Hiring temporary employees comes down to two main paths: using a staffing agency that handles recruitment and payroll for you, or sourcing and hiring temp workers directly. The right approach depends on how quickly you need people, how many you need, and how much administrative work you want to take on. Here’s how to navigate the process from start to finish.
Decide Whether to Use a Staffing Agency or Hire Directly
This is the most consequential decision you’ll make, because it shapes your costs, your timeline, and your legal responsibilities.
When you hire through a staffing agency, the temporary workers remain on the agency’s payroll. The agency handles recruiting, screening, payroll taxes, unemployment insurance, and workers’ compensation. You pay the agency a bill rate that includes the worker’s wages plus a markup. Workers are often available within days, sometimes immediately, which makes this the fastest option when you need to fill seats quickly. You also get built-in flexibility: you can scale assignments up or down without going through a traditional termination process.
When you hire temporary workers directly, you put them on your own payroll. You’re responsible for withholding taxes, carrying workers’ comp, and handling all the HR paperwork. This gives you more control over the hiring process and eliminates the agency markup, but it takes longer and requires more internal resources. Direct hiring makes the most sense when you have an HR team that can absorb the workload, or when you’re filling a role where cultural fit and direct oversight matter more than speed.
A middle option, direct sourcing platforms, has grown in popularity. These platforms help you find and manage temporary talent at markups of roughly 10 to 25 percent, compared to the 25 to 75 percent markups traditional staffing agencies charge. They work well if you have some recruiting capacity in-house but want help with sourcing.
Understand What Staffing Agencies Actually Cost
Staffing agencies charge a markup on top of the worker’s hourly pay rate. That markup covers their real costs plus a profit margin, and it varies significantly by industry. For light industrial and clerical roles, expect markups of 25 to 40 percent. General professional staffing runs 35 to 50 percent. IT staffing typically falls between 40 and 65 percent, and highly specialized technology roles can push markups to 50 to 75 percent.
So if you’re paying a clerical temp $18 an hour and the agency markup is 35 percent, your actual bill rate is about $24.30 per hour. Here’s roughly where that markup goes:
- Statutory employer costs (12 to 15 percent): FICA taxes, federal and state unemployment insurance, and workers’ compensation insurance. These are non-negotiable costs any employer pays.
- Benefits and PTO (5 to 15 percent): Health insurance contributions, retirement plan matching, and paid time off the agency offers its workers.
- Recruiting and overhead (13 to 23 percent): Recruiter salaries, job advertising, background checks, drug testing, skills assessments, office space, and technology systems.
- Profit margin (3 to 8 percent): Most staffing firms operate on net margins of 3 to 5 percent, with top performers reaching 6 to 8 percent.
When you negotiate with an agency, knowing this breakdown helps. There’s limited room to squeeze on statutory costs, but the benefits, recruiting overhead, and margin components have more flexibility, especially if you’re committing to high volume or a long-term relationship.
Identify What You Need Before You Start
Temporary hires work best when you can clearly define the scope, duration, and skills required. Before reaching out to an agency or posting a listing, nail down these details:
- Duration: Is this a two-week gap fill, a three-month seasonal push, or an open-ended assignment? Agencies and candidates both need to know.
- Schedule and hours: Full-time, part-time, specific shifts, or on-call? Temporary doesn’t necessarily mean part-time.
- Skills and experience level: Write out the specific tasks the person will perform daily. This matters more than a generic job title, especially for agency placements where the recruiter needs to match the right person quickly.
- Pay rate: Research what the role pays in your market. If you’re using an agency, you’ll discuss the bill rate, but you should know the underlying wage range so you can evaluate whether the markup is reasonable.
- Temp-to-permanent potential: If there’s a chance the role could become permanent, say so upfront. Agencies offer temp-to-perm arrangements where you can evaluate a worker on the job before committing to a full hire. This typically involves a conversion fee or a minimum assignment length before the worker can transition to your payroll.
Classify Workers Correctly
One of the biggest legal risks in temporary hiring is misclassifying workers. The Department of Labor uses an “economic reality” test to determine whether someone is genuinely an independent contractor or is actually an employee who should receive wage protections, overtime pay, and tax withholding.
The test examines two core factors. First, how much control you have over how the work gets done, including setting schedules, dictating methods, and providing equipment. Second, whether the worker has a genuine opportunity for profit or loss based on their own initiative and investment. If you’re telling someone when to show up, how to do the work, and providing all the tools, that person is an employee, not an independent contractor, regardless of what your contract says. The DOL has emphasized that actual practices matter more than what’s written in an agreement.
Three additional factors come into play when the core factors aren’t clear-cut: the skill level required for the work, how permanent the working relationship is, and whether the work is integrated into your regular business operations. A “temporary” worker who fills an ongoing operational role for months is more likely to be classified as an employee, even if you initially called the position temporary.
If you hire through a staffing agency, the classification question is simpler because the worker is the agency’s employee. If you hire directly, you need to put the person on your payroll with proper W-2 withholding. Paying a temporary worker as a 1099 contractor when they function as an employee exposes you to back taxes, penalties, and potential lawsuits.
Know Your Joint Employer Responsibilities
Using a staffing agency doesn’t fully insulate you from legal responsibility. Under federal labor law, both the agency and the company where the worker actually performs the job can be considered “joint employers.” The Department of Labor evaluates four factors to determine whether you qualify as a joint employer alongside the staffing firm: whether you hire or fire the worker, whether you supervise and control their work schedule or conditions to a substantial degree, whether you determine their rate and method of payment, and whether you maintain their employment records.
In practical terms, if you’re directing the temp worker’s daily tasks, setting their schedule, and deciding when the assignment ends, you likely share employer responsibilities. This means you could be on the hook for wage and hour violations, even if the staffing agency handles payroll. The key takeaway: treat temporary workers at your site the same way you’d treat your own employees when it comes to workplace safety, anti-harassment policies, and working conditions. Requiring background checks or enforcing safety protocols does not, on its own, create a joint employment relationship.
Set Up Onboarding and Management
Temporary workers are most productive when they’re properly onboarded, even if their assignment is short. At minimum, cover workplace safety, key contacts, login credentials, and the specific expectations for their role on day one. Assign a point person they can go to with questions.
Document the assignment’s terms in writing, whether through the staffing agency’s service agreement or your own offer letter. Include the expected duration, pay rate, work schedule, and any confidentiality or non-disclosure requirements. If intellectual property is involved, address ownership in the agreement before work begins.
Track hours carefully. Temporary employees are typically non-exempt, meaning they’re entitled to overtime pay for hours worked beyond 40 in a week. If you’re using an agency, they handle payroll, but you’re responsible for accurately reporting the hours worked at your site. Timekeeping errors are one of the most common sources of disputes in temporary staffing.
When Temporary Hiring Makes the Most Sense
Temporary staffing fits specific business situations better than others. Seasonal surges, like retail holiday rushes or tax-season accounting work, are the classic use case. Covering employee absences for parental leave, medical leave, or extended vacations keeps your team’s output steady without a permanent addition. Short-term projects like system migrations, office moves, audits, or data entry backlogs often require extra hands for a defined window.
Temporary hiring also works as a strategic tool during budget uncertainty or hiring freezes. You can keep work moving without adding permanent headcount. And if you’re unsure whether a role justifies a full-time position, a temporary assignment lets you test the workload before committing. Many companies use temp-to-perm arrangements specifically for this purpose, treating the temporary period as an extended working interview where both sides can evaluate the fit.