Start a Temp Agency
How to Start a Temp Agency: The Complete Playbook
Temp staffing is the most startable business in the staffing industry: clients always need people yesterday, you get paid on the spread between bill rate and pay rate, and you can launch from a laptop. It is also the vertical where cash flow and compliance kill the unprepared fastest. Here is the whole playbook, from first client to first hundred placements.
A temp agency recruits workers and places them on temporary assignments at client companies, employing them on W-2 payroll and billing the client an hourly rate that covers the worker’s pay, employment costs, and your margin. That last sentence contains the entire business model, and every step below exists to make it run without breaking you. This guide is the temp-specific companion to our full how to start a staffing agency playbook.
Step 1: Pick a Lane, Not “Everything”
The agencies that survive year one pick a niche and a geography: clerical and admin in one metro, light industrial for three industrial parks, hospitality for a convention corridor. A lane gives you a candidate pool you can actually build, clients who talk to each other, and rate knowledge that makes you credible in the first sales call. “We do all temp staffing everywhere” is how you compete with everyone and win nobody.
Step 2: Set Up the Legal Basics
Form the entity (an LLC is the common start), get an EIN, open a business bank account, and check your state’s rules: some states require staffing or employment agency licenses or registrations, and rules differ for temp placement versus fee-based permanent placement. Then face the insurance reality early: as the employer of your temps, you will need workers’ compensation before the first assignment starts, plus the general liability your clients’ contracts require. Our guides to insurance for staffing agencies and workers’ comp class codes cover what that stack looks like and what drives the cost.
Step 3: Win Your First Clients
Temp sales is speed sales. Clients buy because a machine operator quit at 6 am or a receptionist called out for the week, so your pitch is availability and reliability, not resumes. The playbook that works for new firms: pick 50 target companies in your lane, find the person who owns the “someone did not show up” problem (operations and office managers more often than HR), and offer a low-risk first order: one worker, this week, no long contract. Deliver that one flawlessly and the reorders start. Temp is a repeat-purchase business; the first order is the hard one.
Step 4: Price with a Markup That Survives
Temp pricing is a markup on the pay rate: if you pay a worker $18 per hour and bill $27, that is a 50% markup. Typical temp markups run roughly 40% to 75% depending on market and role, and here is the part new owners miss: the markup is not profit. Out of it come employer payroll taxes, workers’ comp premium, unemployment insurance, benefits, and your overhead, which is why a markup that sounded fat can produce a gross margin under 20 points. Price from your real burdened cost up, not from the client’s wish down, and put temp-to-perm conversion terms in every agreement so a client who hires your temp pays for the privilege: our guide to temp-to-perm conversion fees covers how those clauses work.
Step 5: Run Compliant Weekly Payroll
Temps are W-2 employees, which means onboarding with I-9 and E-Verify, state new-hire reporting, accurate time capture with client approval, weekly payroll with correct withholdings in every state you place, and year-end W-2s. Classification shortcuts (paying temps as 1099 contractors to skip the employer burden) are the industry’s most expensive rookie mistake: temp workers under client direction are employees almost everywhere, and our W-2 vs 1099 vs C2C guide explains exactly where that line sits. Offering placed employees access to health, dental, and vision benefits is how growing temp firms out-recruit the agencies that offer nothing.
Step 6: Solve the Cash Flow Gap Before It Solves You
Here is the math that closes temp agencies: your workers are paid every Friday, your clients pay in 30 to 45 days, and every placement you add widens the gap. Ten temps at a $27 bill rate is roughly $10,000 leaving your account weekly, with the first client check six weeks out. Growth makes it worse, not better, which is why funding is a launch decision, not a someday decision. The options, from payroll funding to factoring to a funded employer of record, are compared in our funding guide.
Step 7: Decide Who the Employer Is
Everything in steps 2, 5, and 6 assumed your firm carries the employment burden. You do not have to. With BOSS, the operating model is a choice: on the Core and Funded Plans you remain the employer with the back office automated (and funded, on the Funded Plan); on the Self-Funded EOR and Complete Plans, BOSS becomes the legal employer of record for your temps, carrying payroll, taxes, workers’ comp, insurance, and compliance, with funding built into the Complete Plan. New temp agencies routinely launch on an EOR model precisely because it deletes steps 2, 5, and 6 from the startup checklist: you recruit and sell, the back office is done on day one.
Launching a temp agency?
Tell us your lane and your first client, and we’ll show you exactly how payroll, comp, insurance, and funding work under each BOSS plan.
Starting a Temp Agency FAQs
How much does it cost to start a temp agency?
Entity setup, licensing, and basic tools can run a few thousand dollars. The real cost is payroll float: funding weekly wages while clients pay in 30 to 45 days, which is why funding or a funded EOR model matters more than startup capital.
How do temp agencies make money?
On the spread between the bill rate charged to the client and the pay rate plus employment costs. A worker paid $18 and billed $27 carries a 50% markup, from which payroll taxes, workers’ comp, insurance, and overhead are paid before profit.
What markup do temp agencies charge?
Commonly around 40% to 75% over the pay rate, varying by market, role, and volume. The sustainable number is set by your real burdened costs: employer taxes, comp premium by class code, unemployment, benefits, and overhead.
Do I need a license to start a temp agency?
It depends on the state. Some states require employment agency licenses or registrations, and requirements can differ between temporary staffing and fee-based permanent placement. Check your state’s labor department before your first placement.
Are temp workers W-2 employees or 1099 contractors?
Almost always W-2 employees, because they work under the client’s direction on the client’s schedule. Paying temps as 1099 contractors to avoid employer costs is a classic misclassification and one of the most expensive mistakes in staffing.
What is a temp-to-perm conversion fee?
A contract clause charging the client a fee when they hire your temp directly, typically scaled by how long the temp has worked. Without it, clients can use your agency as a free trial service and hire away your workers.