficult.

For aspiring full-time job candidates, temping can lead to regular work, but not every temp agency provides friendly contract buyout initiatives to their clients, a consequence which might force its employees into a seemingly never-ending cycle of temporary work. It’s a reality that might be sustainable for select members of the workforce, but for those who have goals of becoming permanent fixtures in a company, temping can quickly evolve into more of a hindrance than a help.

Why Today’s Flexible Workers Are Skipping the Temp Agency

Skipping the Temp Agency

For folks who want total freedom when it comes to schedule, location, and assignments performed, more and more are turning to online platforms — like Wonolo — for job placement. It’s an especially suitable option for workers who are interested in having complete control over the jobs that they accept, all without facing the uncertainty and possible pay cuts often experienced in temp agencies. What’s more, if you’re looking for full-time work, it’s as easy as not accepting a shift or gig on the day of your big interview – no awkward requests for time off necessary.

What’s great about this option is that it allows both clients and temps to pick up work on an as-needed basis — no bureaucracy or lengthy interactions with middlemen, and no repetitive interviewing to land each temporary assignment. Basically, you get all the benefits of temporary work (gaining valuable industry experience, making contacts and growing your network, etc.) but without the hassles.

This can quickly turn into the perfect, sustainable option for true temps, like students, stay-at-home parents, the underemployed, and even entrepreneurs who crave total control over their work and cash flow, whether they need to start earning money as quickly as possible or are looking for a side hustle to earn some extra cash in their spare time. While temp agencies might represent the past for flexible workers, on-demand platforms like Wonolo represent the future of flexible work.

Additional Resources on the World of Temp Agencies

If you’re looking for more details on what to expect as a temp or client, be sure to visit the following resources:

No matter your breadth of experience, current availability, or lifestyle, today’s vast amount of temporary work options has made for a gold rush of opportunities for both skilled and unskilled workers alike. Just remember, the key to making it work as a temp is to know your goals and educate yourself before you embark on your flexible work journey.


Angela Stringfellow

Angela Stringfellow is a writer with 10+ years of experience. She focuses on news, trends, and insights in marketing, business, and technology.

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