How Do Staffing Agencies Work?
Most calls we receive start with the same statement: “I need help hiring.” For most of them, the answer is a staffing arrangement: the agency finds and screens the people, the worker goes on the agency’s payroll, and you pay an hourly rate for the hours worked, whether that’s a project, a leave, a busy season, or a contract-to-hire role you want to see work before you commit. If what you need is a permanent employee on your own payroll, that’s direct hire recruiting, a different arrangement with its own agreement and fee. This post covers how the staffing arrangement works, from the first call to the first timesheet. In either case, the employer pays the agency. Candidates never pay a fee.
How Does a Staffing Agency Work, Step by Step?
Staffing is a bigger business than most employers realize. The American Staffing Association estimates that 11 million people worked for a staffing company at some point in 2024, and just under 2 million were on assignment in a typical week in the third quarter of 2025. Every agency has its own process, but from the employer’s perspective, a search generally follows the same order.
1. You describe the opening
The intake call sets the tone for the search. The recruiter needs the basics: what the job is, what it pays, and when you need someone, but the questions that matter are the ones a job description doesn’t answer. Why is the seat open? What did the last person do well, and what held them back? Who makes the final decision, and what would make you say yes on the spot? Come to that call with real answers, and you’ll see fewer resumes and better ones. Come with a job description, and you’ll get candidates who match…the job description. For a contract assignment, add two more answers: how long you need the person, and whether the role could become permanent.
2. You sign a master service agreement
For contract and contract-to-hire staffing, the agency will most likely use a master service agreement, or MSA. You sign it once, and it covers every hire with that agency afterward. Read the payment terms first: when invoices go out, when they’re due, and what happens if they’re late. The rest covers how the relationship works: how hours are approved and billed, how much notice either side gives to end an assignment, and the conversion terms if you decide to hire a contractor permanently, which usually means a fee that shrinks or disappears after a set number of hours worked. The bill rate itself is often not in the MSA. Most agencies, including ours, set the rate for each hire in a separate exhibit or work order. If the MSA is driven by an immediate hiring need, you can still agree on the numbers then.
Direct hire works under a separate placement agreement with its own fee and guarantee terms; our guide to what to look for in a direct hire staffing agreement covers that one.
3. The agency sources and screens candidates
This is the work you’re paying for, and most of it happens behind the scenes. A good recruiter starts with their existing candidate network while using myriad sources to find additional candidates: job boards and LinkedIn, referrals, and proactive outreach to people who aren’t looking (and would never see a job posting). Every candidate who gets through has been asked about skills, pay, availability, and whether they want your specific job or just any job. For a contract role, the recruiter also confirms the person understands the assignment: how long it lasts, the hourly pay, and that they’ll be the agency’s employee while they’re on it. When engaging 4 Corner Resources, the search starts the day of the intake call, and we typically identify and screen candidates for submission within 48 hours.
4. You review the candidates the agency submits
You should expect to see a select few qualified candidates, not a pile of resumes. Each submittal should include a resume and the recruiter’s take on why you’ll want them, including any reservations. An agency that sends 5-10 resumes for one opening has left the screening to you and is hoping volume looks like effort. We send only candidates we expect you to hire, and our clients interview an average of 1.4 people for every hire they make.
5. You interview and choose
The hiring decision is yours. The agency’s job here is to keep the process moving: schedule the interviews, obtain feedback from both sides the same day, and confirm the rate, start date, and assignment length with the candidate you pick. Good candidates don’t wait around, especially contractors who are choosing between assignments, so the recruiter will push you on timing. Let them.
6. The contractor starts
The agency onboards the worker: offer letter, background check, I-9, and payroll setup all happen on the agency’s side, not yours. From day one, the candidate is the agency’s employee working at your company. You approve a timesheet each week, the agency pays the worker and handles the taxes, and you get one invoice for the hours. The first 2 weeks are critical. Expect the recruiter to call you and the contractor during that stretch, and tell them the truth if something’s off; small problems in week one are easy to fix, and the ones nobody mentions are the ones that end in a replacement.
Who Employs the Worker?
On a contract assignment, the staffing agency is the employer of record. The agency pays the wages, withholds and remits employment taxes, provides workers’ compensation insurance and any benefits, and ensures compliance with employment law. You direct the day-to-day work, approve the hours, and provide a safe workplace.
Because both companies have a hand in the job, the arrangement is called co-employment. It’s common and legal, and the MSA should say who handles onboarding, safety training, timekeeping, and ending an assignment. The practical rule: manage the contractor’s work the way you’d manage any employee’s, and leave pay, benefits, and HR paperwork to the agency. Our post on contract-to-hire pros and cons covers co-employment in more detail.
How Do Staffing Agencies Make Money?
In a staffing arrangement, the agency bills you an hourly rate that is higher than what it pays the worker. The bill rate is the agency’s revenue; the difference between the bill rate and the worker’s pay is what it has left to cover its costs and make a margin. The employer pays all of it. A legitimate agency never charges a job seeker.
That difference is not profit. Before the agency keeps anything, it pays the employer’s share of payroll taxes, workers’ compensation, unemployment insurance, and any benefits the worker receives, plus the cost of recruiting the person in the first place. What’s left is the margin. Bill rates across the industry usually land at 1.5 to 1.8 times the worker’s pay, based on what we see in the market, and the example below shows where each dollar of a 50% markup goes.
On an accountant paid $40.60 an hour and billed at a 50% markup, the agency’s gross profit is $12.18 an hour, and recruiting and overhead come out of that.
| Per hour | What it is | |
|---|---|---|
| Worker’s pay | $40.60 | The wage the agency pays the accountant |
| Social Security and Medicare | $3.11Employer share, 7.65% of wages | Required federal payroll tax |
| Unemployment taxes and workers’ comp | $0.95About 2.35% of wages for an office role | Federal and state unemployment tax plus workers’ compensation insurance |
| Benefits, insurance, and screening | $4.06About 10% of wages | Health coverage for eligible workers, liability insurance, background check, and drug screen |
| Burdened pay rate | $48.72Pay plus a 20% burden | What the worker costs the agency before any recruiting or overhead |
| Bill rate at a 50% markup | $60.901.5 times the wage | What you pay the agency for each hour worked |
| Agency’s gross profit | $12.1820% of the bill rate | Recruiter time, job ads, office costs, and net profit all come out of this |
Accountant pay from 4 Corner Resources salary data ($84,438 a year, $40.60 an hour). Employer payroll tax share from the IRS; legally required employer costs of about 10 cents per dollar of wages from the BLS Employer Costs for Employee Compensation. A 20% total burden is typical for an office role. State unemployment tax rates vary, and higher-risk roles such as skilled trades, field service, and healthcare pay more for workers’ comp, so the burden on those assignments is higher.
For what goes into a markup and how bill rates vary by role, see our full breakdown of how much staffing agencies charge.
The other ways agencies charge
Direct hire works on a placement fee instead of a bill rate: most agencies are paid only if you hire a candidate they found, and the typical fee is 20% to 30% of first-year compensation. Executive search firms often work on retainer, with part of the fee paid up front. Recruitment process outsourcing (RPO) charges a fixed fee for dedicated recruiting capacity instead of a fee per hire. Our guides to contingency recruiting, retained executive search, and what RPO costs cover each one.
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Which Staffing Service Fits Your Opening?
Contract staffing covers short-term needs, direct hire fills permanent roles, and fixed-fee recruiting fits companies that hire many people a year.
| Service | How you pay | |
|---|---|---|
| Covering a leave, a project, or a busy season | Contract staffing | Hourly bill rate for hours worked |
| Trying out a role or a person before committing | Contract-to-hire | Hourly bill rate, then any conversion fee |
| Filling a permanent role | Direct hire | One placement fee |
| Hiring a senior leader or keeping a search confidential | Executive search | Deposit to start, balance after the hire |
| Making many hires a year without enough recruiters | Fixed-fee recruiting (RPO) | Weekly or monthly fee |
Seasonal hiring is one of the most common uses of contract staffing. Every year, a national tax preparation software company hires more than 100 support professionals through us for its busy season. Our seasonal staffing page explains how to plan for peak demand.
If you’re deciding between models, our posts on types of staffing services and direct hire vs. contract hiring compare them in more depth.
What Does the Agency Handle, and What Do You Handle?
The agency finds, screens, and employs the worker, while your company makes the hiring decision and manages the work.
| Staffing agency | Your company | |
|---|---|---|
| Job description | Drafts it with you | Approves it |
| Sourcing and screening | Handles it | Gives feedback on candidates |
| Interviews | Screens and schedules | Holds final interviews |
| Hiring decision | Advises | Decides |
| Rate, start date, and assignment length | Presents and confirms with the worker | Approves the terms |
| Onboarding paperwork and background check | Handles them | Provides site access and training |
| Payroll, taxes, and workers’ comp | Handles them | Approves the weekly timesheet |
| Daily supervision | Checks in | Manages the work |
| Ending an assignment | Tells the worker and closes it out | Tells the agency |
How to Choose a Staffing Agency
Ask these questions before you sign an MSA:
- What is your experience staffing this type of role?
- What is your process for screening candidates?
- What is your bill rate or markup, and what does it include?
- How fast can you have someone working?
- What happens if a contractor doesn’t work out in the first week?
- What are the conversion terms if we want to hire the person permanently?
- Who will we work with day-to-day, and how often will we hear from them?
You want numbers, a process, and a name. Vague answers before the agreement are a preview of the assignment.
How 4 Corner Resources Works
4 Corner Resources is a national staffing and recruiting firm based in Orlando, Florida. We provide contract staffing, contract-to-hire, direct hire, executive search, and fixed-fee recruiting (RPO) across 12 areas of expertise, from accounting and IT to skilled trades and healthcare.
Contract roles are quoted as one all-in hourly rate, 1.45 to 1.75 times the worker’s pay, before the search starts, and you’ll see a small number of candidates, not a stack of resumes. If you decide to hire a contractor permanently, the conversion terms are in your MSA from day one.
For permanent hires, our direct hire fee is paid as you go, with no invoice until your new hire has been with you 30 days. Full details are on our pricing page.
If you have an opening now, tell us about the role, and we’ll explain how the assignment would work.
Frequently Asked Questions
No. The employer pays the agency through the hourly bill rate. The agency pays the worker their full wage, and its margin sits on top of that wage in the rate it bills you.
Yes. Most master service agreements let you convert a contractor to your own payroll, and the conversion terms set any fee, which often shrinks or disappears after the contractor works a set number of hours. Contract-to-hire is built for this path; our contract-to-hire staffing page explains how it works with us.
The arrangement is the same: the worker is the agency’s employee and you pay an hourly rate. The difference is intent. A contract assignment has an end date or a defined scope. A contract-to-hire assignment is a trial period, usually a few months, after which you can bring the person onto your payroll under the conversion terms in your agreement.
It depends on the role and who’s available. An agency can usually present candidates within days; after that, the start date depends on the person’s availability and your interview schedule. At 4 Corner Resources, we typically identify and screen candidates for submission within 48 hours of the intake call.
Sources
American Staffing Association, What Staffing Firms Do
American Staffing Association, Staffing Industry Statistics
American Staffing Association, Staffing Employment Ticks Up in Third Quarter
4 Corner Resources, Accountant Salary Data
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