The two main models agencies use are the retained and contingency methods.
If an agency works on a retained basis they will charge an upfront fee to the client to conduct a search. The client will be working with one agency and the role will be filled by that agency. The client and agency will generally work together closely to decide on the recruitment methodology. The agency will present the client with a shortlist of candidates which will hopefully have the ideal skills and salary expectations. The client may be involved in the interview process and will choose the successful candidate. A retainer assignment can cost the client between 15% and 50% of the candidate’s annual salary so it can be a costly option for clients.
The fees may be charged in instalment with the first instalment as an upfront fee at the beginning of the assignment, a second instalment once the short list of candidates has been completed and the third upon the successful candidate accepting the employment offer.
This method can be used for one-off assignments or for clients who have a continual need for permanent employees. An agency may have an ongoing process for locating candidates and supplying a regular flow of suitable candidates.
A contingency search is when the service performed by a recruitment agency is free until a candidate represented by the agency agrees to take a position with the client. The agency often has plenty of competition to supply the right candidate in the fastest way possible to beat the client’s HR staff, direct applicants and other recruitment agencies. The client may choose this option because the position is hard to fill. They want as many people as possible working on the case. There may be a limited number of candidates in the client’s location suitably qualified to take on the role. Recruiters need to work fast to ensure a win and the recruiter fee.
There are also minor variations of these models.
Some agencies will charge a set fee for locating a candidate which is in no way connected to the candidate’s salary/package. Often this is the pricing model for high level executives who may have a complicated remuneration package. A set fee eliminates the ambiguity of what may or may not be included in the percentage fee option.
Designed to keep things simple some agencies will charge a fee based on the salary band of the candidate. The salary bands will usually increase in $10,000 lots for example if a candidate is paid $50,001 or $60,000, the fee will be the same. If a candidate is paid between $70,001 and $80,000 the flat fee may be $9,000.
Some pricing models are used by agencies that supply staff not just recruitment services.
Temporary worker fees
If an agency supplies temporary workers to clients, the agency may charge a percentage of workers’ basic salary or hourly rate. The percentage may vary greatly depending on the industry of the client.
Temporary to permanent fees
Often clients decide they want to transfer a temporary worker supplied by an agency to permanent staff member to secure their expertise or provide stability for the worker and/or organisation. If the temporary worker was employed by the agency then the agency is entitled to charge a fee for the loss of the income they were receiving for that worker.
Fee Plus Expenses
Some agencies may choose to charge some expenses on top of their fees. If a client decides on the type of advertising they would like the agency to use they may be charged an advertising surcharge on top of the recruitment fee.
Most clients are protected by a three or six month guarantee so if the candidate decides to leave during this time will not have to pay for that candidate. Rather than returning the fee, the agency will usually offer to replace the candidate free of charge.
Whichever model your agency decides on be sure that the fees are clear so that the client knows what they are up for. Recouping unpaid fees through debt collectors or small claims courts is the model everyone wants to avoid. Communication and contracts are the keys to ensuring this doesn’t happen.Not all agencies have skills in-house on contract writing. It may be worth the cost of paying someone to write the client contracts or draft your own and have an expert provide their comments. Work with your clients to ensure the pricing model suits your agency and the client. If both parties are happy the relationship will continue well into the future.