Busting the Myth: “Staffing Companies Don’t Save You Money”

Posted on July 20, 2018

We’re frequently asked, “How does what you’re charging compare to what it costs me to hire internally?” Totally valid question. We can see why you would think that hiring a staffing company would cost you more. After all, it’s paying another company to find workers to help you.

In some cases, working with a staffing company can cost more, but in other cases, staffing companies can actually help you to save money by automating many of the standard HR processes associated with hiring and managing workers. Let’s explore some of the costs and benefits associated with working with staffing companies, as compared to employing a worker directly.

Cost of Direct Employment

Let’s say you need a prep cook and want to pay them $10 per hour. When you add up all of the costs of employment — including recruiting and hiring, managing, and paying your employee — the pay rate ends up being around $13.43 per hour. Let’s take a look at how we came up with this number:

  • Recruiting + Hiring Fees: In a synthesis of 11 studies regarding employee turnover, the Center for American Progress (CAP) found that the cost of replacing a low-wage employee is 16% of that employee’s salary. Turnover costs in the cited studies are mostly limited to direct costs (recruiting, hiring, and training). They largely exclude indirect costs associated with lost productivity and low morale. 
  • Administration Costs: These costs include the salary of an HR manager and payroll clerk to provide HR administration for the employee. This assumes 100 employees per HR manager/payroll clerk (an industry standard average backed by Bloomberg BNA) and a 20% burden rate. We also assume payroll software costs of $6 per employee per month. 
  • Payroll Taxes/Fees: Costs include Social Security, Medicare, FUTA, and SUTA payroll taxes, as well as the lowest rated worker’s compensation insurance rate.

Now let’s look at how the cost of hiring your prep cook directly compares to different staffing company options.

Option 1: Traditional Staffing Companies

By “traditional staffing company,” we mean a staffing company that doesn’t use an app to manage their workers. They also depend on more manual processes like emails, paperwork, and phone calls to get workers “in seats.”

When you work with a traditional staffing company, they do take over worker recruitment, training, and management, but they also bring more work to your HR team. This work includes emails and phone calls to make sure you’ve got enough of the right workers helping your business. They create a bit more work than if you were to partner with an online staffing company. See below for more on that.

According to the American Staffing Association’s Q2 2018 report, the average US staffing agency charged an average markup of 46% on direct hire wages. Add that to your prep cook’s pay rate of $10 per hour, and you’re now paying $14.60 per hour. That’s $1.17 per hour more than you would pay to keep the prep cook worker in-house.

You may look at that $1.17 and think that’s not a whole lot more. Keep in mind that $1.17 adds up. You would be working with a middleman to make sure you’ve got the right number of quality workers.

Ok, so now we have the direct cost ($13.43) and the cost of working with a traditional staffing company ($14.60). Let’s look at how these numbers compare to an online staffing company.

Option 2: Online Staffing Companies

By “online staffing company,” we mean a staffing company that uses technology to automate standard HR processes of hiring and managing workers. Think Spur, BlueCrew, Wonolo, or Shiftgig.

Online staffing companies can charge a lower markup because they use technology to streamline worker recruitment, onboarding, training, management, and engagement. They don’t require the manual processes that traditional staffing companies require like calling, emailing, and keeping up with payroll and billing.

What does this lower markup look like when added to your prep cook’s pay rate? Our average markup is 25%, so we’ll use that in this example. Add a 25% markup to your $10 pay rate, and you’ve got $12.50. That’s $0.93 less than hiring directly, and $2.10 less than using a traditional staffing company.

What’s the Verdict?

It’s clear that online staffing companies are the lowest-cost staffing option. They also require the least amount of extra work (and stress) for you and your team. We think the biggest question you need to ask yourself is:

Is hiring and managing workers in-house becoming too burdensome and expensive for me and my team?

If your answer is yes, then you need to consider finding a staffing company that works for you.