If you have called three staffing agencies in Memphis for the same warehouse order, you have probably received three numbers that look nothing alike. One quoted a markup percentage. One quoted a bill rate. One would not quote anything until you agreed to a site visit. That is not an accident. Opacity favors the seller.
Here is the whole model, without the fog.
The two numbers that matter
Pay rate is what the associate earns per hour. Bill rate is what you pay per hour. The difference between them is the markup, usually expressed as a percentage of the pay rate.
If an associate earns $16.00 an hour and the markup is 45 percent, your bill rate is $23.20 an hour. That is the arithmetic. There is nothing more complicated hiding underneath it.
What the markup actually pays for
The number that surprises employers is how little of the markup is agency profit. Before an agency earns a dollar, the markup has to cover statutory and insurance costs that attach to every hour worked:
- Employer payroll taxes. Social Security and Medicare at 7.65 percent of wages, plus federal and Tennessee unemployment insurance.
- Workers compensation premium. This is the big variable. Premium is priced per hundred dollars of payroll against the workers compensation class code for the work being performed. A clerical class code is inexpensive. A warehouse or manufacturing class code is materially more expensive, and a class code involving heights, heavy equipment, or hazardous material is more expensive again.
- General liability insurance and, where the assignment requires it, auto and umbrella coverage.
- Recruiting, screening, and onboarding cost, including background checks and drug screening.
- Payroll processing and administration.
- The agency's margin.
This is why a single markup percentage across every role should make you suspicious rather than happy. A quote that is identical for a clerical placement and a forklift placement is either overcharging on the clerical or losing money on the forklift, and the second one does not last.
Why markup ranges vary so much
Markup moves with four things, and any agency that tells you otherwise is simplifying to close you:
- Workers compensation class code. The single largest driver. Higher-risk work carries a higher premium per payroll dollar, and that flows straight into markup.
- Volume and consistency. Twenty associates on standing weekly orders costs less per hour to service than two associates called in sporadically.
- Screening requirements. Extensive background screening, DOT requirements, or client-specific certifications add real cost per placement.
- Shift and difficulty. Third shift and weekend coverage require a deeper recruiting effort to fill and to keep filled.
Conversion fees, and the trap inside them
In a temp to hire arrangement, the associate works on the agency's payroll while you evaluate them on your floor. At some point you want them on your payroll. What happens next is where employers get hurt.
Two structures are common. In the first, you work an agreed number of hours and the associate converts with no fee. In the second, you pay a conversion fee, often a percentage of the associate's annual salary, whenever you hire them.
Ask which one you are signing, and get the hours threshold in writing. The worst outcome in staffing is finding a person who is genuinely good for your operation and then discovering that keeping them costs four thousand dollars you did not budget.
The four questions that expose a bad deal
Ask these before you sign anything. An agency that answers all four plainly is one you can work with.
1. What is the bill rate, in dollars, for this specific role on this specific shift?
Not a markup range. A number. If they will not give you one, they are planning to price you after you are committed.
2. What is included, and what gets invoiced separately?
Background screening, drug screening, PPE, badge fees, and overtime treatment should all be named. Overtime especially: confirm whether overtime hours are billed at the markup applied to the overtime pay rate, or at some other formula.
3. What is the conversion arrangement?
Hours threshold, fee if any, and what happens if you want to hire someone at week two instead of week twelve.
4. Who is the employer of record, and can you show me the workers compensation certificate?
This is the question that separates real staffing companies from labor brokers. The agency should be the employer of record, carrying payroll taxes, unemployment, and workers compensation for every associate. Ask for the certificate of insurance. A legitimate agency sends it the same day without being asked twice.
The cheapest quote is usually the most expensive placement
A markup that is materially below the market is not a discount. It is a signal. It usually means one of three things: the agency is under-reserving on workers compensation, it is cutting screening, or it is buying the account and will raise rates once you depend on it.
The real cost of a staffing relationship is not the markup. It is the no-show at 5:00 AM, the turnover at week two, and the recordable injury from a placement who was never properly screened. Those costs do not appear on the invoice and they dwarf a four-point markup difference.
How we quote
We give you a bill rate in dollars, in writing, for the role and shift you asked about, before you commit to anything. We tell you what is included. We tell you the conversion terms up front. And if we cannot fill your order, we say so rather than accepting it and hoping.
Call (901) 443-5589 with the role, the shift, and the headcount, or send the order online and we will call you back the same business day.
This article is general information about how staffing is priced. It is not legal, tax, or insurance advice. Workers compensation classification and premium are determined by your carrier and the applicable rating authority.