Employment agencies make money by charging the companies that hire through them, not the workers they place. Two revenue streams do most of the work: one-time placement fees for permanent hires, usually 15% to 25% of the new employee’s first-year salary, and hourly markups on temporary workers, typically 20% to 75% above the worker’s pay rate. The gross numbers look large, but average net margins in the staffing industry sit around 3% to 10% once payroll taxes, insurance, and compliance costs are paid.
Placement Fees for Permanent Hires
When a company outsources a permanent search, the agency earns a one-time fee based on a percentage of the hired candidate’s first-year salary. The most common rate is 20%, with fees ranging from 15% to 25% depending on the role’s difficulty and the industry. A candidate hired at $100,000 generates a $15,000 to $25,000 fee. The employer pays, not the candidate.
How that fee gets paid depends on the search model. In a contingency search, the agency collects nothing unless it delivers a candidate who actually starts the job. Multiple agencies may compete on the same opening, and the one whose candidate gets hired wins the fee. This is the standard arrangement for mid-level professional roles.
Retained searches cost more and pay differently. Companies typically pay a fee equal to roughly 30% to 35% of projected first-year salary, split into installments across the search. Because the agency is paid regardless of outcome, retained firms put more resources into each assignment and usually present a shortlist of thoroughly vetted candidates. This model is standard for executive and C-suite recruitment.
Most placement agreements include a guarantee period, usually 60 to 90 days. If the new hire leaves or is fired for cause during that window, the agency either refunds a portion of the fee or runs a replacement search at no additional charge.
Hourly Markups on Temporary Workers
Temporary staffing is where the volume lives. The agency hires the worker, puts them on its own payroll, and bills the client a higher hourly rate. If the worker earns $25 an hour, the agency might bill $35 to $45 an hour. That spread funds everything the agency does.
Markups typically run 20% to 75% above the worker’s wage. A low-skill clerical placement might carry a 20% to 30% markup; a specialized industrial role with heavy workers’ compensation exposure can push above 50%. The spread looks generous from outside, but the agency’s actual profit is a thin slice of it.
Under this model the agency is the legal employer of the temporary worker. It handles payroll, tax withholding, benefits administration, and regulatory compliance. The client gets labor without onboarding overhead, and the agency earns revenue for as long as the assignment continues. A placement generating $15 per hour in markup over a six-month assignment produces meaningful recurring revenue with low acquisition cost after the initial match.
Where the Temp Markup Actually Goes
The gap between the bill rate and the pay rate looks like profit, but most of it is spoken for before the agency sees a cent.
The largest mandatory cost is the employer’s share of FICA. Social Security tax runs 6.2% of wages up to $184,500 in 2026, and Medicare adds another 1.45% with no wage cap.1Social Security Administration. Contribution and Benefit Base Combined, the agency pays 7.65% of every dollar it pays a temporary worker before any other cost hits.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Federal unemployment tax adds another layer. The statutory FUTA rate is 6.0% on the first $7,000 of each worker’s annual wages, though most employers receive a 5.4% credit that drops the effective rate to 0.6%.3Internal Revenue Service. FUTA Credit Reduction State unemployment sits on top of that, and rates vary with the agency’s claims history. High turnover pushes state rates up, which is an inherent cost of the temp business.
Workers’ compensation insurance is often the most variable expense. Premiums depend on job classification and state, typically 0.5% to 5% of payroll, and construction or manufacturing placements can go significantly higher. That’s a large part of why markups vary so much between office temp work and industrial staffing.
Agencies with 50 or more full-time-equivalent employees also carry Affordable Care Act obligations. They must offer minimum essential health coverage to workers averaging 30 or more hours per week, or face penalties. Providing that coverage is expensive; the penalty for not providing it is worse.
After the statutory costs, the agency still pays its own overhead: recruiter salaries, office space, job board subscriptions, applicant tracking software, and liability insurance. What’s left is net profit, which for the largest temporary staffing companies averages around 5%. Smaller firms run anywhere from 3% to 10% depending on niche and efficiency. That $15-per-hour markup from a moment ago might yield $2 to $3 per hour in actual profit.
Vendor Management System Fees
Many large clients route temporary staffing through a Vendor Management System, a technology layer between the company and its staffing suppliers. Agencies working within these systems typically pay between 0.9% and 3.4% of their billing volume as a transaction fee. That fee comes off the top of an already-thin margin, and for agencies that depend on VMS-managed accounts it can cut net profit nearly in half on those placements.
Conversion Fees When a Temp Becomes Permanent
When a client wants to hire a temporary worker permanently, the agency loses its stream of hourly markup. Conversion clauses in staffing contracts charge the client a one-time fee to buy the worker out of the agency’s payroll.
These fees are usually structured one of two ways. Some mirror a direct hire fee and charge a flat percentage of the worker’s anticipated annual salary. Others use a sliding scale that decreases with hours already worked on assignment. A conversion after 200 hours costs more than a conversion after 800, because the agency has recouped more of its recruiting investment through markup. Many contracts allow a fee-free conversion after a set threshold, often around 1,000 hours of continuous service.
Conversion clauses also discourage clients from using temporary assignments as extended tryouts and then poaching the best performers directly. Agencies enforce these clauses because the financial stakes are real.
Payrolling, Background Checks, and RPO
Beyond placement, agencies generate revenue from services that ride on their existing infrastructure.
Payrolling is the most straightforward. A company finds its own candidate but doesn’t want the employment logistics. The agency brings the worker onto its payroll, handles withholding, files quarterly returns, and manages labor compliance. The client pays the worker’s compensation plus a flat fee or percentage charge. Industry pricing for employer-of-record arrangements generally runs $300 to $1,000 per employee per month, or 8% to 20% of salary, with domestic payrolling for a single-site U.S. worker landing on the lower end.
Background checks, drug screenings, and skills assessments are another revenue line. Agencies bill clients for the direct cost of third-party reports plus an administrative handling charge. Skills testing and software proficiency assessments are sometimes offered as standalone billable services, particularly for IT and finance placements.
Recruitment process outsourcing extends the concept. Rather than filling individual roles, the agency takes over a company’s entire hiring function under a monthly management fee, a per-hire fee, or a blended model. It’s a longer-term engagement that generates predictable recurring revenue and lets the client scale hiring without maintaining a large internal recruitment team.
What Job Seekers Pay
If you’re a worker wondering whether the agency will charge you, the answer in nearly all cases is no. The standard practice across the U.S. staffing industry is for the employer to pay every fee. Legitimate agencies do not deduct placement fees from your paycheck, charge you for resume distribution, or require upfront deposits to begin a search.
No single federal statute blanketly prohibits agencies from charging candidates, but the practice is effectively nonexistent among reputable firms, and many states restrict or ban candidate-paid fees. If an agency asks you to pay money to be considered for a job, treat that as a serious red flag.