What Is Staffing?

Staffing Defined

Staffing is the process of finding the right candidate with appropriate skills and recruiting them to fill a job. Through this process, organizations acquire, deploy, and retain a sufficiently sized workforce to positively impact the organization's effectiveness.

What is a Staffing Company?

A staffing company is a business that specializes in the recruitment of candidates.  There are typically 2 primary roles within a staffing company with operational responsibilities: recruiters and sales representatives.  It is the responsibility of the recruiters to find, screen and engage with candidates with the ultimate goal of placing them onto a job.  It is the responsibility of the sales representative to prospect within their market to obtain open jobs that can be recruited for and filled.  Once a candidate has been identified, it is the sales representative's responsibility to ensure they start the role in accordance with their customer's needs and policies.

How Do Staffing Companies Make Money?

Understanding how a staffing company makes money is really quite simple.  Let's start with the formula for job profitability - it is actually pretty simple.

Profit = Revenue - Cost

In a staffing company, the revenue is the fully loaded bill rate for a placed candidate, and the cost is the fully loaded pay rate for the candidate.  The industry term for profit is called The Spread.  When calculating the spread, it is really important to ensure it is fully loaded.  Check out the Ultimate Staffing Calculator for help doing this.  There are fees and other overhead that erode the profitability of a placement when applied.  Here are a few examples of fees that impact job profitability.

Interest

The cost to barrow money can affect your job profitability.  Typically when a staffing company places a candidate in a contract role, the staffing company has the responsibility of paying the candidate throughout the placement.  The payroll for a candidate on placement can add up quickly.  The staffing company must ensure they have the capital to bridge the payroll between the time the candidate goes to work and when the staffing company receives payment against the invoice for the hours the candidate worked in the placement.  It's common for invoices to be paid on 30, 45, 60 and even 90 days terms.  The staffing company must be able to fund payroll while waiting for the accounts payable.

Taxes

Which employment relationship the staffing company establishes with the candidate during the placement can have significant tax implications.  For example, in a scenario where the candidate is paid as a W2 employee, there will be an employment tax burden upon the staffing company.  In a scenario where the staffing company simply places a candidate permanently within an organization, there likely would be no tax implications.  It's best to consult your CPA or the IRS for specific tax implications for your business, but don't forget to account for them!

Commissions & Fees

It is common for commissions and fees to be paid to the operational specialists for their successful work on a placement.  Sales representatives and recruiters are typically paid either a percentage rate or flat fee, on top of a base salary, for every placement they make.  While this aspect of a compensation plan is variable, it is the primary source of income for the top performers in the business.  It is also a key way in which the staffing company can attract top talent for its sales force.  It is very important to ensure that the job profitability includes the incentives for the sales force, otherwise they will move on to other roles & opportunities.

Discounts

In some cases, staffing companies will set discount tiers with their customers based on volume or to create incentives to work with their firm.  For example, if a customer purchases $1M in staffing services from a staffing company, the staffing company may choose to create an incentive to pay a rebate back to the customer.  That rebate should be accounted for within the job profitability.

Benefits

These costs can really add up quickly.  Depending on the type of employment relationship a staffing company sets with its candidates, it may wish to offer health, dental, vision & other types of insurance.  Also, benefits like retirement and profit sharing are common expectations of employees.  Don't forget to account for these types of costs in the job profitability calculation.