Understanding the Temp Agency Industry
The staffing, recruiting, and workforce solutions industry is most commonly referred to today as temp agencies. Surprisingly, the staffing and temp agency industry is incredibly profitable, diverse, competitive, and one of the strongest industries in the economy today. The staffing and temp agency industry is so much more than just filling temporary work – according to the American Staffing Association, the staffing and temp agency industry consists of four major service areas:
- Permanent Placement: This sector consists of a staffing and temp agency finding employees for a potential employer in order to establish a permanent employment relationship. Before the recession, this area was incredibly popular, but has seen a slight decline in business due to increased temporary work requests for a variety of reasons.
- Temporary Staffing: Temporary staffing is one of the largest sectors of the staffing and temp agency industry, with 55 percent of staffing companies and 74 percent of offices in the temporary staffing sector. Through temporary staffing, temp agencies hire their own employees; the staffing and temp agency handles all employment wages, benefits, and training. Staffing and temp agencies then supply these employees to a client’s workforce as needed – whether it is for employee absences, temporary skill shortage in the workforce, special projects, and so much more. These positions sometimes lead to permanent placement.
- Temporary to Hire: This is a common way for business owners to essentially “test” a new employee without major losses. Staffing firms in this sector supply an employee for a client on a trial basis, thus allowing both the client and employee to decide on a permanent position.
- Long Term Staffing: The name is pretty self-explanatory – employees are recruited and assigned to a client from the staffing and temp company for long term projects and/or assignments.
The Five Rapidly Growing Occupational Categories
- Health Care: The health care industry sector for temp and staffing agencies is constantly growing. In this sector, staffing and temp agencies recruit and hire physicians, dentists, nurses, hygienists, medical technicians, therapists, home health care assistants, custodial care workers, and so much more.
- Industrial: In the industrial service area, temp and staffing agencies look for potential employees for: manual labor, food handlers, cleaners, drivers, machine operators, maintenance workers, and so forth.
- Engineering, Information Technology, and Scientific: This is the fastest growing service area for staffing and temp agencies today. Through the engineering, It, and scientific sector, staffing and temp agencies usually look for a variety of consultants, analysts, programmers, designers, installers, communication technology specialists, and any other type of employee that has experience in computer science and technology. With the constantly growing dependence on technology, this area is sure to see continuous growth for the staffing and temp agency industry.
- Office – Clerical and Administrative: Clerical and administrative work is essential for a variety of industries. This often includes secretaries, office clerks, receptionists, administrative assistants, data entry, and so forth.
- Professional – Managerial: This sector often requires higher skills and educational training. Employees in this sector of the staffing and temp agency industry typically consist of accountants, bookkeepers, attorneys, middle and senior managers, marketing executives, and so much more.
Economic Forecast for Staffing and Temp Agency Industry
The staffing and temp firm industry is directly correlated to the gross domestic product (GDP). As the GDP expands and strengthens, so does the staffing and temp agency industry – but weakening GDP drastically affects the staffing and temp agency industry as well. Everybody in the United States is aware of the drastic effects of the Great Recession, especially since the country is still recovering from it. For staffing and temp agencies everywhere, revenue and employment growth was incredibly slow until 2013 when the GDP finally returned to its prerecession peak in 2013 – this was much longer than the recession during World War II, causing many staffing and temp firms to cut back in a variety of ways.
The staffing and temp agency industry is also considered a coincident economic indicator and a leading employment indicator. Basically, this means that staffing and temp agency employment rises and falls with the overall economy, and typically shows overall employment changes six months ahead of other employment indicators. While there has been plenty of unemployment due to the Great Recession, the American Staffing Association has shown that staffing employment has exceeded prerecession levels in the United States. In 2015, staffing and temp agencies added an average of 3.2 million temporary and contract jobs per week – 2.2 million jobs were the low during 2009. These numbers are only continuing to grow, albeit at a slower pace.
Since the recession, staffing and recruiting agencies were able to rebound faster than any other industry in the United States. Throughout 2015 and 2016 in particular, the staffing and temp agency industry grew rapidly, totaling over 20,000 staffing and recruiting companies today. The staffing and temp agency industry also saw a 5.4 percent increase to $147 billion in 2015, creating more jobs than most industries in the United States. However, most staffing and recruiting agencies are struggling with the overwhelming demand for skilled workers, and the lack of skilled workers available in the labor force today. Focusing on this growing trend is key for all staffing, recruiting, and temp agencies in the industry.
Another major area that staffing and temp agencies are struggling with is the lack of ability to create more permanent positions. Most companies today are relying on staffing and temp agencies to handle the entire recruiting process, particularly in the Information Technology and human resources sectors, but with temporary employment opportunities. While this is still incredibly profitable for most staffing and temp agencies, it has been a rough transition, particularly for staffing firms that specialize in sectors other than temporary work. For those staffing and temp agencies in that sector however, revenue and staffing resources have continuously grown – and are expected to continue. Last year, around 16 million Americans worked as a temporary employee (contractors fall into this category as well), generating over $120 billion in revenue.
Overall, being in the staffing and temp agency industry is incredibly profitable and, for now, stable. However, being able to navigate and plan accordingly for economic fluctuations is the most essential trend for every firm in this industry.
Types of Temp Agency Loans
Temp Agency SBA Loans
Underutilized due to misconception of SBA lending being a slow and cumbersome process — which isn’t always the case. SBA financing is similar to bank lending with the only difference being that the Small Business Administration agrees to cover a portion of the lender’s losses should the temp agency default on their business loan.
Alternative Temp Agency Loans
In recent years alternative business lenders have stepped in to provide financing to small businesses that couldn’t get approved for more traditional lending from a bank. Temp agencies have been using fintech business loans to obtain quick financing without having to provide endless paperwork. The result has been affordable financing to temp agencies, with terms that have made it easier for the temporary worker agencies to repay their debt by offering working capital financing with terms that can last up to 5 years.
Temp Agency Cash Advance
By far the easiest and quickest way to obtain small business financing, but it comes with a price. Cash advances aren’t loans, they are the sale of future temp agency revenue at a discount to the buyer. The most common purpose of a cash advance is to improve the cash flow of the company. Cash advances are much more pricey than traditional business financing options, with factor rates ranging from 1.10-1.50. Terms are much shorter than conventional business loans, with cash advance repayments ranging from 4 months up to 2 years.