Staffing Agency Markup Rates Explained for Employers

Pay rate vs bill rate vs markup

• The pay rate is what the worker earns per hour, before taxes. You should be able to see it on the quote.
• The bill rate is what the staffing agency invoices you per hour worked.
• The markup is the difference between the two, expressed as a percentage of the pay rate.
• The margin is the same dollar difference expressed as a percentage of the bill rate. Agencies sometimes quote margin instead of markup, and the margin figure always looks smaller.

A quick example shows the gap. A $20.00 pay rate with a 40% markup gives a $28.00 bill rate. The $8.00 spread is a 40% markup on pay, but only a 28.6% margin on the bill rate. A 50% markup is a 33.3% margin. When two agencies give you a percentage, ask which one they mean.

What the markup pays for

The worker is on the staffing agency's payroll, so the agency pays the employer-side costs that you would pay for your own staff. Some are set by federal law and some vary by state and by the kind of work.

Federal payroll taxes

The employer pays 6.2% Social Security tax and 1.45% Medicare tax on wages, according to the IRS, for 7.65% in total. The Social Security part applies to the first $184,500 of earnings in 2026, which few hourly workers reach. Federal unemployment tax is 6.0% on the first $7,000 a worker earns in the year, and employers that pay state unemployment tax in full and on time can claim a credit of up to 5.4%, so the IRS puts the rate after credit at 0.6%. Employers in credit reduction states pay more.

State unemployment tax and workers' compensation

State unemployment tax rates and wage bases are set by each state and depend partly on the employer's own claims history. Workers' compensation varies even more. Oregon's biennial study of workers' compensation premium rates, released in June 2025, compared every state using the same mix of 50 industries and rates in effect on January 1, 2024. It found a national median of $1.09 per $100 of payroll, and its state ranking runs from $0.50 in North Dakota to $2.52 in Hawaii. Within a state, rates also depend on the job's classification, so a warehouse or production role usually costs more to insure than an office role.

Everything else

After the legally required costs, the markup also pays for recruiting and screening, background checks or drug tests if the agency covers them, payroll processing, paid sick leave where state or local law requires it, insurance, the agency's office and staff, and its profit. For context on how large the required costs are, the Bureau of Labor Statistics reported that legally required benefits, such as Social Security, Medicare, unemployment insurance and workers' compensation, were 7.0% of total compensation costs for full-time private industry workers in June 2026.

Worked example with your own numbers

This example uses a hypothetical $18.00 pay rate and a 35% markup. The state unemployment rate of 3% and the workers' compensation rate of $2.00 per $100 of payroll are placeholders too. Swap in the figures from your own quote and state.

1. Bill rate: $18.00 × 1.35 = $24.30 an hour. The spread is $6.30.
2. Social Security and Medicare at 7.65%: $1.38 an hour.
3. Federal unemployment at 0.6%: $0.11 an hour, but only until the worker has earned $7,000 that year.
4. State unemployment at the placeholder 3%: $0.54 an hour.
5. Workers' compensation at the placeholder $2.00 per $100: $0.36 an hour.
6. What is left for recruiting, sick leave, insurance, overhead and profit: about $3.92 an hour.

Run the same steps on any quote and you can see how much of the markup is fixed cost and how much is the agency's own. A markup that leaves almost nothing after the required costs is a reason to ask how the agency covers recruiting and replacements. A markup that leaves a lot is a reason to negotiate.

Overtime changes the picture. Under the Fair Labor Standards Act, nonexempt workers must be paid at least time and a half for hours over 40 in a workweek. Ask whether the agency bills overtime at 1.5 times the bill rate or adds the markup only to the overtime pay, because the first option applies the markup to the premium as well.

Markup vs a one-time contingency fee

A markup is charged on every hour worked for as long as the assignment lasts. A recruiter's direct-hire fee is charged once, and after that the worker is on your payroll at your own payroll cost. For short and seasonal needs, the markup is usually the better deal. For a role you will keep filled all year, the markup keeps adding up week after week while the fee does not.

Our temp markup vs direct-hire fee calculator takes the pay rate, hours, markup, salary, fee and your own payroll costs and shows the week when hiring direct becomes cheaper. If you are weighing a trial period first, read temp-to-hire vs direct hire.

How to compare two staffing quotes

Put both quotes on the same pay rate first. An agency that quotes a lower bill rate by paying workers less may struggle to fill your shifts or keep people on them.

• Ask for the pay rate and the bill rate as separate numbers, for every role and shift.
• Check how overtime, holidays and shift differentials are billed.
• Ask what the conversion fee is if you want to hire a worker permanently, and when it drops to zero.
• Find out who pays for background checks, drug tests, safety gear and site-specific training.
• Ask about minimum hours, minimum assignment lengths and cancellation charges for shifts you cancel.
• Confirm how quickly the agency replaces a worker who does not show up or does not work out.
• Read the invoicing and payment terms, including any late fees.

Public contracts give a sense of how buyers negotiate. The Massachusetts statewide temporary help contract, which runs from July 2025 to December 2031, caps the markup at 36.5% above the worker's hourly pay rate and publishes the conversion fee schedule. It is one government contract with large volume, so treat it as one reference point. It does not tell you what the market average is. For the warehouse version of these questions, see what staffing agencies charge for warehouse workers.

How Optihire Staffing fits in

Optihire Staffing recruits for permanent roles and does not bill hourly markups. We work on contingency for non-IT roles across the United States, including manufacturing and production teams: you pay a recruitment fee only when a successful candidate is hired, under terms agreed in writing before any work starts.

If your temp spend on a role has grown past what a permanent hire would cost, submit your hiring requirements or read how we work with employers.