Recruitment agency fees explained

25 October 2016

recruitment agency fees explained

Perhaps you have a small, busy team and can’t free up the time of an employee so they can be dedicated to sourcing your new staff member. Perhaps you’ve already spent a good deal of time searching and have failed to find someone who is a good fit. Or, it could be that you need a new employee with specialist skills and don’t know the best way to find them. Whichever situation you’re in, if time is ticking away and you need to get a new employee in place soon, you may consider using the services of a recruitment agency.

Before signing contracts to use the services of an external supplier, it obviously makes sense to know what you may be liable to pay in fees, but you should also have an understanding of what is included for those costs. Recruitment agencies are not all identical, with some offering a basic, low-cost service, and some offering a comprehensive service that will handle the majority of the hiring process on your behalf, but at a higher price. If you know exactly what level of service an agency offers, then the attached costs will be more comprehensible, and you can make sure that you are not paying for services you don’t need, or are expecting more than you have paid for.


Negative views of recruitment consultancy fees


Recruitment consultants are used to hearing the response ‘how much?!’ or ‘that’s too expensive’ but are rarely asked for a breakdown of what the fees cover, or given the chance to explain the rationale behind them. Recruitment consultants are often seen in a negative light, but good agencies certainly aren’t charging ‘money for old rope’. It’s not uncommon to hear comparisons to estate agents, and other consultants who charge a percentage-based fee for services that are performed behind-the-scenes, where the client does not get to see each and every task performed for that fee, the time invested in that client, and the costs incurred by the consultant.

While there may indeed be agencies out there who do little legwork for a rather high fee, an honest, professional agency will cost their services in the same way any other private company may calculate their pricing. Agencies will have carefully calculated their operating costs, the cost of an employee’s time, and the client fees that need to be charged to make the business viable.

In the CIPD’s report ‘Resourcing and Talent Planning 2015′, survey results give a figure of £7,500 as the median average cost for recruiting a senior manager in private services, including the fees of agencies, if used. Though this may not be specific to your industry, if you’re recruiting for a senior manager and this figure shocks you, you may need to think about the process more carefully and adjust your estimates.


Internal recruitment isn’t free


Using staff in-house to manage your entire hiring process may not appear to have a set cost attached, but every hour spent by an employee on a recruitment-related task is an hour’s worth of that person’s salary. Writing job adverts, posting details online, conducting online searches, reading applications, contacting candidates, and the interview and selection process will take up a good deal of time. Since you cannot guarantee that you will receive the perfect application straight away, it can be hard to accurately estimate the amount of time a hiring manager will need to spend on that project, and it can sometimes be impossible to stick to an allocated time frame.

Recruitment consultants gain knowledge and insights from working on a variety of assignments, and from covering a range of roles at different levels of responsibility. Consultants will use their past experience and their knowledge of the current job market to judge how time-intensive or tricky it may be to source appropriate candidates, so they can manage their workload accordingly. As their role is dedicated to the communication and administration of recruitment, taking on a new hiring project won’t be deviating from their remit, and experienced consultants will know how to prioritise hiring tasks effectively.

Essentially, you will be paying someone to look after the recruitment process, whether it is an employee or an external consultant. If you don’t have the skills internally, it may be more efficient and effective to use an agency.


Why fees vary depending on the role, and the type of agency you use


Recruitment agency fees are often structured based upon the seniority of the role, and whether it is a full-time, salaried position. It is common for agency charges to be a percentage of an employee’s starting salary if the contracted role is permanent and full-time, but if an employee is to work part-time, irregular hours, then a fixed fee can sometimes be agreed instead. You are likely to be charged a percentage-based fee for a clinic manager, but it often makes more sense for a fixed fee to be charged for a nurse practitioner who is timetabled to work a different number of shifts each week.

Experienced senior managers are in shorter supply than receptionists and junior therapists. This isn’t due to a skills shortage, it simply falls in line with how businesses are structured; one manager manages a group of more junior staff members, and a department may have one director overseeing the small team of managers. Vacancies for senior management or for roles that require a very specialised skill generally take more time to fill, so it is common for agencies to charge more for employees who fall into a more senior salary bracket.

Agency fees will also vary depending on the service you are provided with. Some agencies may offer a basic sourcing service where a client is provided with a selection of CVs, and left to do the rest themselves. Some offer a full service that will include proactive headhunting of the best candidates, a thorough screening process, face-to-face meetings, pre-interview briefings, handling of all applicant administration and communication, and expert advice on any elements of the hiring process. When you contact an agency, make sure you find out exactly what is included when you use their services.

Other factors that affect all businesses will also apply to recruitment agencies. For example, inflation is likely to make operating costs increase over time, so you can’t expect an agency to stick to the same fee they charged ten years ago.


‘No win no fee’


Most recruitment agencies will only charge a client once a placement has been made, so no fee is applicable at all until the new employee starts work. Agencies put forward a shortlist of candidates who meet a client’s given requirements, but a client gets to choose who to interview, and ultimately, who to employ. The interview stages necessary to assess a person’s suitability can be specified by the client, so you can choose to include second stages, presentations, or trade tests before making a decision, and you are not obliged to take someone on if you don’t feel the interviewees fit the bill.

Agencies can end up doing a lot of work for nothing. Sometimes a number of agencies work on the same vacancy, but only one will be able to fill it. It wouldn’t be good business sense for an agency to take on a project they cannot manage, or to put no effort into filling a vacancy, as by using this business model, consultants have to be successful in order for the business to stay afloat and prosper. Consultants are often rewarded with commission, so the individual agency employees have a financial incentive to do a good job.

Most agencies have a refund or rebate policy valid for a certain period, so if it all goes disastrously wrong with a new employee, and they leave unexpectedly, or don’t meet the minimum standard specified, your agency will look for a replacement or return fees. This policy means that it would be foolish for a consultant to look for a quick win, and back a candidate they haven’t assessed, or one who has a history of being unreliable.

Recruitment agencies need to have signed agreements in place before they start working on your hiring project, as they need to know that their client agrees to the terms and conditions of engaging their services, and understands the fee structure if a consultant is successful, and a new employee is chosen from the agency’s candidates. Don’t agree to fees and try and negotiate them down later. You are unlikely to be able to get an agency to cut their fee after they have completed a project, as it will be you who is breaking the terms of your agreement, not the agency.




The Chartered Institute of Personnel and Development (CIPD) survey ‘Resourcing and Talent Planning 2015


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