Recruitment agencies typically get paid by the hiring company, not the candidates.
There are two main fee structures:
- Contingency basis: This is the most common model. The agency gets paid a percentage of the hired candidate’s annual salary, usually between 15% and 30%. They only get paid if they successfully place a candidate the company hires.
- Retained search: Here, the company pays the agency a retainer fee upfront, regardless of whether they fill the position. This is common for high-level or specialized roles that require more effort to find qualified candidates. The agency may also get additional fees based on the successful placement.
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How Recruitment Agencies Make Money
| Fee Structure | Description | Success Fee | Upfront Fee |
|---|---|---|---|
| 1. Contingency | Paid % of salary on successful placement. | Yes | No |
| 2. Retained | Upfront fee for specialized roles. | Potentially (bonus) | Yes |
1. By Placement Success: Contingency Model
- The Most Common Approach: The contingency model is the most widely used method for recruitment agency compensation.
- Rewarding Results: Under this model, the agency only receives payment if they successfully place a candidate in a position that the company fills.
- Percentage of Salary: The agency’s fee is typically a percentage of the hired candidate’s first-year salary, usually ranging from 15% to 30%.
- Alignment of Interests: This structure incentivizes the agency to find the best possible candidate, as their success is directly tied to the company’s satisfaction.
2. Upfront Investment: Retained Search
- Targeted Approach: The retained search model is often used for high-level or specialized positions that require a more intensive search process.
- Guaranteed Fee: Companies pay the agency a retainer fee upfront, regardless of whether the position is ultimately filled. This fee covers the agency’s time and resources dedicated to the search.
- Success Bonus: In some cases, the retained search model may also include a performance-based bonus upon successful placement.
- Focused Effort: This model allows the agency to devote significant time and resources to finding the ideal candidate without the pressure of immediate results.
3. Choosing The Right Model
The choice between the contingency and retained search models depends on several factors, including:
- The level and specialization of the role
- The urgency of the hiring need
- The company’s budget
Both companies and candidates can gain a clearer picture of how recruitment agencies operate and how they get paid.
A Realistic Example
If a recruiter fills a position with a $50,000 salary under a 20% contingency fee, they would earn $10,000.
An upfront retainer fee for a retained search could be several thousand dollars, with a potential bonus upon filling the role.
Overall, recruitment agencies can earn a significant income, especially when they successfully place candidates in high-paying positions.
FAQs
1. Do recruitment agencies take a cut of your salary in the UK?
No, recruitment agencies in the UK do not take a cut of your salary.
Instead, they earn fees from the employer, either as a percentage of the hired candidate’s annual salary or as a flat fee for their services.
2. How do recruitment agencies get paid in South Africa?
Recruitment agencies in South Africa get paid by employers, typically earning a percentage of the hired candidate’s annual salary as a commission.
This fee is usually agreed upon in advance and paid once the candidate successfully starts their job.
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