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What Are Recruitment Fees?
Recruitment Fees are the costs associated with hiring employees through outside agencies. These vary depending on the type of contract, position to fill, and the agency. This could also include using third party recruitment sites such as LinkedIn or Dice.
Benefits of Paying a Recruitment Agency to Find Talent for Your Organization
While this can be a high expense, paying a recruitment agency has many upsides:
- Time Saving. Most HR departments run very lean. Consequently, time is the most precious commodity. Contracting a third party firm to recruit for you can free up several hours every day to focus on other, more pressing tasks.
- Expertise. Oftentimes, companies will be attempting to fill very specialized roles. This can require knowledge of certain industries and positions that typical in-house recruiters may not have.
- Connections. Recruitment agencies have a broad network of individuals built in. They can readily pull from individuals who are already on the job hunt (many times discreetly), thus cutting time-to-hire down significantly.
How Recruiters Structure Their Fees
There are several ways to structure a deal with an outside agency when filling positions. Agreements largely depend on the position themselves, as well as the standard contract the agency uses. Below are several of the most common ways agencies structure agreements.
Percentage. Typically a percentage of the employee’s first year salary. This number can range from 15-25% on average.
Retainer. Retaining a recruitment agency can lead to a slightly longer process overall, but can potentially be cheaper. Companies will pay an agency to retain their services, thus creating an exclusive contract for the position. Part of the fee will be paid upfront while the remainder will be paid at varying points of the process. The total percentage paid is still typically between 15-25% of the employees first years’ salary.
Contract. When doing contract placement, the agency typically maintains the employee on their internal payroll and charges the wages back to the client with an additional fee to cover expenses. This fee is usually around 1.5 times the employees wages. For example, if an employee makes $20 per hour, the agency would charge the client $20 times 1.5, which equals $30 per hour. These contract placements can, and often do, lead to temp-to-Hire roles.
Contingency. Contingency hiring is just that, contingent on placing an employee. The agency doesn’t make any money until they place an employee with the client. This is typically 15-25% of the employees’ first year salary.
Temp-to-hire is a great way to get a working interview with a candidate. Have them come in, working on a contract with the agency rather than as a full-fledged company employee. After you have been able to “interview” them long enough (usually a couple weeks to a month) you have the option to convert the candidate to a full-time employee. This generally follows the same rates of 15-25%.
However, most agencies will prorate the expense based on how long the candidate has been working for the company. For example, if a candidate works with a company for one month with an annual salary of $50,000, and the placement fee was 20%, the agency would then charge the company 91.6% (11 divided by 12 months) of the original 20% fee. In this scenario, that would be $9,166.66.
Flat rate fees can be great for high turnover and high volume recruiting. These will typically be lower rates to make sure you can get an exclusivity clause added to the contract (mentioned below). Flat Rates are not as common, but can be a great way to secure larger quantity deals.
Exclusive Versus Non-Exclusive
Exclusive agreements mean only one agency has the right to place for the position or company. This is very common with high level positions. Non-exclusive contracts mean there is a chance the agency could do a lot of work and still end up not making any money if another agency places a candidate with the company first. Most agencies will attempt to get exclusive rights to a position. An exclusive contract is better all around for the agency and ensures they get paid when the position is filled.
What Is the Average Recruitment Fee?
Typical recruitment fees range from 15-25% of an employees’ first year salary. For example, if a candidate is placed with a company and making $75,000, and the agency charges 20% at time of placement, the company would pay $15,000 to the agency for the placement.
What To Do Before Signing an Official Fee Agreement
Before signing any agreement, companies should follow the below steps to ensure a smooth placement process.
Never sign a contract without doing your due diligence. Review the company’s track record on placements, how long they’ve been in business, what fields they generally focus on placing, etc.
2. Contract Terms
Once you have decided on an agency to contract with, determine what type and style of contract is best for your company. If you need to fill a high priority executive, an exclusive percentage retainer may be the best way to go. If you need to fill 30 entry-level call center roles, a non-exclusive, flat fee may be best to keep options open.
Most agencies have set prices, but they are almost always willing to negotiate prices to land an exclusive deal. Companies need to understand what their budget is before getting to this step. Make sure you have affordable terms in place before starting the search.
Are Recruitment Services Worth the Fees?
The great HR answer: it depends. Does your company have a dedicated recruiter searching for candidates all day? Do you need to urgently make a hire for this position, or can you afford to play the long game? What does revenue look like for the company? Is money extremely tight? All of these items factor in.
On average, recruitment fees are worth the investment. Factor in the time it takes away from performing other jobs duties, the stress of finding a qualified candidate, interviewing, etc. All these items (and more) should be considered when making the decision whether or not to hire a recruitment agency.
You may end up paying $10,000-$50,000 to a recruitment agency, but the time savings alone can make up for that cost over a few short months.
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Simeon purposefully chose a career in HR, getting his degree in Human Resource Management with a minor in Business Management from Utah Valley University. He loves researching employment law and how it can and should be applied in the work place. His claim to fame is that Dave Ulrich called him out for yawning in the middle of a lecture!
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