In my former corporate life I was in charge of hiring at a small aircraft component maintenance company. I often used temporary agencies like Kelly when hiring a full-time employee. We would usually bring someone on as a temp-to-hire, which basically gave us 6 or 8 weeks to evaluate someone's value before we had to make a decision about them.
But in answer to your question -- the agency takes care of all the paperwork, including worker's compensation insurance. It's really a sweet deal. All you have to do is cut a check to the agency on a regular basis.
As far as the pay goes, you can dictate how much you want the dude to get paid. The temp agency then adds in workers comp, probably unemployment insurance and whatever else is required by the feds or the state government, then tacks on their markup. If this is truly a temporary job, then I'd think that you could offer a little less than you'd pay a permanent worker, and that will vary from locale to locale.
Give 'em a call, they'll help you out with all your questions.