Temporary staffing agencies—also known as temp agencies—play a crucial role in connecting businesses with short-term workers. Whether it’s seasonal labor, administrative help, or skilled trade professionals, companies often turn to temp firms for fast, flexible staffing solutions.
But a common question is: how do temp agencies make money?
The answer lies in a markup-based business model that benefits both the agency and the client company. In this article, we’ll break down:
- How temp agencies generate revenue
- What markup rates are and how they work
- The difference between temp and direct hire models
- Real-world examples
- Common myths about staffing agency fees
What Is a Temp Agency?
A temp agency is a third-party company that recruits, hires, and places workers into temporary or contract jobs at other companies. These positions may last from a few days to several months and may lead to full-time employment.
Temp agencies handle:
- Job posting and recruitment
- Screening and background checks
- Payroll and taxes for the temp worker
- Compliance and HR paperwork
So, How Do Temp Agencies Make Money?
The primary way temp agencies earn income is through a markup on the worker’s hourly wage.
Here’s how it works:
- The temp agency hires a worker and agrees to pay them $18/hour.
- The agency then “sells” that labor to the client company at $25/hour.
- The $7/hour difference is the markup, which covers agency profit, taxes, and administrative costs.
This structure allows businesses to access labor on demand without managing payroll or compliance risks—while giving the agency a profit margin on each hour worked.
Breakdown: Where the Money Goes
| Category | Percentage of Markup |
| Temp worker’s wage | ~65–75% of the bill rate |
| Payroll taxes & insurance | ~10–15% |
| Administrative overhead | ~5–10% |
| Agency profit margin | ~10–20% |
Example:
- Bill rate to client: $30/hour
- Temp worker’s pay: $20/hour
- Agency gross profit: $10/hour
- Net profit after expenses: ~$3–$5/hour
What Is a Typical Temp Agency Markup Rate?
Markup rates usually range from 25% to 75%, depending on:
- Industry (e.g., IT staffing vs. warehouse work)
- Skill level and wage of the temp worker
- Volume of hires
- Contract length and complexity
- Region or cost of living
Higher-skilled positions tend to have lower percentage markups but higher dollar values.
Other Ways Temp Agencies Make Money
Besides hourly markups, some staffing firms also earn revenue through:
Temp-to-Perm Conversion Fees
If a client decides to hire the temp worker full-time, they may pay a one-time conversion fee. This can be:
- Flat fee (e.g., $2,500)
- Or a percentage of the candidate’s annual salary (usually 10–25%)
Direct Hire or Recruitment Fees
Some agencies offer permanent placement services, charging a one-time fee (often 15–30% of the candidate’s first-year salary).
Volume-Based Contracts
Larger businesses may negotiate contracts with temp agencies that include bulk pricing, giving the agency a consistent revenue stream.
Government Incentives or Tax Credits
In some regions, agencies that place veterans, formerly incarcerated individuals, or people with disabilities may qualify for workforce development incentives.
Why Businesses Are Willing to Pay More for Temps
Although the bill rate is higher than the worker’s wage, companies benefit from:
- Zero responsibility for payroll taxes or workers’ compensation
- No recruitment or screening costs
- Immediate access to vetted talent
- Flexibility to scale up or down with demand
- Reduced liability and HR headaches
It’s a value exchange—companies pay more per hour for less risk and greater convenience.
Real-World Example of Temp Agency Revenue
Let’s say a staffing agency places 20 warehouse workers for a 3-month seasonal contract.
- Hourly wage to worker: $18/hour
- Client bill rate: $26/hour
- Hours per week per worker: 40
- Weeks worked: 12
Total profit = (Markup $8/hour x 40 hours x 12 weeks x 20 workers) = $76,800
This shows how temp agencies can earn solid revenue through large placements, even with moderate margins.
Common Misconceptions About Temp Agency Pricing
| Myth | Reality |
| “They take money from the worker’s pay.” | Workers get their full agreed wage; the client pays extra. |
| “Markup is all profit.” | It covers payroll taxes, insurance, and admin costs too. |
| “Temp jobs don’t pay well.” | Many temp roles offer competitive pay and career growth. |
How to Evaluate a Temp Agency’s Pricing
If you’re a business considering temp staffing, ask:
- What is your markup rate or bill rate per role?
- What’s included (payroll, taxes, insurance)?
- Do you offer volume discounts?
- What’s your temp-to-perm conversion fee?
- Can you provide proof of compliance and insurance?
Conclusion
To answer the question, “how do temp agencies make money?”:
They primarily generate income by charging a markup on the hourly wage of temporary workers. This covers wages, taxes, benefits, and overhead—while delivering value to businesses through flexible staffing and risk reduction.
For companies, the extra cost brings speed, convenience, and HR relief. For job seekers, temp agencies offer access to jobs, skill development, and pathways to permanent employment.
FAQs
1. Do temp agencies take money from workers’ paychecks?
No. Workers are paid their agreed hourly wage. The client company pays extra to the agency.
2. How much do temp agencies charge per hour?
It varies, but markups usually range from 25% to 75% above the worker’s wage.
3. Can I negotiate temp agency fees?
Yes—especially for large contracts or long-term needs.
4. What happens if a temp gets hired full-time?
The agency may charge a conversion fee unless waived under the contract.
5. Are temp jobs good for long-term careers?
Yes! Many temp jobs lead to permanent roles and provide valuable experience.
Also read: Cottage in the Wood Malvern Wells: Luxury Stays and Fine Dining in the Malvern Hills