Everything you always wanted to know about recruitment agency fees (but were too afraid to ask)
Are you thinking of using a recruitment agency, but unsure about how recruiting fees work? Then read on.
Employing new staff can be an expensive and time consuming process - often leading businesses to turn to specialist services. Cost can be a sticking point, but understanding how recruitment agencies get paid will help employers identify the best staffing firm for their needs and budget.
Do recruitment agencies charge a fee?
Recruitment agencies are businesses, and like any business, they will charge money for their services.
But who foots the cost?
In the UK, employers are responsible for all recruiting fees. The job role and type of employment will determine the level of fee, but all firms will be expected to pay for a successful placement.
There are three main types of recruitment fees and these can be broken down into:
- Temporary worker fees.
- Temp-to-perm fees.
- Permanent placement fees.
Having a basic understanding of these costs could help you avoid any potential legal proceedings after you've recruited a candidate.
Temporary worker fees
The first thing to know about temporary workers, is that they fall under the responsibility of the recruitment agency. This means that it is the agency that pays the candidate.
Of course, the agency recoups this from the employer and will command a fee that covers all costs that they stand to pay.
A temporary fee therefore consists of:
- The basic pay - hourly or daily.
- Other associated costs (Holiday Pay, Sick Pay, National Insurance etc.)A margin (or markup) that allows the agency to make a profit.
- The margin is a percentage on top of the basic pay that enables the agency to make money.
There is no standard percentage and this will change depending on the sector and / or location.
There may be circumstances when an employer wishes to change a temporary worker's contract into a permanent one. Well, guess what? There's a fee for that.
It's important to remember that temp workers are technically employed by the agency, so when a client wants to take on a temp worker full time, the agency is entitled to charge a transfer fee - to cover the 'lost value.'
There are two ways that an employer can avoid paying a transfer fee.
1. An agency is legally obliged to offer employers the opportunity to extend the length of the temporary hire. If the employer chooses this option, no fee is payable upon the completion of this extended period of time.
2. The employer can hire a former temp worker, free of charge, 8 weeks after the completion of the assignment OR 14 weeks from the start of the assignment (whichever is later).
It's not too uncommon for clients to introduce a temporary worker to another business. When this happens, agencies are entitled to charge a transfer fee without the offer of an extended length of hire. The middle employer does not profit financially from this.
You can visit GOV.UK to find out more about transfer fees to recruitment agencies.
Permanent placement fees
Fees for permanent hires tend to fall into one of two camps:
- Contingency Recruitment.
- Retained Recruitment.
Now, contingency or retained recruitment, that is the question. Both have their pros and cons, but it's the fee differences that we're most interested in here.
Contingency recruitment is the most common and straightforward form of permanent placement. This is where an agency only gets paid once a candidate is accepted for the job.
Simple, right? A business has a vacancy. An agency finds candidates for that vacancy. The business then pays the agency upon hiring one of their candidates.
Standard recruitment costs tend to range between 15% and 20% of a candidate's first annual salary, but this can go as high as 30% for hard to fill positions.
The problem with contingency recruitment?
This method of working is basically a race to the finish, where agencies are competing to be the first to provide a candidate. While this certainly makes for quick hires, it means that recruiters can't afford to hang around and benefits those that have access to a large database of job seekers.
If the role requires a particular set of skills or experience, then an agency may be paid on a retainer basis.
Rather than simply paying a fee upon a successful placement, a retainer fee is staggered throughout the process and essentially rewards an agency for their time.
An agency is usually paid in three parts:
- Upon producing a shortlist.
- When the placement is made.
So why are retainers popular?
Well, by receiving some of the fee upfront, agencies can afford to spend more time on finding the very best candidate - as opposed to someone from their database that's merely 'good enough.'
Headhunter's fees typically work on a retained basis and typically charge around 30% of a candidate's salary.
Can you avoid recruitment agency fees?
If you use a recruitment agency to find staff, you can't get out of paying a fee. Of course, you could always decide to recruit without an agency, but this could prove more expensive in the long run (especially if you're left with the cost of a bad hire!).
How much should you pay a recruitment agency?
The cost of a recruitment agency to an employer will really depend on the role being filled. Standard recruitment costs tend to range between 15% and 20% of a candidate's first annual salary, but this can go as high as 30% for hard to fill positions.
Do recruitment agencies charge candidates?
They shouldn't. Agencies are paid by the employer, not the candidate, so job seekers should see any fee as a MAJOR (and illegal) red flag. An agency may charge a fee for additional services, such as CV printing for instance, but job sourcing is completely free.
Will an agency offer a rebate if the candidate quits?
If a candidate leaves a company soon after being employed, agencies may offer a rebate. How much the agency refunds will vary, but it's important to note that they have no obligation to provide any type of compensation. It's therefore important to check the T&Cs and get any rebate terms in writing.
If you're considering using recruitment agencies (which you can find on Agency Central), having a knowledge of how fees work will help you choose the right service and give you peace of mind. If you're still uncertain about anything, be sure to clarify this with the agency and get everything in writing.
Written by Dan Whitelegg
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