Types of Recruiting Agencies & Associated Fee Structures
Many types of companies often turn to an outside provider to help them reach their recruitment objectives. Using a recruitment agency can be useful for a plethora of reasons: when a company is looking for high-qualified employees, when one needs to find a temporary worker, or even when there is no internal HR department. The fee to a hiring agency can be percentage-based, a fixed flat, or calculated hourly, which depends on the type of recruitment agency and the position in question. Let’s look through common types of recruitment agencies and related fees they are paid for hire.
Retained or Executive Search Agencies
Retained or Executive Search agencies are types of recruitment agencies working through upfront retainer fees. They get an upfront fee (ranging from 30% to 35% of the hired employee’s annual salary) regardless if the hire is successful and the rest is paid upon the successful hiring completion process. It comes often that the retainer fee is also paid upon reaching certain milestones in the job search, for instance, upon a number of candidates being interviewed and upon completion. Mostly these types of agencies are looking for high-caliber candidates for executive positions, which gives a company a competitive edge over other companies. Retained agencies are a good option to find the right high-qualified active and passive candidates within a specific time frame.
In contrast to retained agencies, contingency agencies are only paid upon the successful hire. In this respect, they can be more cost-effective and require little commitment than retained agencies as companies do not need to pay them an upfront fee. Usually, they receive a flat fee, which is a fixed agreed amount or a percentage between 15-35% of the candidate’s annual salary. They typically include invoice payable terms between 15-30 days and will often include a guarantee between 30-90 days after the candidates start date. This guarantee can either be a replacement hire, or more often is a full or prorated refund depending on the number of days worked by the candidate. They can handle a higher volume of the workload than retained ones, which puts less pressure on the in-house staffing department. Contingency agencies are often used when the company opens many positions at once. These firms hire for low and mid-level positions and usually work for a number of clients simultaneously.
Full-scale Recruitment Process Outsourcing (RPO)
Sometimes a company might use the services of the outside provider known as RPO. This can happen when one does not have an in-house HR department or when a firm wants to expand its recruitment team. RPO is a solution, which encompasses a full recruiting cycle, including implementing the right recruitment agency, screening and interviewing candidates, and negotiating the offer. RPO companies can be looking for employees for long-term or temporary positions. On-demand RPO firms are responsible for hiring based on temporary projects or roles. They provide full-cycle recruitment services or might accomplish separate parts of recruiting. Outsourcing service providers charge costs based on the very service and the duration of the contract.
The most common RPO models
- Management fee model this scheme contains a fee for a number of agreed positions for which a provider is assigned to. The costs depend on the enterprise RPO services and white label RPO in case when the outsider recruiter represents your company at the marketplace.
- Cost Per Hire Model - a provider gets paid a fee for every successful candidate he/she hires. This model is often used for hiring based on temporary projects or for point-of-service RPO when the recruiter is engaged in a particular recruiting function, such as screening candidates.
- Management Fee + Cost Per Hire - this model blends two methods above, such as the fee for continuous recruiting and successful hire.
- Cost Per Slate - in this case, the RPO specialist receives fees for a number of candidates engaged in sourcing, screening, and selecting the most appropriate ones from the pool. Then, they are sent to the internal recruiters for further recruiting steps.
- Cost Per Transaction - RPO provider is paid hourly or for a separate aspect of recruiting, such as interviews. This usually applies to on-demand RPO or consulting services.
- Temporary (Temp) Agencies
Temporary agencies hire employees for temporary roles, usually in fields, such as harvesting, construction, hospitality, and administrative jobs. Temporary workers are also often required to cover those with sickness or maternity leave or when the company is understaffed. In tech, these types of agencies are often looking for employees for short-term projects. In some cases, employees may switch from temporary positions to permanent ones, the process of which is then handled by the temp agency for a conversion fee which is pre-negotiated between the agency and client.
Temp agencies are paid hourly and often even more than recruiters hiring permanently due to the short term nature and flexibility offered to companies by these arrangements (For example, a temp agency might have a candidate placed at a company and that company could decide within one day to cancel that assignment with no penalty, offering extreme flexibility to the company at a premium). Except for paying wages to their employees, they also take care of social benefits, such as healthcare insurance, maternity/paternity leave, and vacation pay.
Staff augmentation is a common method in IT used to outsource employees either onshore or offshore for temporary-related projects, usually for the whole or separate software development cycle. The advantages of hiring a person offshore are related to finding specialists with high expertise for a reduced amount of cost without the engagement of internal recruiters. This is often needed to attract new talents for start-up companies and reduce hire costs. For instance, a senior tech professional with appropriate skills from Ukraine can be paid between $3000-4000 per month, which is 2-3 times lower than in North America.
Related agencies take fees based on a number of successful candidates and they often charge between 15%-25% of the annual candidate’s salary. This can result in higher costs for companies looking for a professional for longer projects. That is why it is essential for a company to do effective planning of each position and related expertise.
Using an appropriate recruiting agency depends on a number of factors, such as your business objectives, length of the project, types of roles, and your budget. If a company opens senior-related positions with high requirements, retained agencies can be the best choice. In case of lower-positions and higher need for a new workforce, contingency firms provide hiring services for a flat fee or percentage of annual salary. Temporary agencies using hourly fees can be useful to hire employees for temporary projects. You might also opt for full-scale or on-demand RPO and agree on the fees together if you are looking for an outsourcing provider. In case of higher demand for tech specialists, staff augmentation can also benefit your business growth.