How Much Do Staffing Agencies Charge? A Breakdown for Employers

Staffing agencies typically charge 15-30% of first-year base salary for a direct hire, a 25-50% markup on the hourly pay rate for contract workers, and an 11-21% conversion fee to convert a contractor to permanent.

Those ranges are widely reported across the staffing industry and move with role complexity, seniority, geography and how hard the search is. The more useful point is that the three models are priced so differently that choosing the wrong one costs far more than negotiating the percentage down.

What follows is what each model actually charges for, and how to work out which one is cheaper for the hiring you are genuinely doing.

A direct hire, sometimes called permanent placement, is a one-time fee when someone you hire through the agency starts.

Typical range: 15-30% of first-year base salary. Specialised, executive or genuinely scarce roles sit at the top of that range or above it.

On a $120,000 role, that is roughly $18,000 to $36,000. On a $180,000 engineering role, $27,000 to $54,000.

Three things change that number more than haggling does:

• Base salary or total compensation. A fee calculated on total comp including bonus and equity can be meaningfully larger than the same percentage on base. Establish which one applies in writing.
• Exclusivity. Agencies will often reduce the percentage for an exclusive search, because their odds of being paid go up.
• Volume commitments. Several roles agreed up front usually price better than one role at a time.

Contract staffing is priced as a markup on top of what the worker is paid, billed for as long as they work.

Typical range: 25-50% markup for W2 contract workers, with reported ranges running wider in both directions depending on role and market.

If a contractor is paid $50 an hour at a 40% markup, you are billed $70 an hour. That markup is not all margin. It generally covers employer payroll taxes, workers' compensation, unemployment insurance, benefits administration and the agency's own costs, with profit on top of that.

	Direct hire	Contract staffing
When you pay	Once, on start	Continuously, per hour worked
Typical charge	15-30% of first-year base	25-50% markup on pay rate
Who employs them	You	The agency
Payroll tax, workers' comp, benefits	Your responsibility	Included in the markup
Cheapest when	The role is permanent and ongoing	The need is temporary or uncertain
Gets expensive when	You hire and they leave quickly	The contractor stays for years

That last row is the one most companies miss. A markup is cheap for six months and expensive for three years. Run the arithmetic on the actual expected duration, not the one in the requisition.

If you bring a contractor on permanently, most agencies charge a conversion fee.

Typical range: 11-21% of the projected first-year salary, and it commonly declines the longer the person has been contracting, sometimes reaching zero after a defined period.

Ask for that schedule in writing before the contract starts. The difference between converting at month three and month nine can be the entire fee, and it is far easier to agree at signing than to renegotiate once you have decided you want to keep someone.

This is arithmetic, not preference. Take the role you are actually filling and work it through.

If the role is permanent and you expect the person to stay: direct hire is almost always cheaper over any horizon longer than about a year. A one-time 20% fee stops. A 40% markup does not.

If the need is genuinely temporary, seasonal, or project-bound: contract wins clearly, and you avoid the severance and unwinding costs of hiring permanently for temporary work.

If you are not sure the person is right, or the role itself is not yet proven: contract-to-hire is what that uncertainty is worth paying for. You are buying an option, and the conversion fee is the price of the option.

If you are hiring several people at once: the per-placement model starts working against you. Six placements at 20% of $150,000 is $180,000 in fees. At that volume, an embedded recruiter charged monthly is usually materially cheaper, because you are paying for time rather than a percentage of every salary.

Before signing anything:

• Is the fee calculated on base salary or total compensation?
• When is the invoice issued, and on what payment terms?
• What is the replacement guarantee period, and is it a replacement or a refund?
• What voids the guarantee?
• Is there a fee if we hire a candidate you submitted but we had already sourced?
• For contract: what exactly does the markup cover, and what is billed separately?
• For contract-to-hire: what is the conversion fee schedule over time?

The guarantee terms deserve as much attention as the percentage. A 25% fee with a genuine ninety-day refund is frequently better value than an 18% fee with a thirty-day replacement and a page of exclusions.

A lower fee usually means less work is being done for it, and the cost of that shows up somewhere you are not tracking.

The real expense of hiring is rarely the placement fee. It is the cost of a hire who does not work out: the salary paid, the time the team spent, the work that did not happen, and the second search. Industry estimates commonly put the total cost of a failed hire at a substantial multiple of the placement fee that introduced them.

Judged against that, the difference between an 18% fee and a 25% fee is small. The difference between an agency that genuinely screens and one that forwards resumes is not.

The Chum Effect is a staffing agency, and we work across all three of the models described above: contract staffing, contract-to-hire and direct placement.

We would rather talk you out of the wrong model than sell you the expensive one. If you are making a single permanent hire, the arithmetic above says direct hire, and that is what we will recommend. If the role is genuinely unproven, it says contract first.

What is different on our side is the evaluation, not the fee structure. Candidates are interviewed by a person before they reach you, and those interviews are recorded so you are judging what someone actually said rather than our impression of it.

Tell us the role and we will tell you which model is cheaper for it.