Why can temporary employment agencies demand larger pay agreements than companies are willing to pay employees

Question

After working through temp agencies for many years, I don't understand why the company I provide the work to cannot pay me the same or a couple dollars less than what they are willing to pay the staffing service if they decide to hire me permanent?

Answer 1

It is less expensive and more convenient in the long run to use temporary/contract agencies than directly hire employees. If a company no longer needs or wants your service as a temp, they serve notice and out you go. The temp agency assumes unemployment costs, the company pays no severance, and thus can control payroll costs more effectively.

The agencies may appear to have higher rates, but remember that they have overhead costs, too, and oftentimes pay weekly (even for highly skilled labor).

Corporations, on the other hand, don't have to pay you benefits or contribute to retirement funds, or keep you on the payroll for longer than they want.

There are advantages to an employee both ways. The good agencies have benefits, and if you are skilled and good at what you do, you can stay employed, or only work part of the year.

To sum it up, corporations incur lower costs in the long run by using temporary labor, and it helps the permanent employees to keep their jobs.

Answer 2

When the company goes through a temp agency, they aren't paying any benefits, which is a very large portion of most people's compensation. They also aren't paying employer taxes for the person.