How much do recruitment agencies charge employers?

How Much Do Recruitment Agencies Charge Employers?

(Recruitment Advice for Business)

Section 1.1

Recruitment agencies, Employment Agencies, staffing agencies, Head-hunters…whatever you want to call them, they all cost your business money, and sometimes they're essential.

How many times have you been frustrated by a recruitment agency? Would you like to avoid that feeling in future?

The trick to getting the most out of their services is to know how they work, and what's important. Many businesses focus on the cost, without actually assessing the service. This guide will help you save money, and lots of time.

My name is Joseph Sullivan. I am an experienced specialist recruiter, having recruited talent into some of the biggest companies in the world (Google, Deutsche Bank, Bank of New York and more).

I believe all small and medium businesses should use Applicant Tracking Systems to save on recruitment, but Recruitment agencies will always have a value and a place.

By understanding how recruitment agencies work, you and your business will avoid wasting time and money.

I’ll show you everything you need to know and why.  You’ll see at the end why I recommend using smaller specialist agencies, and that I believe that negotiating (where possible) flat fee or fixed fee recruitment arrangements is the best business approach to using agencies.

Four steps to choosing the right recruitment agency for your business?

Section 1.2

Before we delve into how much recruitment agencies charge (you can skip directly to that section below by clicking this link), here's a quick guide on how to choose the right recruitment agencies for your business.

Few companies actually do any basic research beyond a google search, and a tiny bit of planning will save a mountain of potential hassles:

  1. First, identify local agencies that serve your skills-niche required – a good way to do this is a simple search online for the types of agencies working in the skills areas you need.

    Another approach is to check the main job-boards in your country, to see which agencies are hiring for similar jobs. Those agencies will usually have a database with the type of candidates you need, and will be able to give other advice on market rates, tightness of supply etc.

  2. Next, book assessment calls. Get in touch with three or four agencies and arrange a time to speak to the recruiter who handles the skills-niche you need. Then have the hiring/team manager in your company (who knows the job-function intimately) join the call with that recruiter. Keep the hiring manager’s attendance a secret for extra fun.

    Don't expect the recruiter to know every aspect of their area, recruitment is a complicated job. However, they should know enough basic market detail to represent you credibly. 

    This only takes ten or fifteen minutes for each agency. If you’re both not convinced of their expertise – keep looking.

  3. Ask operational questions beyond the skills assessment – 'How many clients do you have on right now?and do you have capacity to recruit for us?'. This is important, as so many recruitment businesses have new-business KPI's (Key Performance Indicators), whether they actually have capacity to service the new business or not.

    'How long have you been recruiting on this area?', 'How do I know our company be your priority?', What big tech companies are you working for?' (the more large corporates they are working for, the less you probably should probably use them – I explain this in Case Study three below).

  4. Have the recruiters over to your office. These people are going to be representing your brand, so meet them. I recommend two agencies are enough coverage to start with – unless you’re going for retained recruitment (usually only for executive jobs) or fixed-fee recruitment arrangements, which I’ll explain below.

    Two agencies will keep your admin down and is unlikely to hurt your reputation in the hiring market. The agencies will also work harder for you. The last thing you want is ten agencies all calling the same candidates for the same jobs, Then all contacting you for feedback on CV's. Do proper research on two or three agencies, that's manageable.

    It really is that simple. If you follow those four steps, you will save yourself and your business a mountain of potential trouble and problems down the line.

    I know what you may be asking next.

    “What if I have multiple different types of jobs and need to use a large IT or Finance agency?

    Well, you still need to do the legwork, just on a slightly bigger scale. You might have to have four recruiters over from the same agency instead of one manager and one consultant. Insist that you speak to the people handling your jobs.

    Let’s look at three quick real world examples that will demonstrate why the above is solid advice.

How do Recruitment agencies work on your Recruitment? Three simple case studies

Section 1.3


How do Recruitment agencies work once you hire them?

Recruitment agencies obviously find you skilled staff for your business, for a fee. Let’s look at some real-world operational case studies demonstrating why it's worth doing your basic due-dilligence (detailed above).

Recruitment case study 1 - Too much of a bad thing

There is a large global investment administrator in Dublin. I would estimate I have generated over 100k in recruitment fees recruiting for this client, both in my own business, and agencies I worked for.

Despite being a great match for certain types of staff, their wider reputation among candidates in their skills-niche is bad, and this has nothing to do with how hard the work is.

For the past ten years they have worked with over twenty agencies at any one time. Every agency in Ireland is on their PSL (Preferred Supplier List). And all CVs/Resumes go into a shared mailbox, with set codewords for the subject line, and a separate cover sheet attached to identify candidate details: things like salary requests, and notice periods etc.

It can take months to get feedback from them on candidates, because every agency recruiter is piling CV’s in, to meet their internal agency cv-send KPI’s.

Agency manager: "How many CVs did you send today?"

Recruiter: "five!"

Manager: "That's great! Have a cookie!"

(Meanwhile, those five CV sends could be one candidate sent to five different companies, that the recruiter found on a job-board CV database. And that candidate has already applied everywhere). 

Candidates can sometimes never hear feedback from companies who recruit like this, because they become dumping grounds for cv-send KPI's.

And because all that admin is impossible, with usually just one or two HR people monitoring a super-busy mailbox.

That lack of candidate feedback is terrible for employer branding. It leads to resentment, makes talent harder to attract in future, and makes it harder to get recruiters to seriously work on your jobs. Word gets out.

With a bad reputation, the better candidates refuse to go there (or worse, and recruiters may not send their better candidates there because they know it will take forever to hear back, and the admin just isn't worth it for no payback).

This company could make millions on a course showing how NOT to recruit staff.

There are many more negative impacts to this approach, too much to go into here. Ultimately, a haphazard multi-agency approach will cost your business much more than agency fees.

Most of the people I placed there have been actually promoted, because I was honest about the type of hard work that was there, the rewards on offer, and I was honest that response times can be slow. They are very much experts at what they do, but their employer branding is a disaster.

I was able to get past the negatives, because I have a good relationship with one HR person at the company.

You as a business or talent acquisition/HR person should always let your recruiters know you and your business. This helps them to filter out the wrong people for your business, as well as find the right ones.

Recruitment case study 2 - How your recruitment agency can work against you

There are so many ways that a badly-run agency can hurt your brand and hiring effort in the labour-market.

Here’s an example showing how small and medium sized business can fall through the cracks of larger recruitment agencies, and how you may end up waiting a much longer for the urgent talent you need.

In a large agency I worked for (circa 35 in my office) a senior manager arrived in one day to announce that a high profile international investment bank had been signed on as a client.

Everyone (in a predominantly IT agency) was  told to drop everything, and assigned to work on Finance jobs. And I do mean everyone! The cleaners were even asked to find CV's! (joking).

My colleagues were great IT recruiters, but they didn't know the Finance market, and of course, they didn't have a network of talent to tap into for the new client.

For three weeks all other clients were neglected. We found out that many other agencies also had the same new client, weeks before us. I lost count of the times I spoke to a potential fit for the roles, only to find out that they had already been submitted by another agency.

Our existing clients, waiting on candidate profiles for their jobs were hurt, and our recruiters lost out on earnings, working on jobs they knew very little about. In the end we made very few placements with the new client, because there was huge internal resistance to moving the jobs from London to Dublin. A disaster all-round.

That manager was symptomatic of how the industry can work. he's not a bad guy, but seeking internal recognition, local small and medium business clients that we promised our services to were ignored.

Big corporate names will always get the most attention for a few reasons, which brings me to case study three.

Recruitment case study 3 - Where's all the great candidates they promised?

In every agency I have worked for, the Googles and the Facebooks will get the most attention.

If a recruiter in a large agency is working on the Facebook account and they need Big Data Developers, and your business needs a Big Data Developer, who do you think will get the best and first available CV/Resumes?

In most cases, Facebook will. Why? They’re an easier sell to the candidate, and they’re paying 21% or more in fees (probably). And crucially, the agency's Recruitment managers are making sure they keep feeding the corporate monster CVs.

That account is probably paying most of the bills through the recurring volume it generates. This is why you make the enquiries I advise in section 1.2 above. And this is why I recommend you then work with small specialist agencies.

I guarantee you will get a better recruitment service once you do your basic couple of hours due diligence. 

So How Much Do Recruitment Agencies Charge Employers?

Section 1.4

The two types of staff that recruitment agencies provide are Permanent and temporary/contract staff. Let’s have a quick look at contracting recruitment first.

How much do recruitment agencies charge employers for Contractors or Temps?

Recruitment agency fees for temporary or fixed-term contract recruitment are generally larger than permanent/contingency recruitment fees, and are also recurring.

Contractors cost your business more (in the short-term) because the recruitment agency is the actual employer, loaning the candidate out to your company. They therefore assume more liability for dismissal, legislative issues, and processing costs when it comes to the employee (e.g., tax processing, legal contracts etc.).

In Europe, contractors are generally employed where companies don’t want a long term liability of a permanent staff member on the books, and the associated potential redundancy costs if they have to let them go.

Staff on contract usually have higher overall salaries than permanent employees, because they have less long term security of employment, and usually don't qualify for standard benefits packages (though lots of companies are starting to offer benefits for contractors).

For example, a Salesforce Developer in Dublin with four years’ experience might make 60k plus benefits in a permanent position.

The same developer in a contract role could push to 80k. If that person is on about 80k per annum, they are on roughly 400 euro per day.

At a 22% daily-unit fee, that’s 88 euro per day for the agency (which is an 18k annual fee for the agency on a 210 working-day year in Ireland). These are rough figures not taking costs into account, but they are indicative. Fees are usually paid  by clients one or two months in arrears, so the recruitment agency has to pay the contractor up front on your company's behalf.

I supplied fixed-contract staff through Pontoon/Adecco and other Recruitment Process Outsourcing (RPO) companies into companies like Google, Deutsche Bank, and Mastercard for their contract staff.
In general the fees were 18-24% of the staff member’s hourly or daily rate (with the RPO provider taking a 3% cut of that).

An RPO provider generally sits within the client company and provides various systems, and manages all of their contractor workforce, while enlisting recruitment agencies to supply candidates.

Any questions on this set-up? Ask in the comments.

How much do recruitment agencies charge employers for Permanent Staff?

Permanent staff recruitment is the most common use of agencies. That is, a one-off fee where your business pays an agency to find you a new staff member. This is also called Contingency Recruitment.

The fee is usually paid thirty days after the candidate has actually started. So, factor in candidate interview process and offer negotiation time (usually takes about a month), and then 1-2 month notice periods, and it’s usually 4 months on average between first candidate engagement, and payment date, for most recruitment agencies.

In Ireland and the UK, fees are generally between 15 and 25% of the first years’ salary. The fees in the US and middle east are higher, up to 30% in some places.

Some agencies will work for as low as 10% (and you shouldn’t rule them out, once you follow my steps above). Some agencies will not work for less than 18%.

Some recruitment agencies only work on an exclusive retainer-only basis (where your business pays two or three installments, usually adding up to 20-30% of yearly salary). This arrangement has some major advantages – and is mostly used for executive positions that require many months of research,and total confidentiality.

For example, and executive could be getting fired; or their notice may takes three months; or where a leadership change could adversely affect share-prices or market sentiment. Companies may also want complete confidentiality to prevent turnover contagion, which is a very real phenomenon.

Why you should consider Fixed Fee Or Flat-Fee Recruitment 

Section 1.5

Some staffing agencies will agree to work a fixed fee recruitment arrangement – which a set fee is agreed for placements, instead of a percentage being applied to starting salary. This can be very appealing to some agencies despite the fee often working out at less than their normal percentage fee rate.

However, they will usually only agree to this arrangement if they have some kind of exclusivity on the roles, and are not in competition with many other agencies. This is fair enough considering they are working for free initially.

In my considered opinion, all businesses using recruitment agencies should utilise lower flat fee exclusive recruitment arrangements, while committing to one or two agencies as their only suppliers.

If you have flexibility in your business, this recruitment method will have the highest probability of success (speed, quality of hire, and long-term retention) for the time and money you are investing, in almost all cases.

The fact an agency knows they are your only supplier will mean they will pour everything they have into finding you the best staff and keeping a list of talent ready for when you next need people. This is a great way to save your business money, and get a better recruitment service.

This arrangement will also remove any perceptions of conflict of interest on salary percentages. Some agencies will submit candidates at a high rate to bump up their fee. This actually doesn’t happen that often, but this uncertainty can hurt your hiring process. Flat fee recruitment removes all of that.

Please remember, exclusivity generally means your business are not using your own staff to recruit internally for the same positions.

This might seem strange, but  agencies are essentially working for free until they find you the right candidate, and they’re paying tens of thousands in overhead to do your talent acquisition searches for free, with no guarantee of payment for their efforts. Exclusivity in return for a lowered flat fee is fair.

If you have any questions (or corrections!) about how recruitment works, please let me know in the comments below.

Please share this post if you like it, thanks! Joseph

Section 1.6

I believe applicant tracking systems are the number one tool all businesses should use to save money on Recruitment.

With the systems I recommend, you can easily plug recruitment agencies into your ATS, keeping keep the CV's they send you easily accessible and tracked.

You can find more information in my free applicant tracking system guide here.

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