By Craig S. Cody, CPA, Certified Tax Coach. Published August 5, 2026.
Here's the answer up front. There are 7.4 million open jobs in this country and almost nobody is moving. Hires are flat. Quits are flat. Layoffs are flat. That isn't a signal to freeze hiring, and it isn't a green light either. It's a signal to stop hiring on feel and start hiring through a gate. Five questions decide it: do you have signed backlog, is your team actually full, does the role sit in a profitable service line, what new agency gross income must the seat carry, and what happens if your biggest client trims 30% next quarter. Answer all five before you write the offer letter.
I've owned a CPA firm for 23 years, and our firm works with more than 70 agencies every month. I can usually tell you which P&Ls I'm going to be worried about in March by watching who hires in August. It's almost never the owners who hired. It's the owners who hired without running the number.
It says the labor market is sitting still. It doesn't say a word about your agency.
The Bureau of Labor Statistics released its June numbers on August 4. Openings little changed at 7.4 million, a 4.4% rate. Hires unchanged at 5.3 million. Quits held at 3.2 million, a 2.0% rate. Layoffs and discharges held at 1.8 million. What movement there was landed in transportation and warehousing (up 97,000), federal government (up 39,000), wholesale trade (down 74,000), and nondurable goods manufacturing (down 55,000).
Now read what isn't there. Professional and business services, where your agency lives, made neither list. It didn't move enough to report.
And hold all of it loosely. This is June data reaching you in August, it blends a warehouse in Ohio with your creative shop, and it gets rewritten after the fact: in this same release, BLS revised May's openings down 57,000, hires up 82,000, and separations up 159,000. Three revisions, three directions, one month. It's weather, not a diagnosis.
Because it changes how long a hire stays yours.
A 2.0% quits rate means people are staying put, and that cuts two ways. The good side is obvious: your own team is less likely to walk, so fewer emergency backfills and less of that scramble where you replace a senior person at a 15% premium because you had six weeks to do it.
The side almost nobody prices: the person you hire will probably still be on your payroll in 18 months whether or not the work that justified them is. In 2022, a bad hire self-corrected. People left. Today they don't, and the exit is a conversation you'll have to start yourself.
So yes, be careful. But frozen hiring in a market where nobody's quitting pins your capacity at exactly today's level, and the next retainer that lands gets served by burning out the humans you already have. Caution is a gate. Paralysis is just a decision you'll regret in two quarters.
It's what turns a hiring feeling into a number.
Start with the denominator. Agency gross income is what's left after the pass-through money that was never really yours: media, freelancers, production, client software. Revenue is the number you say at conferences. AGI is the number you run on. And for anyone who's sat through a tax conversation with me, this AGI isn't the adjusted gross income line on your 1040. The collision is real, so I name it every time.
Drew McLellan and the Agency Management Institute put the healthy split of AGI at roughly 55% people, 25% overhead, 20% profit. That benchmark is theirs, not mine. I use it because it matches what I see in agency P&Ls, and because it hands you an envelope instead of an opinion.
Here's the whole trick. If people cost gets 55 cents of every AGI dollar, any seat you add has to bring in enough AGI to stay inside that envelope. Divide the seat's all-in cost by 0.55 and you have the number. That one division is the most useful hiring math I know, and everything below runs on it.
Run every open role through these before the offer goes out. Not the headcount plan. The role.
| # | Gate | The Question | It Passes When |
|---|---|---|---|
| 1 | Signed backlog | Is the work contracted, or is it in the pipeline? | Signed, contracted AGI covers at least the seat's first 9 months of break-even |
| 2 | Utilization | Is the team you have actually full? | Your billable people are genuinely at capacity, not just busy |
| 3 | Service-line margin | Which line does this seat serve, and what's that line's gross margin? | The line's margin is at or above your blended margin |
| 4 | Break-even AGI | What new AGI does the seat have to carry? | You can name the number and point at where it comes from |
| 5 | 90-day downside | What if your largest client cuts 30% next quarter? | You could carry the seat two full quarters without borrowing |
Gate 1 is where most agencies fail, and it's the cheapest to fix. Pipeline isn't backlog. A verbal yes from a client who loves you isn't backlog. Signed statements of work and the contracted months left on your retainers are backlog. Add those, subtract anything inside a notice window that's already been opened, and you have a real number to hold the seat against. If the role's justification lives in a proposal that hasn't come back, you're hiring against optimism, and optimism doesn't clear payroll.
Gate 2 is the one owners skip because it's uncomfortable. Before you add a seat, prove the humans on your payroll today are full. Not "everybody feels slammed." Full. Pull four weeks of delivery hours by person and set them against what you sold. If the team is at 60% on paid client work and the other 40% is rework, internal meetings, and scope you gave away, that's a scope problem, not a capacity problem. Hiring into it buys you a more expensive version of the same month.
Gate 3 kills the blended-margin lie. Say creative runs a 62% gross margin and paid media runs 38% after freelancers and tools. Blended, you look fine. But that same $118,000 seat needs about $190,000 of work behind it in the creative line and over $310,000 in the media line to throw off the same contribution. Same salary, wildly different payback. The envelope math tells you whether you can afford a seat. This tells you where to put it, and the answer is where the margin is, not where the noise is.
Gates 4 and 5 get their own sections, because they're arithmetic.
| Gates Passed | The Move |
|---|---|
| 5 of 5 | Hire the full-time seat |
| 4 of 5 | Hire, but structure it: contract to hire, or a lower base with the rest tied to the work showing up |
| 3 of 5 | Buy the capacity freelance or fractional. Don't create the seat |
| 2 or fewer | Don't fill it. Your constraint isn't headcount, and a hire won't find it |
Build the seat's real cost, then divide by 0.55.
Take a senior account manager at a $95,000 base. That base is the number in your head. Here's the rest of it.
That's roughly $118,000 all in, not $95,000. (For a senior leadership seat the build is bigger and the funding question is different. That one deserves its own conversation.)
Now divide by AMI's 55% envelope. $118,000 divided by 0.55 is about $215,000 of new AGI that seat has to carry. Not $118,000. Not "it'll pay for itself." $215,000.
Gate 1 follows straight from it. Nine months of that break-even is roughly $161,000, and that's how much signed AGI you want behind the role before you commit. Add the ramp while you're at it: if the seat takes a quarter to get productive, you're carrying about $29,500 of cost before it contributes a dollar.
One more read on that number. AMI also uses an AGI-per-FTE benchmark, currently around $175,000 a head, and at a 55% envelope that supports about $96,000 of all-in people cost. Our seat costs $118,000. So it's an above-average seat and it needs above-average AGI behind it. Not a reason to skip it. A reason to know it going in. (The full scoreboard version is here.)
It looks like arithmetic you'd rather not do, which is exactly why it's Gate 5.
Take a $2.5 million AGI agency. At AMI's 20%, the profit target is $500,000. Your largest client is 22% of AGI, so $550,000, and they trim 30% of scope. Not a loss. A trim, the kind that happens in a flat market when a CMO gets a new budget number.
That's $165,000 of AGI gone, or 33% of your annual profit, from one client's budget meeting. Add the $118,000 seat you hired in August and that's another 24%. Together, 57% of your profit against a downside you never modeled.
The test isn't "would that hurt." Everything hurts. The test is whether you could carry the seat two full quarters without a line of credit. If the answer needs the bank, Gate 5 fails, and the move is freelance capacity you can turn off.
Here's the version I'd walk through with you on a call.
Same agency: $2.5 million of AGI, 14 people, wants to add a senior account manager at a $95,000 base. All in, $118,000. Break-even, $215,000 of new AGI.
Two of five. The decision rule says don't fill it, and the reason isn't "the economy." The constraint is a 63% utilization number and a signature sitting in somebody's inbox.
That's why I want this run at the role level instead of once a year at the headcount plan. It doesn't just tell you no. It hands you the two things to go fix. Chase the SOW, close the scope leak, and the same agency can be sitting on four gates in 60 days without having spent a dollar. Then the hire is obvious, and it's safe.
Some seats aren't optional, and I'd be doing you no favors pretending the gates settle everything.
If one senior person is the only relationship holding your largest account, that's not a capacity question. That's concentration risk wearing a headcount costume, and it can justify a hire that fails Gate 4 outright. Same with a delivery-quality gap that's actively costing you renewals.
When that happens, don't pretend the gate passed. Name it. Write down which gate failed, what you're buying instead (retention, risk reduction, sleep), and what has to be true by a specific date. A hire made with open eyes and a review date is a decision. A hire made by skipping the math is a hope.
This test is built for agencies roughly between $1 million and $20 million in AGI, where one seat is a meaningful share of profit and a bad one takes a year to unwind. Under about $750,000 of AGI, your constraint is almost certainly sales rather than delivery, and running five gates on a part-time coordinator is more process than the decision deserves. Above 200 people, you already have a workforce plan and you don't need my table.
And if you came here hoping the labor market would tell you to freeze: it doesn't. I looked. That story isn't in the data.
More than owners expect, and less than they hope.
Start with the thing I say most often about deductions. Payroll is deductible, and a deduction isn't a discount. Spend $118,000 on a seat and, at a combined rate near 35%, you'll save roughly $41,000 in tax. You're still out about $77,000 of real cash. "It's a write-off" has never once made a bad hire into a good one.
Two things belong in the conversation before you sign. First, classification: buying freelance capacity at Gate 3 or 4 is a smart operating move, but whether that person is a contractor or an employee is a legal test rather than a preference, and getting it backwards is expensive in a way that surfaces years later. Second, timing: a seat that starts in October lands about a quarter of its first-year cost in this year and the rest in next, which matters if this year is unusually strong or unusually thin.
Neither one is a reason to hire. They're reasons to have the hire and the tax picture in the same conversation, which for most agency owners is the one meeting that never happens.
Does a 7.4 million job openings number mean it's a good time to hire? It means demand for labor is holding steady nationally. It says nothing about your agency. Hire against your signed backlog and your service-line margin, not against a national statistic that reaches you two months late and gets revised.
How much new revenue does one hire need to bring in? Build the all-in cost first, base plus employer payroll taxes plus benefits, then divide by 0.55, using Drew McLellan and AMI's 55% people-cost envelope. A $95,000 base runs about $118,000 all in, so the seat needs roughly $215,000 of new agency gross income behind it.
How do I know if my team is actually at capacity? Stop asking how it feels and pull four weeks of delivery hours by person, then set them against what you sold. Anything under roughly 70% on paid client work usually means the constraint is scope, rework, or meeting load, not headcount. Hiring into that just makes the same month cost more.
Should I hire a freelancer instead of an employee right now? If the role passes three of the five gates, yes, buy the capacity rather than creating the seat. Just make the classification decision on the legal test rather than on convenience.
What is the 55/25/20 rule? It's Drew McLellan and the Agency Management Institute's benchmark for how a healthy agency splits its agency gross income: roughly 55% to people, 25% to overhead, 20% to profit. It's their number, not mine. I use it because it's the fastest way to turn a hiring instinct into an envelope you can test against.
Nobody's looking out for your money but you. Hiring humans is the largest recurring commitment most agency owners make, and it usually gets decided in a hallway and confirmed by a feeling.
Run the five gates. Build the all-in cost. Divide by 0.55. If the number's there, hire with confidence and stop reading labor market headlines. If it isn't, you've just saved yourself a year of quiet margin damage.
Want a second set of eyes on what a seat really costs you after tax, and where the cash to fund it should come from? Book a Free Tax Analysis. We'll look at your last two filed returns and show you what's there.
Or just reach out and let's talk it through before the offer goes out. That's the cheaper conversation.
Craig S. Cody, CPA | Agency CPA | craigcodyandcompany.com