A temp agency is your legal employer: it hires you, runs your payroll, withholds your taxes, and carries insurance on you, then places you at a client company where you actually do the work. So when people ask how a temp agency works, the honest answer is that three parties are involved at all times — you, the agency that employs you on paper, and the business whose office or warehouse you report to. That structure shapes your paycheck, your benefits, and who is responsible when something goes wrong.
The Three Parties in Every Temp Job
The staffing agency is the “employer of record.” It withholds your federal and state income taxes, pays its share of Social Security and Medicare, funds unemployment insurance, and carries workers’ compensation coverage on you. The client company directs your daily work and controls conditions at the job site. A contract between the two of them sets the billing rate and divides responsibilities: the agency handles payroll administration, tax compliance, and general liability insurance for its workers, while the client provides the work and the workplace.
The Fair Labor Standards Act applies to this arrangement the same way it applies to any other job. The agency has to pay you at least the federal minimum wage and overtime for any hours beyond 40 in a workweek.1eCFR. 29 CFR Part 778 – Overtime Compensation
One thing to know upfront: the legal separation between agency and client is thinner than it looks. Federal agencies routinely treat both as “joint employers,” which means both can be held responsible when something goes wrong on the job. That’s a safety net for you, not a loophole for them.
Signing Up With an Agency
Getting on an agency’s roster starts with an application that looks like any other job application: work history, references, contact information. Two federal forms come next and both have to be done before your first assignment.
The Form I-9 proves you’re authorized to work in the United States. You can satisfy it with a single document from “List A” — a U.S. passport, for example, which proves both identity and work authorization — or with one document from “List B” (proving identity, like a driver’s license) plus one from “List C” (proving work authorization, like a Social Security card).2USCIS. Acceptable Documents for Verifying Employment Authorization and Identity The Form W-4 tells the agency how much federal income tax to withhold from your checks based on your filing status and any adjustments you claim.3Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
Background Checks, Drug Tests, and Skills Assessments
Most agencies run a criminal background check before activating your file. These typically cover federal and state court records, and for positions involving vulnerable populations like children or the elderly, they may include a sex offender registry check. Most domestic checks finish within a few business days.
Drug testing is standard in manufacturing, warehousing, and healthcare. Agencies usually send you to a third-party lab or occupational health clinic for a urine sample within a day or two of a conditional job offer. The agency almost always pays for both the background check and the drug test, so you shouldn’t be out of pocket.
Many agencies also run skills tests: timed typing and software proficiency for office roles, safety quizzes or equipment demonstrations for industrial roles. Once you clear the assessments, you move into “active” status and recruiters can start matching you with open jobs.
How Assignments and Pay Actually Work
When a job matches your skills, the agency contacts you by phone, text, or app. The notification includes the work location, shift times, expected duration, and hourly rate. Accepting triggers a dispatch process where the agency sends you reporting instructions and any safety information for the site.
You track your hours through the agency’s digital timekeeping portal or, in some cases, a physical timesheet signed by a supervisor at the client. Most agencies have a weekly submission deadline. Once the client’s supervisor approves your hours, the agency calculates your gross pay, withholds federal and state taxes plus Social Security and Medicare, and issues your check. Most agencies pay weekly; some run biweekly. At year’s end, the agency sends you a W-2 covering your total earnings and withholdings.
You get paid whether or not the client has paid its invoice yet. The agency carries that cash-flow risk, which is one of the reasons companies use staffing firms in the first place.
Why the Client Pays More Than You Earn
The client doesn’t just pay your hourly wage to the agency. It pays a marked-up rate that covers your wages, the employer’s share of payroll taxes, workers’ compensation premiums, the agency’s overhead, and its profit. For W-2 employees, the markup typically runs 25% to 60% above your hourly pay, depending on the industry and how risky the role is. If you earn $20 an hour, the client might be billed anywhere between $25 and $32. A surprising chunk of that spread goes straight to legally mandated costs like unemployment insurance and workers’ comp.
Types of Temp Assignments
Not every temp job looks the same. The type of assignment tells you roughly how long you’ll be somewhere and whether a permanent role is on the table.
- Short-term assignments fill defined, immediate needs: a two-week inventory count, seasonal holiday staffing, or covering for an employee on leave. The end date is usually known from the start.
- Long-term assignments run for months or even years at the same client. You stay on the agency’s payroll, but the day-to-day feels much like a regular job. These come up when a company wants ongoing labor flexibility without adding permanent headcount.
- Temp-to-hire arrangements are essentially trial periods. You work as a temp for a set number of hours — commonly 480 to 720, or roughly three to four and a half months of full-time work — and if both sides are happy, the client puts you on its own payroll.
When a client wants to hire you permanently before the trial period is up, it usually pays the agency a conversion fee, typically 10% to 20% of your expected first-year salary. Some contracts let that fee shrink as you log more temp hours, eventually reaching zero. If you’re hoping to convert, ask your recruiter about the specific terms early so you know where you stand.
Your Rights on the Job
Because the agency and the client are both treated as your employers under most federal laws, your workplace rights don’t shrink just because you’re a temp.
Safety
OSHA holds both the agency and the client responsible for your safety, but their duties are different. The agency provides general safety training that applies across environments — hazard communication basics and your right to report unsafe conditions. The client provides site-specific training: the equipment you’ll operate, the chemicals you’ll be around, and the emergency procedures at that location. The client has to give you the same safety training it gives its own permanent employees doing the same work.4OSHA. Protecting Temporary Workers – Recommended Practices
If a site feels unsafe and the client hasn’t trained you on the hazards, raise it with the agency. OSHA can cite the agency, the client, or both for violations, and the agency has an independent duty to look into the safety of the workplaces where it sends people.5Occupational Safety and Health Administration (OSHA). Protecting Temporary Workers
Discrimination
Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act all cover temp workers. The EEOC treats a staffing firm as both an employment agency and an employer, so it can be held liable for discriminatory placement decisions, like refusing to send workers of a certain race or gender to particular clients. The client can also be held liable as a joint employer if it harasses or discriminates against you on site. You can file a charge naming both.6EEOC. Policy Guidance on What Constitutes an Employment Agency Under Title VII
Health Insurance
Staffing agencies with 50 or more full-time employees (including full-time equivalents) qualify as “applicable large employers” under the Affordable Care Act and must offer health insurance to workers who meet the full-time threshold.7Office of the Law Revision Counsel. 26 U.S. Code 4980H – Shared Responsibility for Employers Regarding Health Coverage Full-time means averaging 30 or more hours per week.
Since temp hours swing, agencies often use what the IRS calls a “look-back measurement method.” The agency tracks your hours over a measurement period, commonly 12 months, and if you averaged 30 or more hours per week during that window, it has to offer you coverage for a matching “stability period” afterward — even if your hours dip during that later stretch.8Internal Revenue Service. Identifying Full-Time Employees Smaller agencies below the 50-employee threshold are exempt from this mandate, so if you sign on with one of those, coverage through the marketplace or another source is on you.
Unemployment Between Assignments
One of the most common questions temp workers have: can you collect unemployment when an assignment ends? Usually yes. The end of a temp assignment is generally treated as an involuntary job loss, not a voluntary quit. The work simply ran out.
The details vary by state, and there’s one trap worth knowing. Around 17 states require you to contact the temp agency and ask for a new assignment before you file for unemployment. Skip that step in those states and you can be treated as having voluntarily quit, which means denied benefits. Even in states without that specific rule, you still have to meet standard eligibility requirements: available and able to work, and actively looking for new employment.
You also can’t be disqualified for turning down a new assignment that offers substantially worse pay, hours, or conditions than what’s typical for similar work in your area. Federal law prohibits states from penalizing you for refusing “new work” under those circumstances, and the comparison point is the going rate for your occupation in general, not just other temp jobs.