How to Calculate the True Cost of a Temp Worker vs Direct Hire

A staffing agency charges you $28 per hour for a warehouse worker. You could hire the same person directly at $20 per hour. The agency is taking $8 per hour — a 40% markup. That seems like a lot. Until you count everything else.

The comparison between temporary staffing costs and direct hire costs is one of the most misunderstood calculations in workforce management. Most employers compare the agency bill rate to the employee's hourly wage and stop there. That comparison is incomplete, and it consistently makes direct hiring look cheaper than it actually is.

Here is how to calculate the true cost of both options.

The Direct Hire Cost (What You Actually Pay)

Start with the base wage. A warehouse general laborer in the Greater Montreal area commands $19 to $22 per hour in 2026. Call it $20 for this example.

Now add the mandatory costs that come with every employee on your payroll in Canada:

Statutory Contributions (Employer Portion)

• CPP/QPP (Canada/Quebec Pension Plan): 5.95% of pensionable earnings (Quebec rate for 2026), plus the additional CPP2 contribution of 4% on earnings between the first and second ceilings. For a full-time worker earning $41,600 annually ($20/hr x 2,080 hours), the employer QPP contribution is approximately $2,475 per year.
• EI (Employment Insurance): Employer premium rate of 2.282% in Quebec (1.4x the employee rate). Annual cost: approximately $950.
• QPIP (Quebec Parental Insurance Plan): Employer rate of 0.692%. Annual cost: approximately $288.
• CNESST (Workers' Compensation): Rate varies by industry classification. For warehouse and material handling (unit rate around $3.50 to $6.00 per $100 of insurable earnings), the annual cost on a $41,600 salary ranges from $1,456 to $2,496.
• Health Services Fund (FSS): 1.65% to 4.26% depending on total payroll. For a small to mid-size employer: approximately $686 to $1,772.
• Labour Standards Contribution (CNT): 0.06%. Approximately $25.

Subtotal, statutory contributions: $5,880 to $8,006 per year, or $2.83 to $3.85 per hour worked.

Other Direct Costs

• Vacation pay: 4% minimum (2 weeks) under Quebec labour standards, 6% after 3 years. Cost: $1,664 to $2,496 per year.
• Statutory holidays: 8 paid holidays in Quebec at the daily rate. Cost: approximately $1,280 per year for a full-time worker.
• Sick days: Quebec mandates 2 paid sick days per year. Many employers offer more to remain competitive. Budget $320 to $800.

Subtotal, other direct costs: $3,264 to $4,576 per year, or $1.57 to $2.20 per hour worked.

Recruitment and Onboarding Costs

• Job posting: $200 to $500 per posting on major job boards (Indeed, Workopolis)
• Screening and interviewing: 5 to 10 hours of HR or supervisor time per hire. At a loaded HR cost of $45/hour: $225 to $450
• Background check: $50 to $150
• Onboarding and training: 16 to 40 hours of reduced productivity during the first two weeks, plus trainer time. Conservative cost: $800 to $2,000
• Uniforms, PPE, and equipment: $150 to $400

Subtotal, recruitment: $1,425 to $3,500 per hire.

For a position with annual turnover (which is common in warehouse labor), amortize this over 12 months: $119 to $292 per month, or $0.69 to $1.68 per hour.

Administrative Overhead

Payroll processing, T4/RL-1 preparation, ROE issuance, benefits administration (if applicable), time tracking, and general HR management. For a single employee in a small operation, this overhead runs $50 to $150 per month, or $0.29 to $0.87 per hour.

The True Direct Hire Cost

Adding it all up for our $20/hour warehouse worker:

| Cost Category | Per Hour | |---|---| | Base wage | $20.00 | | Statutory contributions | $2.83 - $3.85 | | Vacation, holidays, sick days | $1.57 - $2.20 | | Recruitment (amortized) | $0.69 - $1.68 | | Administrative overhead | $0.29 - $0.87 | | Total loaded cost | $25.38 - $28.60 |

The $20/hour employee actually costs $25.38 to $28.60 per hour when all costs are included. That agency bill rate of $28 is suddenly looking different.

What the Agency Bill Rate Includes

A reputable staffing agency's bill rate for a $20/hour worker typically includes:

• The worker's wages
• All statutory employer contributions (CPP/QPP, EI, QPIP, CNESST, FSS)
• Vacation pay accrual
• Recruitment, screening, and onboarding costs
• Payroll processing and tax remittances
• Workers' compensation coverage under the agency's own CNESST account
• Replacement guarantee — if the worker does not show up or does not perform, the agency sends a replacement at no additional charge

The markup — the difference between what the worker is paid and what you are billed — covers these costs plus the agency's operating expenses and margin. A typical markup for general labor in Canada ranges from 30% to 55%, depending on the position, volume, duration, and risk profile.

At a 40% markup on a $20/hour wage, the bill rate is $28. The agency absorbs all statutory costs, all recruitment costs, all administrative burden, and the risk of turnover. You pay one invoice. No T4s. No CNESST filings. No EI premium reconciliation.

When Direct Hire Wins

Direct hiring is more cost-effective when:

• The position is permanent and stable. If you need the same person doing the same job for 12+ months, the upfront recruitment cost amortizes to near zero and you avoid the ongoing agency margin.
• Turnover is low. If your retention rate is above 85%, you are not paying recruitment costs repeatedly. The agency model is designed to absorb high turnover — if your turnover is low, you are paying for risk mitigation you do not need.
• You have internal HR capacity. If you already employ an HR team that handles recruitment, onboarding, payroll, and compliance, the marginal cost of adding one more employee is lower than the agency fee.

When Temp Staffing Wins

Temporary staffing through an agency is more cost-effective when:

• The need is short-term or variable. A 6-week peak season, a one-off project, or fluctuating weekly headcount — these scenarios make direct hiring impractical. You cannot hire and lay off workers monthly without running into labour standards issues and severance obligations.
• Turnover is high. If the position turns over every 3 to 6 months — and entry-level warehouse positions often do — the repeated recruitment cost erases the savings from avoiding the agency markup. At $2,000 per hire with quarterly turnover, you are spending $8,000 per year on recruitment alone for a single position.
• Speed matters. Posting a job, screening applicants, interviewing, and onboarding takes 2 to 4 weeks minimum. A staffing agency can have a vetted worker on your floor tomorrow morning.
• You want to offload compliance risk. The agency is the employer of record. They handle CNESST classification, EI premiums, payroll tax remittances, and ROEs. If they misclassify a worker or miss a remittance, it is their problem, not yours.
• You want to evaluate before committing. Temp-to-perm arrangements let you observe a worker's performance for 8 to 12 weeks before offering direct employment. The conversion fee is typically less than external recruitment costs for the same caliber of hire.

The Hidden Cost Most Employers Miss

There is one cost that does not appear in any spreadsheet: management time. Every direct hire requires supervision time for onboarding, performance management, conflict resolution, scheduling adjustments, and — if things go wrong — the termination process.

When a temp worker underperforms, you call the agency and request a replacement. Done. When a direct hire underperforms, you document the issue, provide coaching, issue warnings, consult with HR or a lawyer, and eventually process a termination that may include severance and an ROE. The management time consumed by one bad direct hire can exceed the cost of the agency markup for an entire year.

Run the Numbers for Your Situation

The right answer depends on your specific circumstances — your wage rates, your turnover, your HR capacity, your volume stability, and your risk tolerance. But make the comparison honestly. Compare the agency bill rate to your fully loaded direct hire cost, not to the base wage.

The gap is almost always smaller than it looks.