How Temp Agencies Make Money

How Temp Agencies Make Money

I’m sure if you’re reading this, you’ve probably used or thought of using a temp agency to help your business find workers. Doesn’t it just seem like these people want your money? Well, they do want your money – and they’re making a lot of it. Temp agencies, also known as staffing agencies, are notorious for stealing people’s money to the point where it becomes their business model. That’s bad in two ways. Firstly, temp employees in this industry are always living in fear in case they have their wages stolen when their contract ends. Secondly, that money is undeserved money for employers. Temp workers are generally not provided with worker compensation and tend to make less per hour when sourced by a temp agency. Accordingly, Temp agencies ultimately cost a lot to use for employers and are unfavourable employment options for job seekers – especially marginalized and at-risk populations.

Temp Agency Take Rate

Temp agencies make money by fees they charge to employers to fill vacant positions. These fees typically include a one-time application fee AND a placement fee. The placement fee is typically a percentage of an employee’s monthly salary and varies among the agencies and the positions offered. Business News Daily reported that these fees can range from 25-100% of the worker’s wages. On top of this, temp agencies may also charge extra for screening, testing and other administrative duties. It’s clear that staffing agencies are making a large profit off of the fees they charge.

Why Employers Use Temp Agencies

You may be wondering why on earth employers use temp agencies to source talent if they are incredibly expensive and promote the ill-treatment of workers? The answer is many companies struggle to fill vacant roles and need to out-source human resource (HR) solutions to fill those roles. If companies don’t fill their vacant roles, they run the risk of experiencing inadequate production, profit loss, operation inefficiencies and loss of employee morale.  Internal HR solutions may be too expensive, resulting in the need to outsource HR solutions. This is where temp agencies step in. The Harvard Business Review has stated that the current unavailability of talent is considered one of the biggest threats to businesses according to chief executives. 

Alternatives to Temp Agencies

Temp agencies are not your only option. Temp agencies are an expensive, inadequate, and questionable solution to any business’s  staffing needs. The good news is there are alternatives to finding quality talent quickly, efficiently, and fairly. As technology has quickly advanced throughout the Covid-19 pandemic, online job marketplaces have quickly gained traction with some of the largest employers internationally. These marketplaces have helped employers source quality candidates at minimal cost. These marketplaces host millions of independent contractors in a wide range of industries including tech, retail, events, food service, hospitality, general labour and more.

5 alternatives to temp agencies include:

  1. Online job marketplaces for independent professionals (i.e., UpworkInstawork & SPOT)
  2. Post open opportunities on your business’s LinkedIn page
  3. Find talent through social media (post on your company’s social media pages)
  4. Work with local universities and colleges to provide internships
  5. Partner with vocational service organizations in your area. (i.e., Employment Ontario)

Summary

Temp agencies are an expensive and generally untrustworthy source to find and hire talent. In conclusion, they profit off your misfortunes and vulnerable job seekers. There are many other alternatives to source quality candidates in a cost efficient and socially responsible way.

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