How to start a staffing agency

Every other decision in this guide hangs on the niche. It sets your markup, your insurance rates, your candidate pool, your cash-flow profile, and what you say on every client call. A desk that places ICU nurses and a desk that places forklift drivers are different businesses that happen to share a business model.

Pick from what you already know. A defensible niche often comes from your last recruiting desk, an industry you worked in before, or a candidate network you already have. A useful test: can you name twenty companies that buy this kind of staffing and ten candidates you could realistically place this quarter? If not, keep narrowing until you can.

Specialists get referred and generalists compete on price. You can widen later from a niche you dominate. It is much harder to narrow after a year of taking every order that rang the phone.

This is general education, not legal or tax advice. Choose an entity with an attorney or accountant, register it where you conduct business, then obtain an EIN directly from the IRS for free. There is no single nationwide staffing-agency license. Requirements depend on the agency model, worker and client locations, and niche. Massachusetts, for example, licenses or registers employment, placement, and staffing agencies, while Illinois separately licenses nurse agencies. Check the secretary of state and the labor, workforce, and health regulators in every state where you will operate.

Under the Census Bureau definition of Temporary Help Services, the supplied workers are employees of the staffing establishment. If that is your model, set up payroll and federal employment-tax withholding before the first assignment. Do not treat a worker as an independent contractor because the agreement uses that label; the IRS says status depends on the facts. OSHA also treats the staffing agency and host as joint employers for temporary-worker safety, with the exact responsibilities depending on the facts and worksite.

Price insurance with a licensed broker who understands the roles you place. General liability and professional liability are common commercial coverages, while workers compensation, unemployment, disability, and other employer requirements vary by state and workforce. Client contracts can add coverage types and limits. Outsourcing payroll administration does not by itself transfer every employment-tax obligation, so confirm the provider’s legal role and your remaining responsibilities in writing.

Contract staffing creates a cash-flow gap because employees must be paid on time while clients pay on the invoice terms you negotiated. Every hour worked creates a payroll obligation before the related invoice may be collected, and the gap grows with headcount.

Cash reserves, a bank line of credit, and invoice factoring are common funding options. A factor generally advances an agreed portion of an eligible invoice, collects from the client, and remits the balance after contract fees and adjustments. Advance rates, recourse, reserves, minimums, and fees vary, so compare the full agreement rather than a headline rate.

If you only run direct-hire placements, there is no temporary-worker payroll to float, although you still need to model the fee and payment terms in each client agreement. Before accepting a contract order, confirm how every payroll will be funded through the client’s expected payment date.

Staffing has two revenue models. Direct-hire placements charge a fee calculated as a percentage of the candidate’s first-year salary. Temp and contract placements charge a markup: the difference between the bill rate you charge the client and the pay rate the contractor receives.

The markup is not profit. It has to cover payroll taxes, workers’ comp, insurance, any benefits, your funding cost, and only then your margin. That burden differs by state and by role type, so build your price from your real costs up rather than from a number another recruiter mentioned. A markup that misses workers’ compensation or another employer cost can erase the margin on an assignment.

Norms vary enough by segment that printed ranges age badly, so this page does not guess. Ask your factor, your comp carrier, and one friendly owner in your niche what they see. Three real data points beat any blog post.

Vendors will sell you a platform for every letter of the alphabet. A new desk needs three things: a system of record for candidates and jobs, a way to run payroll and invoicing, and a client BD motion that runs every week. An ATS handles the first, a back-office provider or your factor often handles the second, and the third is the one founders skip because it feels optional. It is the one that pays for the other two.

On the client side, an AI sales agent can carry the repeatable parts of the BD motion. dreach, our product, finds companies hiring in your niche, sends first messages through email or LinkedIn, follows up until someone answers, and books the intake call. Permissioned SMS or iMessage conversations can continue in the same workflow.

The AI tools guide linked below compares each category, including products that overlap with dreach.

Early clients often come from people who already trust you or companies that are hiring now. Start with the trust list: managers you placed for, colleagues who moved into hiring roles, and candidates who became managers. Tell each one what you now do and what a good order looks like; those conversations begin with context that cold outreach lacks.

Then run the signal list. Build a list of companies in your niche with open roles this month, find the manager who owns the empty seat rather than the careers inbox, and open with something specific: the role, the market, or a candidate you could put in front of them this week. Follow up until you get a yes or a no. The first message rarely wins on its own.

Getting clients is a deep enough topic that we wrote two dedicated pages on it: the full client acquisition playbook and a lead generation walkthrough, both linked here.

Healthcare staffing adds state and profession-specific rules. Some states license healthcare or nurse staffing agencies; Illinois is one current example. Before marketing or placing staff, check the labor and health agencies in each state where the agency, worker, and facility are located, plus the licensing board for every profession you place.

Build each credential file from the role, state law, facility contract, and payer requirements. For licensed roles, verify current job-appropriate credentials with the primary source. Competency evidence and background checks are part of The Joint Commission’s staffing certification measure, while health records and training requirements depend on the assignment. For services paid by federal health programs, use the HHS-OIG exclusion list as part of your screening process.

The Joint Commission’s Health Care Staffing Services certification is an optional third-party certification, not a universal license. It evaluates eligible firms that place temporary clinical staff, and its current eligibility rules include at least 10 placed clinical staff and four months of performance data before review. A facility, intermediary, insurer, or solicitation may still make certification a contract condition, so check the buyer’s written requirements before budgeting for it.

A staffing agency can often operate from home, but the address still has to satisfy local zoning, lease or homeowners-association rules, business registration, and any agency license that applies. Confirm those rules before presenting a virtual address or registered-agent address as the operating location.

Use a separate business bank account and a work setup that protects candidate and employee information. If an application, insurer, bank, or client asks for a physical operating address, answer according to its definition rather than assuming a mail service qualifies.

An office starts to earn its rent later, in high-volume light-industrial staffing where workers check in daily, or when a team outgrows video standups. Rent is a scaling decision, not a starting requirement.

Days 1 to 30: choose the niche and write it down as one sentence. Form the entity, get the EIN, open the bank account, and start insurance quotes, with workers’ comp first because it can take the longest. Build the two lists: one hundred companies that hire your niche, twenty candidates you could place.

Days 31 to 60: turn on the BD motion and keep it running daily, whether that is you or software. Take every intake call you can get, even the imperfect ones. Early intake conversations teach you your market’s real rates and terms. Arrange factoring or a credit line now, while you do not need it yet.

Days 61 to 90: fill the first orders and over-communicate while you do. Ask every satisfied manager for one introduction while the win is fresh. Revisit your markup with real cost data, write down what worked as your first playbook, and decide which parts of the motion to automate before you add headcount.

When weekly job orders arrive and delivery becomes the new bottleneck, the problem changes shape. Our growth guide picks up from there.