How much should you pay to a staffing firm?

I think it is time to open the kimono. In this new age of open and transparent models, staffing firms lag behind. A good firm, that has the customers needs at heart should be open about how much they charge as well. So, let's dig in.

Contingency (No charge unless you hire the candidate the agency submits). Most firms you contact will state their fees are 20% of first year base salary. It can vary between 15% to 25%, but the industry average at this point is 20%. This fee is always negotiable! Ask the agency for a discounted rate and usually, you will get it.

Retained (You pay up front, typically in installments of 1/3 at start of search, 1/3 after a set number of candidates is submitted and then final 1/3 at conclusion of the search). Usually retained firms charge a bit more due to the higher level nature of the searches. Fees range from 25% to 35% of projected salary. Some firms also include a percent of projected bonuses as well. These fees are negotiable as well, though retained firms, in good times, are less prone to discounting too much.

Contract (temps). This is really where hidden fees can exist and in all honesty it is hard to compare. Why? Well, there are a lot of variables that agencies provide. Typically an agency payrolls that temp and invoices the client every two weeks or so. That means they are the employer of record in the eyes of the Federal and State government. All payroll taxes need to be paid by the agency. They also will include insurance coverage on the temp. By law they must provide Workers Comp coverage at a minimum. Many agencies include other insurance coverages as well, and this is where it is hard to compare apples to apples. My advice is to ask what is included in the "bill" rate. Also as a customer, it is vital that you ensure the agency is not 1099'ing any temps. That puts huge liability on the customer! Check out the blog post on W2 vs. 1099.

So what should you pay for a temp? The easiest way to negotiate with a firm is to ask for a set "mark up" percent over the pay rate. So if you have a candidate that earns $10/hr., and you negotiated a mark up of 40% then the bill rate the customer should pay is $14.00. That rate should be all inclusive , meaning all payroll taxes, insurance (again, per above, check what coverages the firm provides), the temps pay and the agency's profit are included in that hourly rate.

Most firms charge about 40% mark up. If you are a Facebook or Google, then you pay about 32%, but you offer a lot of volume!