How to Start a Temp Agency

Start a temp agency by following these 10 steps:

1. Plan your Temp Agency
2. Form your Temp Agency into a Legal Entity
3. Register your Temp Agency for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Temp Agency
6. Get the Necessary Permits & Licenses for your Temp Agency
7. Get Temp Agency Insurance
8. Define your Temp Agency Brand
9. Create your Temp Agency Website
10. Set up your Business Phone System

We have put together this simple guide to starting your temp agency. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Temp Agency Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a temp agency?

Like many small businesses, this one can be started with you as your sole employee. Unlike many business categories, however, you won’t always be able to start this one in your spare bedroom. While you won’t often be inviting clients to your office, you will need room to host prospective workers. You’ll want to sit across from them to see how they present themselves and respond to interview questions. Depending on the expected volume of applicants per recruitment call, you could receive a lot of visitors at one time. So think of square footage and location (you’ll want to make it as accessible as possible to applicants who might have to rely on public transportation).

Here’s how your annual start-up costs might break down:

Office -- $5,000-10,000, but this figure is highly variable depending on your city and location within the city. Here’s a little guidance on typical costs. Depending on your type of recruitment business, you might make a deal with the owners of an underused warehouse for receiving talent, at a very low cost. If you’re recruiting doctors, engineers or other professionals, you’ll want to invest more in presentable space. However, if your professional talent base is national or even international in scope, you might conduct most of your business by email, phone and Skype, thereby greatly reducing your office needs.

Phone, business cards, website development and other office needs -- Several hundred dollars, at least.

Office automation -- $3,000-5,000. You’ll need not only a computer and printer, but you might also need a workstation so that applicants can fill out electronic applications. There are also payroll and HR software programs in which you’ll want to invest to streamline job searches, applications, job scheduling and payroll responsibilities.

Temp worker wages -- variable. Since this will be based on prevailing local wages and your volume of placements, it’s hard to set an estimate. But remember that there could be several weeks between when you must pay the wage and you get paid by your client, unless you can command faster client payment.

Membership in local chamber and other relevant organizations -- Zero to several hundred dollars. This will depend on your client and talent pool. If you’re mostly recruiting minimum wage, temporary help, you’ll spend less than if your talent pool consists of professionals who belong to multiple organizations and have other firms competing for their services.

Advertising -- Perhaps $10,000 or more. You’ll frequently post to job boards. While your clients will either reimburse those expenses or you’ll roll the cost into your fee, this is likely to be an upfront cost that won’t we reimbursed until later in the recruitment process. Here’s a look at typical job board costs, though by buying in bulk you’ll pay less. 

What are the ongoing expenses for a temp agency?

Your most significant ongoing expense will be the wages you must pay non-permanent placement workers. Remember, to the temp worker you’re the employer, not your client, and they need to be paid weekly. If you’ve contracted to be paid monthly by your client, this delay could be pricey. Consider the services of a payroll funding service such as this to cover that delay.  

Who is the target market?

Your best clients are likely to be those who regularly must hire. This might be because their business is growing so quickly they can’t keep up with hiring, or because their workforce needs fluctuate day-to-day or with the rise and fall of business conditions. In that circumstance, the client is likely to seek temp workers on a moment’s notice.

Other motivated prospects include employers who don’t have the time or resources to go through resumes and job applications or feel that they need a third-party expert opinion on hiring decisions. This might particularly be the case when employers seek highly compensated or niche talent, in which case the hiring might be a major investment.

Among the workers who’ll sign up with your agency, this will include those who are willing to work on a temporary basis while seeking eventual full-time work, as well as those who prefer the flexibility and changing environment of temp placements.

How does a temp agency make money?

For the placement of temp employees, staffing firms will take an hourly rate from the employer and pay the temp worker from that amount. For instance, the employer might pay you $25 an hour and you pay the worker $15 (minus the various withholdings such as taxes and FICA; you are the actual employer in this scenario, so you’re responsible for all payroll costs). In the case of placing a direct hire, your firm will charge a fee based on the starting annual salary of the new employee -- typically 10-33 percent.

Some staffing agencies might instead provide their services free to employers and charge the workers for a hire, though this is rare today. You might also generate income by consulting with employers on recruitment and/or screening services without actually placing the candidate, in which case you’ll charge a flat rate or hourly wage.

How much can you charge customers?

The amount can vary from ten dollars an hour or so for a low wage temp worker to several tens of thousands of dollars for the direct hire of a professional.

Prevailing wages in your location and fees charged by the competition will also factor into your revenue stream.

How much profit can a temp agency make?

This expert source puts your annual earning potential at $103,000, but that’s highly variable. Your take-home pay will depend on many factors, including sales success and the compensation level of your talent pool. If you’re recruiting minimum wage factory or warehouse workers, you’ll make significantly less per placement than if you represent engineers or physicians. However, you’ll also spend less time and energy on a lower-paying placement than when representing a professional.

How can you make your business more profitable?

Consider adding training, resume writing and other job-aid services to your menu. For this, you might contract with large employers going through significant layoff activity who want to provide outboarding services that will help their laid off employees find work. Also consider teaming with your local community college to implement training services that will upgrade the skill set of applicants. You can generate income by taking a percentage of tuition while at the same time presenting your clients with a more work-ready workforce.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your temp agency is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a temp agency. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Certificate of Occupancy

A temp agency  is usually run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO).  A CO confirms that all building codes, zoning laws and government regulations have been met.

• If you plan to lease office space:
• It is generally the landlord’s responsibility to obtain a CO.
• Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a temp agency.
• After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

• If you plan to purchase or build office space:
• You will be responsible for obtaining a valid CO from a local government authority.
• Review all building codes and zoning requirements for you business’ location to ensure your temp agency will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

You should understand the human resource side of the business, as you’ll be dealing with common HR issues, such as interviewing, hiring, firing, work disputes, and tax and other withholdings. You must also have the sales ability to attain clients, and a knack for managing and motivating your own employees, many of whom are likely to be on the sales side of the business.

What happens during a typical day at a temp agency?

In your position as an employment broker, your daily responsibilities are likely to include the following:

• Pitching your expertise to the human resource professionals and office managers who will be the decision makers among your client base
• Posting job descriptions to job boards and other places where they’ll be seen by applicants, and creating additional ways of attracting talent
• Conducting job interviews, screening applicants and making hiring recommendations to your clients
• Maintaining and updating work schedules
• Managing payroll services and income inflow and outflow

What are some skills and experiences that will help you build a successful temp agency?

Sales abilities are critical because you might have a lot of competition, and all similar firms in your field have access to the same talent pool. Find a way to differentiate your firm from others, perhaps by your attentiveness, attention to detail or screening skills in recruiting talent.

Screening job canidates in a quick and effective way not only leads to better retention within the jobs but allows you to help a greater number of clients. 

What is the growth potential for a temp agency?

Your company’s success will be based on your sales ability and greatly affected by the economy. If you mostly provide employers with temporary workers, a challenging economy might be most beneficial to your bottom line. That’s because in a weak economy employers are hesitant to make significant long-term workforce investments when they’re unsure of their revenue stream even a quarter or two down the road. In this case, they’d rather bring on workers they can immediately discontinue using with no severance costs.

On the other hand, during good economic times, clients might come to you for temp or full-time workers because their hiring needs are so great they can’t keep up on their own. Your growth will depend on how you can take advantage of local and national economic trends to provide the services needed.