Agency Seeker - Finding your perfect recruitment partner

Sat 4th Jul 2009

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Agency Fees Explained

There are several, potentially awkward circumstances that can arise from the client-recruiter partnership, not least of which is financial ambiguity which, at worst, could result in legal dispute. So it's vital, particularly if you're looking to enter into a relatively large or long term contract with an agency, that you are 100% clear on its fee structure before making any kind of formal commitment. Generally speaking, agency fees can be split into three main areas: Temporary worker fees; Temp to perm fees; and Permanent placement fees. Each of these is outlined below.

Temporary worker fees

The fee you pay an agency for a temporary worker is made up of the worker's basic salary plus a percentage, or margin, placed on top of that to cover the agency's cost. Any agency sourcing and supplying temporary workers is legally bound to pay the minimum wage and no agency should accept a contract to source workers for less than the minimum wage. The rate you pay an agency for a temporary employee will depend largely on the industry you are recruiting for, and your consultant should be able to make it clear how these fees will vary.

Temp to perm fees

If an agency supplies you with a worker who you later chose to make a permanent employee, the agency will be legally entitled to charge a temp to perm fee which is designed to cover the loss of the worker's value. As with all agency fees, the temp to perm change can vary quite significantly, so you need to know what this is from the outset. It's worth knowing that if you want to avoid paying this fee, the agency is obliged to offer you an “Extended Period of Hire” as an alternative to a fixed payment. In this scenario, the worker continues to be employed by the agency for a pre-determined fixed period of time and after this point they transfer to you, becoming a permanent employee of your organisation.

Permanent placement fees

Larger organisations who are looking for several permanent employees or more experienced people often contract agencies on a “retainer” basis. A retainer agreement means that the employer pays a fixed fee for the placement of a candidate and as part of this, the agency is contractually obliged to structure and manage the recruitment strategy on behalf of their client. The permanent placement fee is usually payable in thirds: the first instalment is paid upfront; the second upon presentation of a set of short-listed candidates, and the third upon the candidate's acceptance of an offer.

There are circumstances where an employer is entitled to have its money re-funded if the employee resigns soon after being hired, but as with all financial terms and conditions, the employer should be informed of these before engaging in a contractual relationship with the agency. Employers should also watch out for additional charges derived from advertising campaigns and venue costs.

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