How Do Recruitment Agencies Work? A Guide for Employers

<div class="grey-callout"><h2>Key Takeaways</h2>
<p><ul><li>Recruitment agencies work through candidate-led and employer-led processes, depending on the market.</li>
<li>Permanent, contract, and temporary recruitment offer different solutions for long-term, fixed-term, and short-term staffing needs.</li>
<li>Employers always pay the recruiter, with fees based on salary percentages or hourly rates.</li>
<li>Recruitment agencies help streamline the hiring process by marketing candidates, screening applicants and CVs, and managing interviews and offers.</li>
<li>Guarantees are often available for permanent and contract roles, providing rebates or replacements if a candidate leaves.</li>
</ul></p></div>

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Recruitment agencies play a vital role in connecting businesses with the right talent, but how they work isn’t always fully understood by employers. Whether you’re an SME looking to fill a key role or a larger business needing temporary staff to cover busy periods, understanding how agencies operate can help you get the most out of their services.

In essence, there are two main ways recruitment agencies approach the job market: candidate-led and employer-led. Both have their place, depending on the availability of talent and the specific needs of your business. In this article, we’ll break down these approaches, explain how agencies manage the process, and clarify the differences between permanent, contract, and temporary recruitment.

By the end, you’ll have a clearer picture of what to expect from your recruitment partner and how they work to make sure you get the best fit for your business, whether that’s finding a permanent team member, a contractor for a project, or temporary staff to hit the ground running. And most importantly, you’ll know who pays the agency (spoiler: it’s always the employer!).

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Candidate-Led Recruitment: When the Candidate Takes Centre Stage

In a candidate-led market, the balance of power shifts in favour of the candidate. This is common in industries where skilled professionals are in short supply, making it more difficult for employers to attract the right talent. As a result, a recruiter take a more proactive approach, with consultants focusing on helping candidates with their job search and marketing candidates directly to potential employers.

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How candidate-led recruitment works

When a recruitment agency represents an in-demand candidate, they won’t wait for a job to be advertised. Instead, they’ll use their industry expertise to identify companies where the candidate’s skills might be valuable. The consultant then gets in touch with those businesses, offering the candidate as a potential hire—even if no formal vacancy exists.

This approach is often referred to as speculative applications, where the consultant takes the initiative to present top talent directly to employers who may not even realise they need them yet.

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Creating job opportunities

For example, if a recruitment consultant is representing a highly skilled project manager, they might reach out to companies they know could benefit from such expertise, even if those businesses aren’t actively recruiting. It’s all about leveraging relationships and industry insight to connect talent with employers who are likely to have future needs.

By doing so, employers get access to highly sought-after candidates without having to go through the lengthy process of advertising and screening applicants. This can be particularly valuable in competitive industries where skilled professionals are snapped up quickly.

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Benefits for employers

Although the process is driven by the candidate, employers still stand to benefit from this approach:

• Access to passive talent: These are candidates who may not be actively looking for work, meaning you could secure someone who isn’t on your competitors’ radar.

• Faster placements: Because the consultant has already done a lot of the work, the time it takes to fill a position can be significantly reduced.

• Niche expertise: Candidate-led recruitment is particularly useful when you need highly specialised skills that are hard to find in the general job market.

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Employer-Led Recruitment: Driven by the Employer’s Needs

In an employer-led market, the recruitment process is initiated by the business. This is the most common approach, especially in industries where there is a larger pool of available candidates. In this scenario, the employer reaches out to a recruitment agency with a specific role to fill, and the consultant’s job is to find and qualify the best applicants for the position.

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How employer-led recruitment works

In this model, the process is driven by the employer’s needs. Typically, the employer contacts the recruitment agency to help to outline the requirements for a particular role. This includes the skills, experience, and qualifications needed, as well as any cultural or company-specific preferences.

Once the recruitment consultant has a clear understanding of the job description, they will advertise the position on behalf of the employer across relevant job boards, social media platforms, and other channels. From there, candidates apply for the role, and the recruitment agencies often begins the process of getting CVs, qualifying and shortlisting them.

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Qualifying and shortlisting candidates

A key part of the recruitment consultant’s role in employer-led recruitment is ensuring that only the most suitable candidates are put forward. This means they will screen CVs, conduct initial interviews, and assess the candidates based on the employer’s criteria.

The consultant will then submit a shortlist of the strongest candidates to the employer, making the selection process more efficient by filtering out those who don’t meet the essential requirements. This allows the employer to focus only on the best potential hires, saving time and resources.

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Example scenario

Let’s say an employer in the finance industry needs to hire an experienced accountant. They’ll approach a recruitment agency with the job specification, including necessary qualifications, plus details on the company’s culture and any specific technical skills required.

The recruitment consultant then advertises the role, screens applications, and narrows down the list of candidates. After conducting initial interviews, they’ll present the employer with a handful of top applicants, allowing the employer to select who they would like to interview further.

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Benefits for employers

Employer-led recruitment is a streamlined process designed to meet the specific needs of the business:

• Control over the process: As the employer, you set the criteria, and the recruitment consultant works to meet those exact specifications.

• Wider reach: Agencies often have access to a broad range of job boards and recruitment channels, increasing the likelihood of attracting high-quality candidates.

• Efficient hiring: By having a consultant handle the initial stages—such as advertising, screening, and shortlisting—you save valuable time and can focus on interviewing and selecting the best-fit candidate for your business.

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Permanent, Contract, and Temporary Recruitment: Understanding the Differences

When it comes to hiring, businesses have different needs depending on the type of role they’re looking to fill. Recruitment agencies often work across three main types of placements: permanent, contract, and temporary. Each type of recruitment comes with its own process and is tailored to meet specific business requirements. Here’s a breakdown of how they differ and when each might be the best option for your business.

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Permanent recruitment: long-term business investments

Permanent recruitment focuses on filling roles where the employer is looking for a long-term hire—someone who will grow with the business and become a key part of the team. This type of recruitment is the most detailed and involved, as the goal is to find the right candidate who not only has the skills but also fits well within the company culture.

Once a candidate is successfully placed in a permanent role, they typically go through a probationary period before their position is finalised. The recruitment agency’s role is to help ensure that the candidate is a great long-term fit by carefully screening and assessing them based on both skills and organisational alignment.

Examples of permanent recruitment roles:

• Hiring a marketing manager to lead your team long-term

• Bringing in an IT specialist as part of an expanding department

When to choose permanent recruitment: This is ideal when you’re looking to build long-term stability within your workforce or want to fill key positions that require a strong commitment from the candidate.

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Contract recruitment: project-based or mid-term placements

Contract recruitment is typically used when businesses need to fill a role for a fixed period, usually for a specific project or to cover a longer-term absence such as maternity leave or sabbaticals. These roles tend to last anywhere from a few months to a year and are generally more specialised than temporary roles.

The key difference between contract and temporary recruitment is the duration and the nature of the work. Contract workers are usually brought in for a set period and are expected to commit to the entire length of the contract. They might be paid on a daily or weekly basis, and their terms are often outlined clearly in a formal contract agreement.

Examples of contract recruitment roles:

• Hiring a contractor to lead a six-month IT project

• Bringing in a qualified accountant to cover maternity leave

When to choose contract recruitment: If you have a defined project with a clear end date or need to cover a specific role for a limited time (e.g., maternity cover), contract recruitment is the perfect fit. It gives you access to skilled professionals without the need for a permanent hire.

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Temporary recruitment: short-term solutions for immediate needs

Temporary recruitment focuses on filling very short-term needs, often for just a few days, weeks, or even hours. It’s used to fill immediate gaps in staffing, such as covering sick leave, peak periods, or short-term projects. Temporary roles tend to be paid hourly and often don’t require the same level of vetting or commitment as permanent or contract positions.

Employers typically turn to temporary recruitment agencies when they need to fill positions on short notice, and the recruitment consultant will quickly identify candidates who are available and suitable for the role. These placements are typically less involved in terms of onboarding, as the focus is on quickly filling a vacancy rather than long-term fit.

Examples of temporary recruitment roles:

• Bringing in temporary admin staff to cover a week of sickness

• Hiring warehouse workers during the busy Christmas period

When to choose temporary recruitment: Temporary recruitment is best suited for roles that need filling immediately and for a very short period. This is particularly common in retail, hospitality, and admin sectors, where businesses may experience sudden staffing gaps or seasonal demand.

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‍Who Pays and How? Understanding Recruitment Agency Fees

When using a recruitment agency in the UK, one of the most important things to know is that it’s always the employer who pays. In fact, under UK law, it is unlawful for recruitment agencies to charge job seekers for helping them find work. This ensures that job seekers aren’t burdened with any fees, and that the process remains fair and accessible.

Here’s a breakdown of how permanent, contract, and temporary recruitment fees work for employers, along with when and how you’re invoiced.

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Permanent recruitment: a percentage of the candidate’s salary

For permanent roles, recruiting agencies charge a fee based on a percentage of the successful candidate’s annual salary. This fee can range from 15-30%, depending on the role and the agency. Once the candidate has been selected and starts working, the employer will receive an invoice for the agreed percentage.

Example: If you hire a sales manager on a salary of £50,000 and the agency’s fee is 20%, you’ll pay £10,000 to the recruitment agency.

Agencies may also offer guarantees. If the new hire leaves the company within a certain period—usually a few weeks or months—the agency might offer a partial refund or free replacement, depending on the contract terms. This gives you some protection in case the candidate doesn’t work out.

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Contract recruitment: pro-rated based on the contract duration

For contract roles, the fee structure is similar to permanent recruitment, but it’s pro-rated based on the length of the contract. Agencies calculate the fee as a percentage of the annual salary, then divide it by the contract’s duration.

Example: If you hire a contractor for six months on an annual salary of £60,000, and the agency fee is 20%, you’ll pay a pro-rated fee of £6,000 (half the annual salary).

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Temporary recruitment: hourly rates with an added margin

Temporary recruitment is generally based on an hourly rate, with the recruitment agency adding a margin to cover the worker’s holiday pay, employer national insurance contributions, and other administration costs. This margin also includes the agency’s profit.

For temporary placements, the employer is invoiced weekly based on the number of hours the temporary worker has worked. This process makes it easy for employers to manage short-term staffing needs without the burden of permanent hiring.

Example: If the temporary worker’s hourly rate is £12, the agency might charge the employer £16 per hour. The £4 margin covers the agency’s costs and profit.

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When and how employers pay

• Permanent and contract roles: Employers typically receive an invoice once the candidate starts working. This ensures that you only pay once the placement is confirmed.

• Temporary roles: Invoices are generally issued weekly, based on the actual hours worked by the temporary worker.

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Guarantees for permanent and contract placements

Many employment agencies provide guarantees for permanent and contract placements. If a candidate doesn’t work out within an agreed guarantee period, the agency may offer a rebate or provide a replacement candidate. The terms of these guarantees vary, so it’s important to clarify them with each agency .

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Temporary-to-permanent or contract-to-permanent transitions

Sometimes, a temporary or contract worker may be such a good fit that you decide to offer them a permanent position. This is possible with most agencies, but it’s essential to review your contract terms, as there may be an additional fee for this transition. Each agency handles this differently, so always check the contract details to avoid surprises.

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Conclusion About How Recruitment Agencies Work

Recruitment agencies offer many benefits to businesses, whether you’re navigating a candidate-led or employer-led market. In candidate-led recruitment, the focus is on securing high-demand talent by proactively marketing them to potential employers. In contrast, employer-led recruitment begins with a clear job vacancy, and the agency helps you find the best candidates to fill that role efficiently.

Understanding the differences between permanent, contract, and temporary recruitment is essential for choosing the right solution based on your business needs. Permanent roles require a long-term commitment, while contract placements are ideal for fixed-term projects or covering absences, and temporary roles offer quick, flexible staffing solutions for immediate needs.

It’s also crucial to remember that the employer always pays, with fees structured as a percentage of the candidate’s salary for permanent and contract roles, or based on an hourly rate for temporary workers. Agencies provide additional support through guarantees, offering rebates or replacements if the candidate isn’t a good fit, and they facilitate temporary-to-permanent transitions where necessary.

Ultimately, recruitment agencies streamline the hiring process, helping you secure the right talent for your business, while saving you time and resources. Whether you’re filling short-term positions or making long-term hires, understanding how agencies work ensures you get the most from your recruitment partner.

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FAQs About How Recruitment Agencies Work

Who pays the recruitment agency—the employer or the candidate?

Only the employer pays the recruitment agency. It’s illegal in the UK for recruitment agencies to charge job seekers for finding them work.

How are fees structured for permanent, contract, and temporary roles?

For permanent roles, the agency charges a percentage of the candidate’s annual salary. For contract roles, the fee is prorated based on the length of the contract. For temporary roles, agencies charge an hourly rate with a margin added to cover costs and their profit.

How does a recruitment agency help with finding candidates?

In a candidate-led market, the agency actively markets skilled candidates to potential employers. In an employer-led market, the agency advertises your vacancy and manages the entire process of screening, shortlisting, and presenting candidates for interviews.

What are the benefits of using a recruitment agency over direct hiring?

Recruitment agencies save you time by handling advertising, screening, and shortlisting candidates. They also have access to passive candidates who aren’t actively job hunting and offer guarantees if a candidate doesn’t work out.

What happens if the candidate doesn’t work out?

Most agencies offer guarantees for permanent and contract roles. If the candidate leaves within an agreed timeframe, the agency may offer a rebate or find a replacement candidate at no extra cost.

When do I need to pay the recruitment agency?

For permanent and contract roles, you’ll receive an invoice when the candidate starts working. For temporary roles, invoices are typically issued weekly, based on the number of hours worked by the temporary staff.

Can temporary or contract workers become permanent employees?

Yes, many agencies allow temporary or contract workers to transition into permanent roles. However, there may be an additional fee, so it’s important to check the terms of your agreement with the agency.

How long does it take to find a candidate through a recruitment agency?

It depends on the role and market conditions. For temporary roles, agencies can often fill vacancies within days. For permanent or contract roles, the process may take a few weeks, depending on how specialised the position is.

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Additional Resources

• Recruiting Book: The Secrets of Great Recruitment: How to Recruit Great Employees.
• Downloadable PDF guide; The Truth About Recruitment Agencies: Choose the Right Type.
• Article; Recruitment Agencies: The Hidden Truth Behind the Sales Pitch!
• Article; Why Use a Recruitment Agency: Evaluating the Pros and Cons.
• Article; How do Recruitent Agencies Make Money?
• Article; Advantages & Disadvantages of Using Recruitment Agencies for Recruiting Staff.
• Article; Headhunters: Are They Truly Worth Their Hefty Price Tag?
• Article; Advantages & Disadvantages of Using Headhunters for Recruiting Staff.