Employers: Staffing services take on qualified candidates as employees. Such services not only pay their employees, but also withhold income tax and pay workers’ compensation, disability and unemployment insurance. An increasing number of staffing services also provide benefits like vacation, personal time, health care and retirement plans.

Businesses: All companies have clients and products. In the staffing industry, clients are the companies that contract for labor or expertise, and the product is that very labor or expertise. The more skills workers possess, the better the products these staffing services are able to provide for their clients. As with any corporation, staffing services are in business to make money, which they do either by adding their markup to all labor charges or by charging clients a finder’s fee. Some services use a combination of these strategies.

Contractors: Temporary help and staffing services provide business organizations with employees for positions in all sectors of employment, from industrial to clerical to professional. In other words, staffing services match employees to client companies.

What They’re Not

Staffing services are neither employment agencies nor professional employer organizations (PEOs). Although distinctions are blurring between the three types of companies, in most cases you will still find the following differences:

Employer status: Staffing services are employers, while employment agencies and PEOs are not. When a staffing service sends an applicant to a company, the applicant becomes an employee of the staffing service, which assigns its employee to the client company for a specified length of time. On the other hand, once an employment agency matches an applicant to a company, the applicant becomes an employee of the company. PEOs typically take over the human resources functions of a company (e.g., payroll, insurance, etc.), leasing employees back to that company.

Service offerings: Increasingly, lines are blurring between the three different types of companies in terms of the services they provide. However, staffing services offer training more consistently than the other two. Employment agencies still handle the majority of permanent placements. Finally, most PEOs are still, first and foremost, human resources specialists.

Recruiter status: Both staffing companies and employment agencies recruit workers. Traditionally, PEOs have not handled recruiting but have instead taken charge of existing company employees, leasing them back to the company. Increasingly, however, PEOs have begun to offer recruiting services in addition to payroll, screening and other more traditional services.

Fee assessment: Staffing companies usually charge clients an hourly rate that includes labor plus a markup. Those that do temp-to-perm placement or permanent placement charge fees for that service. Employment agencies charge companies one-time fees for finding applicants. Of the three entities, employment agencies are the only ones that collect fees from applicants (although not all agencies do so).

Legal status: Many states have no licensing requirements for staffing services. On the other hand, since employment agencies often collect fees from the applicants they place, these agencies are required to be licensed. Depending on the state, PEOs generally fall somewhere in between.

Types Of Staffing Services

Now that you know, in the very broadest sense, what a staffing service is (and isn’t), let’s discuss the different types. Here they are:

Temporary staffing service: This type of service makes up the largest chunk of the staffing industry and is the type of service we discuss most in this presentation. Temporary staffing services supply client companies with workers on a short-term basis, either to fill in for an absent employee or to supplement existing staff during particularly busy times.

Long-term staffing service: This type of service, also known as “facilities staffing,” specializes in placing employees in long-term assignments, for indefinite periods of time. Project-related assignments, such as those found in the professional and technical sectors, often require long-term staffing.

Temp-to-perm staffing service: This is a type of service seen more and more often, and one that is often combined with a temporary staffing service. A temp-to-perm staffing service offers clients a chance to try out a worker on a temporary basis and to hire that worker later if the client wishes to do so. In most cases, clients who hire a staffing service’s employees pay a hiring fee for the privilege.

Although it is important to understand the distinctions between these types of staffing services, keep in mind that the lines between them have become indistinct and, in fact, have nearly disappeared. Many services do all these types of staffing.

The industry gets even more interesting when you examine the different sectors within it. Some, like the office and clerical sector and the industrial sector, have been around since the beginning (see “The Temp Timeline” on page 5). Others, like the professional sector, are newer and growing at phenomenal rates. We will touch on the various sectors again later in the chapter when we discuss finding your niche, but for now we’ll provide a quick run-down. The staffing services industry is divided into the following sectors:

Office and clerical: Historically, this sector of the staffing services industry has accounted for nearly half of all positions filled by temporary workers. Today, it remains the largest sector and accounts for 40.5 percent of the industry payroll. Per anum wages paid to temporary workers in this sector recently totaled $17.6 billion. The following positions are representative of those in this sector: administrative assistant, cashier, clerk, data entry keyer, desktop publishing operator, general office clerk, mail clerk, messenger, proofreader, receptionist, secretary, transcriber, and word processing operator.

Industrial: This sector has always accounted for at least 25 percent of the staffing services industry. Currently the second-largest sector, it accounts for 34.5 percent of the industry payroll and includes the following positions: assembler, bindery worker, machine operator, construction worker, electrician, maintenance worker, manufacturing employee, shipping/receiving clerk, millwright, and pipefitter. Recently, per annum wages paid to temporary industrial workers stood at nearly $15 billion.

Technical: Currently, this sector comprises 10.9 percent of the industry. Information technology (IT) is part of this sector, as are other technical areas. Recent figures show total wages paid to technical workers at nearly $4.8 billion. Positions include the following: computer programmer, computer systems analyst, designer, drafter, editor, engineer, illustrator and interface designer.

Professional: This is the fastest growing of all the sectors. It currently accounts for 6.4 percent of the industry and is often further divided into staffing niches that include fields like accounting (e.g., accountant, auditor), law (e.g., attorney, paralegal) and business (e.g., marketing professionals, senior managers). Wages paid to temporary workers in the professional sector recently climbed to nearly $2.8 billion, a more than eight-fold increase since 1991. “Accountants, attorneys and other professionals choosing to work with staffing firms have geometrically expanded that side of the business,” says National Association of Temporary and Staffing Services (NATSS) executive vice president Richard Wahlquist. “These professionals can decide when, where and how they want to work, choose among a variety of diverse assignments, and often earn more than their permanent counterparts.”

Health care: This sector excludes home health care personnel. It refers to supplemental staffing of facilities such as hospitals and nursing homes. Just over 2 percent (2.2 percent) of the staffing services industry belongs to this sector, which includes positions such as the following: lab technician, licensed practical nurse (LPN), medical assistant, medical technologist and registered nurse (RN). Wages paid to temporary health care workers recently rose to nearly $1 billion.

Marketing: This sector comprises .7 percent of the industry and accounts for nearly $300 million in wages paid to temporary workers. The marketing sector includes the following positions: help desk operator, product placement, product demonstrator and telemarketer.

Growing Fast

This is a good time to be in the staffing industry. “The industry continues to grow very aggressively; there is double-digit growth in the industry as a whole, and especially in the segments that place professional, technical kinds of levels of skills,” says NATSS board member and industry expert Mike Ban. “I think generally, broadly stated, it isn’t just the IT segment that is driving the growth; it’s really a much wider range of professional skills.”

The staffing services industry is currently the second fastest-growing industry in the United States. There are well over 7,000 staffing services in the nation. Of these, Manpower Inc. is the biggest. Other large services include Kelly, Interim, Norrell and Olsten. “The industry is experiencing healthy growth in the midst of a very tight labor market,” says Tim Brogan, senior manager of public information for the NATSS. The NATSS is a 1,600-member organization that represents the staffing industry. “Most staffing companies have more orders than they have people to fill those orders.” The following factors account for the staffing industry’s recent growth:

Labor shortage: A strong U.S. economy has produced high levels of employment. Usage of temporary help typically rises as employment rises, because companies need temporary staff to cover for sick or vacationing employees, or to help them deal with special projects or temporary work overloads. But when demand is high for workers, fewer are available on a temporary basis. This is the current situation. And the labor shortage is likely to continue for the foreseeable future. This is a great situation for employees, but it’s a tough one for businesses. Since they have trouble finding enough employees with the right skills, these companies turn to the staffing industry, which has expertise in recruiting, screening and training workers.

Skills shortage: The recent and continuing shift toward more service- and knowledge-based jobs has produced a shortage of skills in the U.S. labor market. Furthermore, rapid changes in technology mean that what is state-of-the-art today can be obsolete tomorrow, and often so are the skills associated with that technology. Compounding the problem, companies cannot produce and stockpile service and knowledge as they used to be able to stockpile manufactured goods. Instead, companies rely on staffing services to help them cope with fluctuating demand.

Company policy changes: Increasingly, companies want to achieve the following goals:

1. Stay “lean and mean.” Hiring temporary workers allows companies to save themselves the hidden costs of employment (e.g., taxes, insurance and benefits) that can add up to 38 percent of a worker’s salary. As an added advantage, these companies incur no costs for absenteeism (because they pay only for the hours the employee works).

2. Streamline operations. Companies increasingly look to staffing services to recruit and train full-time workers for them or to provide managed services for them (e.g., payroll, human resources, etc.). Outsourcing has become more and more common.

3. Keep up employee morale. Staff members view a policy of hiring temporary workers during busy times much more positively than they do a policy of hiring and subsequently firing.

What’s The Big Appeal?

It’s easy to see why client companies like hiring temporary workers. But what’s in it for the employees? At first glance, having a temporary job doesn’t seem like much of a bargain. Yet for many people, joining a temporary staffing service offers the following advantages:

Flexibility: Many people want control over when they work, where they work and what kind of work they do. “More and more people are really looking for the flexibility that comes with interim assignments,” says NATSS board member Mike Ban. “Today people are increasingly going through more jobs in the course of a lifetime.”

Opportunity: A temporary assignment with a desirable company can be a good way to get a foot in the door. “Temporary jobs offer a bridge to permanent employment,” says Richard Wahlquist, executive vice president of the NATSS. “And more and more people are choosing employment with staffing firms as a career option.”

Training: Most staffing services provide training for their temporary employees. People who want to sharpen their skills or learn new ones often find this training an attractive perk.

Getting Into It

In this section, we’ll provide suggestions on finding your niche and tell you how some owners we talked to got into the business.

Finding Your Niche

Traditionally, staffing services have operated in all sectors of employment. Older companies, like Patty D.’s Los Angeles-based service, tend to continue that tradition. Increasingly, however, staffing services operate within a niche market. The many specializations that exist today make the staffing industry much more complex, as well as far more interesting, than it has ever been before.

As you think about niche possibilities, you should consider each of the following factors:

Local supply and demand: Staffing services need both temporary employees and clients to survive. Before you choose your niche, make sure you know the types of jobs available in your area and the potential labor supply. For example, if there are 10 factories in your town, a decision to rule out industrial placements probably isn’t wise. And every owner we talked to does some business in the office and clerical sector. Since this sector accounts for more than 40 percent of the industry, chances are good that virtually every staffing service will place some receptionists and other office personnel, even if the major placement emphasis is elsewhere. Be aware, too, that there may be niches within a sector. For example, if you decide to focus on office and clerical positions, you’ll find it is possible to specialize even further. New Castle, Delaware-based staffing service owner Patricia T. focuses on providing midlevel administrative support staff to Fortune 500 companies. Staffing owners Tallulah N. in Chicago and Patty D. in Los Angeles also provide clients with higher-end office and clerical help.

Rita Z. found that specializing in light industrial work was a natural choice for her Indianapolis-based company. “This is a heavy distribution center area,” she says. She does some placements in the clerical, professional and technical sectors, but most of her business is industry-related.

Diana V. places a lot of legal secretaries. “Here in Seattle, secretaries are in high demand,” she explains. Her business does legal office support, from messengers and receptionists, on up through law partners and associates. And they cover everything in between, including secretaries, paralegals, word processors and clerks.

Experience: If you have a background in a particular field, this can be an advantage in several different ways. Not only will you be able to better assess applicants for jobs in that field—your experience can also lend credibility to your staffing service. And you may feel more comfortable serving an industry with which you are familiar. For example, since Diana V. is a lawyer, the legal staffing sector was a natural niche for her to pursue. Of course, familiarity and a high comfort level won’t help if you can’t find enough clients and employees, so you still need to do your market research.

Economic feasibility: Sometimes a market niche that might be a natural choice given an entrepreneur’s background isn’t possible for financial reasons. For example, in spite of her medical background, Tallulah N. chose not to open a medical staffing service. “The start-up cost for doing a medical division is very, very steep,” she says. The other factor, she adds, is that it can be difficult to get doctors, hospitals, nursing homes and other medical institutions to pay in a timely manner. So instead of working in the medical staffing industry, Tallulah specializes in higher-end clerical.

Loving It

Staffing service owners seem to love what they do. “I think what people like most about the staffing industry is that every day is different,” says Melinda Torrison, executive director of Inter-City Temporary Services, an information-sharing network of independent staffing services in Pasadena, Texas. She thinks that, besides liking the variety, owners enjoy the people-oriented nature of the industry. “It’s all about relationships and trust,” she says.

Most of the owners we interviewed had industry experience before they started their own staffing service. We’ll now take a quick look at their backgrounds.

Chicago owner Tallulah N. started her career as a nurse. Then she worked for a temporary staffing franchise called Nursefinders, scouting out locations and opening a string of offices. Next, she built a home care organization from the ground up before being laid off after a lengthy recuperation from a car accident. “I saw there was no safety net anywhere, so I realized I’d better take care of myself,” she says. She launched her own business in 1994. Her temporary, temp-to-perm and permanent placement firm specializes in clerical personnel. She had little experience with clerical work, but Tallulah did her homework well. Doubling in size every year since inception, her business is now debt-free.

Patricia T. put in 15 years at the executive level of two national staffing services before starting her own service in 1995. Legal problems forced her to close her service mere days after opening it, but she was undaunted and started her current company in downtown Philadelphia in February of 1996. “We had two desks and a telephone,” she says. Almost immediately, her service won a multimillion-dollar contract with a Philadelphia-based insurance company. She now has two offices; her company is headquartered in New Castle, Delaware.

Diana V. started her legal staffing service in San Diego while she was still in law school. “I had a tax class and I came up with the idea and brought a friend in on it,” she says. “It was a little thing we thought we would do during law school to place ourselves.” Initially, they used only themselves and other law students as temporary workers. Before long, however, they were placing attorneys and legal secretaries as well, and their “little thing” had mushroomed into something big. “I actually took a leave of absence from law school to run the company,” Diana says, laughing. After she finished law school, she moved to Seattle, married, and opened her business there. She and her MBA husband are co-owners. Now in its fourth year, their company continues to grow.

Rita Z. had substantial experience in the staffing services industry before she started her Indianapolis business with her daughter. “My daughter and I decided to do this while we were shopping,” she says. “I’d thought about it and I asked her if she wanted to go in with me. She’d just graduated from college.” Rita says having a family business has been fun. Their company is now in its eighth year, with four offices and 35 permanent staff members.

Patty D. also had industry experience before starting her own staffing service, based in Los Angeles. Her company is now 20 years old and has California offices in Los Angeles, Irvine, Sacramento and San Diego. “We’re getting ready to start an office on the East Coast,” she says. Patty has approximately 34 permanent staff members.

Now you know how some owners got into the business. Rest assured, however, that a lack of industry experience does not mean you can’t have a successful staffing service. It just means you’ll need to do more research before you start your business. First, gather all the information you can about the industry. This is what the next section is all about.

Scoping It Out

In this section, we’ll show you how to conduct market research, discuss the challenges you’ll face and examine changes that have recently taken place in the industry.

Market Research

A successful staffing company needs clients and workers. Therefore, the two major questions you must research are the following: 1) Does your area have enough companies of the type you’d like to have as clients? 2) Are there enough qualified workers in your area?

Chapter 1 of Entrepreneur’s Start-up Basics provides a thorough discussion of ways to research the market. This can be found on disc’s #3 & #4 of your cd collection. Many of the staffing service owners we spoke to had previous backgrounds either in the staffing industry or in the industry their staffing company supports. These are both good ways to get a feel for local demand. Other good ways include the following:

Interview potential client companies: Find out how many temporary employees key companies use and how well their needs are currently being met. Ask if they would be interested in using an additional temporary help service. It is also important to find out patterns of usage, since some businesses are seasonal in nature.

Check out existing services: Consider signing on with one or more temporary services for a short period of time. This strategy will provide you not only with valuable experience in what it’s like to be a temporary worker (assuming you don’t already have experience), but will also give you a sense of how busy these services are, how satisfied their workers are, etc. (No, we are not suggesting that you spy. Merely test the water. Furthermore, be aware that you usually cannot work for another temporary service as a permanent employee without having to sign a non-compete agreement. For more on this topic, see the glossary.)

Consult precompiled data: Organizations like your local chamber of commerce and the Census Bureau offer information about the local population and about business in your area.

Challenges

Every industry has special challenges. While some of the problems we list below exist, to some degree, for anyone who operates a business, they are particularly difficult problems for the staffing services industry.

Here are some of the major challenges you will face:

Cash flow: The necessity of paying temporary employees before clients pay you is a particularly thorny problem in this industry. In Chapters 4 and 9, we provide suggestions for dealing with this problem.

Competition: There has always been competition in the staffing services industry, but recently it has shifted in emphasis. Staffing firms that once competed for clients now vie for applicants. “It’s a very competitive business environment,” says Tim Brogan, senior manager of public information for the NATSS.

In Chapters 5 to 8, you’ll find ideas for setting your business apart from the rest of the competition.

Recruitment: Surveys by the NATSS show that recruitment is the No. 1 problem for today’s staffing companies. As we mentioned earlier in this chapter, there are three major reasons for the recruitment problem: 1) Unemployment rates are down, 2) The pool of traditional candidates is shrinking and 3) Today’s work force needs more skills than ever before.

Staffing companies have had to work harder at recruiting. Many have also gotten more original. In Chapter 5, we give you ideas on how to beat the recruiting problem.

Retention: Retaining employees once you’ve recruited them can also be a problem. Staffing companies have responded in several ways, including offering increased training opportunities. For more ideas on how to retain employees, check out Chapter 6.

Changing All The Time

Partly in response to the challenges we just discussed, the staffing services industry has seen several trends emerge over the last decade or so. These include the following:

Consolidation: NATSS board member and industry expert Mike Ban notes that a lot of consolidation has recently taken place. “There have been firms set up to do nothing but roll up groups of independents to make larger companies, to capitalize on economies of scale,” he says. In addition, franchisors have recently begun buying out their franchisees.

Expansion of services: More and more staffing companies have begun to offer additional services like payroll, management services, permanent placement and the training of clients’ employees.

Rapid growth: Double-digit growth began in the early ’90s as more and more companies looked for ways to streamline their operations.

Specialization: Staffing companies used to be generalists, serving all industry sectors. This is no longer true. “Hundreds of new staffing firms are entering the industry every year. Many are able to succeed because of niche marketing,” says Samuel R. Sacco, who, like Richard Wahlquist, is also an executive vice president of the NATSS.

“A lot of staffing firms are specializing,” says Inter-City Temporary Services’ Melinda Torrison. “It wasn’t that way 10 years ago.” She is amazed at the number of doctors and lawyers now placed as temporary employees. In addition, she finds that staffing companies have become much more professional and formal in the way they do business.

After reading this chapter, you should have a general idea of what the staffing services industry is like. If we haven’t sent you screaming in the opposite direction yet, read Chapter 2, which should do the trick.