What Is an Administration Fee?
That staffing agency charges $27/hour but pays the worker $18. Here's where that $9 markup actually goes—and how to negotiate it down.
What Is an Administration Fee?
You just got a quote from a staffing agency: $27/hour for a warehouse worker. But you know that worker is only getting paid $18/hour. Where does that extra $9 go?
That difference is the administration fee—the markup a staffing agency adds to cover their costs and profit. It’s not all gravy for the agency, though. A big chunk goes to taxes, insurance, and recruiting costs you’d otherwise pay yourself.
Understanding this fee helps you evaluate whether you’re getting ripped off or getting a fair deal—and gives you leverage to negotiate.
The basic math
Bill rate (what you pay) – Pay rate (what worker gets) = Administration fee
$27/hour – $18/hour = $9/hour markup (50%)
Where Your Money Actually Goes
That $9/hour markup breaks down into three buckets:
Required costs (you’d pay these anyway): Payroll taxes (8–14% of wages), workers’ comp insurance (1–15% depending on job risk), unemployment insurance, liability coverage. These alone can eat up half the markup.
Service costs: Recruiting and screening candidates, background checks, onboarding paperwork, payroll processing, replacing workers who don’t work out. This is the convenience you’re paying for.
Profit margin: Agencies typically target 10–20% net profit after covering all costs. On that $9 markup, they might keep $1.50–$2.
What typical markups look like
| Worker Pay Rate | Bill Rate | Admin Fee | Markup % | Industry |
|---|---|---|---|---|
| $15/hour | $22/hour | $7/hour | 47% | Warehouse |
| $18/hour | $27/hour | $9/hour | 50% | Manufacturing |
| $25/hour | $35/hour | $10/hour | 40% | Skilled trades |
| $35/hour | $56/hour | $21/hour | 60% | IT staffing |
| $50/hour | $85/hour | $35/hour | 70% | Healthcare PRN |
Higher-skilled roles have higher markups because recruiting is harder and the liability is greater. A healthcare worker making a mistake costs more than a warehouse worker.
Typical Markups by Industry
| Industry/Role | Markup Range | Key Drivers |
|---|---|---|
| Light Industrial | 40–50% | High volume, low complexity |
| Warehouse/Logistics | 40–55% | Safety requirements, turnover |
| Skilled Trades | 35–45% | Licensing, insurance costs |
| Healthcare (RN/Therapist) | 50–75% | Licensing, liability, scarcity |
| IT/Technical | 50–75% | Specialized skills, low supply |
| Executive/Professional | 60–100%+ | Recruiting costs, expertise |
Per Bureau of Labor Statistics, temporary help services employ 2.9M+ workers. High-volume, long-term contracts command lower markups (30–40%); short-notice or specialized placements warrant higher (60–100%+).
Evaluating Fair Fees
Questions to ask: What percentage goes to worker pay vs overhead vs profit? What’s your workers’ comp EMR? Are backup workers included at the same rate?
Red flags: Unwillingness to explain markup, hidden add-on fees, inconsistent pricing week-to-week, markups below 25–30% (corner-cutting on insurance), no written contracts.
Benchmarking: Request quotes from 3–5 agencies comparing bill rates, services included, contract flexibility, and replacement guarantees.
Negotiating Lower Fees
Leverage includes volume commitments (10+ workers weekly), longer contract terms (12–24 months), reduced services (employer-of-record model), and faster payment. Typical reductions: 5–15% off standard markups. Agencies cannot sustainably operate below 30–35%.
Alternatives
- Direct hire with referral bonuses ($500–2,000) — One-time cost, slower fills
- Employer-of-record services (8–15%) — Lower cost, you handle recruiting
- Internal PRN pools — No markup, requires HR infrastructure
- Shift differentials (10–25% premium) — Known performers, burnout risk
Total Cost Considerations
Quality agencies with higher markups often deliver better ROI through faster fills and lower turnover. A 45% markup with 90% fill rate may cost less than 35% with 70% fill rate.
The Bottom Line
Administration fees range from 30–75% above worker pay rates, covering recruiting, taxes, insurance, and profit. Fees are often negotiable for high-volume contracts. Evaluate partners on total cost—quality agencies with higher markups often deliver better ROI.
Try ShiftFlow’s workforce management platform to build your own flexible workforce.
Sources
- American Staffing Association
- Bureau of Labor Statistics – Temporary Help Services
- NCCI – Workers’ Compensation
Frequently Asked Questions
What is an administration fee in staffing? The markup a staffing agency adds above worker pay to cover recruiting, taxes, insurance, and profit. If a temp earns $18/hour and the agency charges $27/hour, the $9 difference is the administration fee.
What is a typical staffing agency markup? Markups range from 30–75%. Light industrial averages 40–50%, skilled trades 35–45%, and specialized roles 60–75%+.
Can you negotiate staffing agency fees? Yes. Leverage volume commitments, longer terms, or reduced services. Typical reductions: 5–15% off standard rates.
What is the difference between bill rate and pay rate? Pay rate is what the worker receives. Bill rate is what the agency charges. The difference is the administration fee.
