Recruitment Agencies: The Hidden Truth Behind the Sales Pitch!

<div class="grey-callout"><h2>Key Takeaways</h2><ul>
<li>Recruitment agencies: They help employers find suitable candidates by managing the recruitment process from advertising to job offers.</li>
<li>Types of agencies: There are contingency, retained, and executive search agencies, each with different fee structures and specialisations.</li>
<li>Cost structure: Agencies typically charge a percentage of the candidate's salary, with fees varying by the agency type and job level.</li>
<li>Risk reduction: Agencies often offer guarantees, such as refunds or replacements if a new hire leaves shortly after starting.</li>
<li>Choosing an agency: Look for recommendations, assess the recruitment consultant's experience, and ensure they understand your business's needs.</li>
</ul></div>

What is a Recruitment Agency?

A recruitment agency, sometimes known as a staffing agency, employment agency or headhunter, helps employers to find suitable candidates. They take care of everything related to advertising, candidate communications, selection, coordinating interviews, then helping with job offers.

Importantly a recruitment agency should save employers a lot of time by screening applications and submitting a shortlist of qualified candidates. This means hiring managers can spend their time more effectively getting on with their own day job.

A recruitment agency will usually charge a percentage of a candidate’s assumed annual salary. But this cost is unaffordable, or considered not good value, to some employers.

Unlike any other Applicant Attraction Channel, a recruitment agency will reduce risk by guaranteeing their work and providing a refund if a new employee leaves shortly after starting.

Recruitment agencies can specialise in particular sectors and locations. For example, there are specialist IT recruitment agencies, and even niche recruitment-to-recruitment agencies that solely focus on finding staff for recruitment agencies!

If the recruitment agency you choose is local, they may visit you. But as most are online, you’ll probably communicate with them by phone or email.

There are three categories of recruitment agency, broadly defined by how they charge and the type of vacancies they work on:

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Contingency recruitment agencies

They only charge an employer when they successfully introduce a candidate. This encourages employers to use multiple contingency recruitment agencies, inadvertently creating a poor outcome for everyone as I’ll discuss throughout this article.

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Retained recruitment agencies

They work exclusively on an employer’s vacancy and charge an upfront retainer (hence the title “retained” recruitment agency). This financial commitment demonstrates a true partnership, meaning the retained agency is committed to finding the best candidates available at that point in time. A common misconception is that they only operate at senior levels, however they are equally suitable for support roles.

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Executive search and selection (aka headhunters)

They also work exclusively on a job and charge an upfront retainer. However, they only work on senior-level vacancies, and undertake robust searches for passive applicants

Identifying passive applicants is particularly important for senior and specialist jobs, or simply those in challenging locations. For example, I was recruiting for a management accountant which is relatively easy to fill. However, the role was based in a remote location, Bangor, and no active applicants could be found. Consequently, the only remaining option was to start headhunting, which quickly identified an excellent candidate

The iceberg analogy is overused, but it is relevant in this example: the tip of the iceberg that we see is equivalent to the active applicants. Hidden beneath the sea level there is a significantly larger amount, similar to the number of passive applicants. Search and selection follows a robust process to ensure the entire market (ie. the whole iceberg) is covered, so that an employer has confidence that they are hiring the best candidates available in the market at that time.

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Why do Some Recruitment Agencies Have a Poor Reputation?

A common joke is that “recruitment agencies were invented to make estate agents look good”, and many true words are spoken in jest. Jokes aside, the majority of the “bad apples” are working in contingency recruitment agencies, rather than retained or executive search.

I don’t think any contingency recruiter gets out of bed and says, “I hope I screw up today and make a load of commission manipulating the truth”. But sometimes it happens, and Sidney Dekker (2014) suggests this is due to competing priorities. And that’s what I want to emphasise: the priority of a contingency recruiter is to sell and compete.

It starts to go wrong when job adverts for recruitment consultants emphasise huge earning potential and uncapped commissions. Often, graduates are recruited with few life or business skills, creating an underlying culture of ignorance about human resources, organisational leadership, and business operations. (In comparison, only very experienced recruiters are promoted to work on a retained and executive search basis.)

Once hired, contingency recruitment consultants primarily receive sales training, and some techniques are unethical. (Whereas, retained recruiters and headhunters are trained in proper search and selection techniques, preferring to get their business from recommendation and repeat customers.)

A recruiter works in an environment that focuses on key performance indicators (KPIs) such as number of sales calls, number of CVs sent, number of placements, and value of placement fees. I’ve never seen an indicator of candidate/employer satisfaction, service quality, or placements’ success.

A particular problem for contingency recruitment consultants is that they work in a very competitive and risky environment. Because an employer can give the same vacancy to multiple agencies and only pay the “winner”, it signals that the employer is more focused on output rather than quality, and that’s what the employer invariably gets.

It’s a dog-eat-dog world, and a recruiter is under pressure to send a CV before a competitor does. Some will even take CVs to the toilet so their colleagues don’t steal them off their desk! Rather than carefully screening applicants, a contingency recruiter might send many unsuitable applicants, just in case, so they don’t lose out to a competitor.

Crucially the contingency recruiter is less committed as they’re essentially working for free, and at any stage the employer could fill their vacancy internally or walk away. On balance this master-slave relationship is quite unique. I assume you pay your lawyer, accountant, and cleaner for their time. Therefore, why do employers try it on with contingent recruiters? It is often because, “It’s what we can get away with”. But in the same breath employers protest about “mixed results” and are frustrated that they don’t get great candidates or service.

Similarly, if I offered you a job potentially paying more than you’re earning now, but I’m going to give the same work to four other employees and will only pay one, and may change my mind and not pay anyone, you’d tell me that is the worst job ever! But that is a similar deal to what employers offer a contingent recruitment consultant, and it isn’t logical or commercially viable. That’s why they’re not committed; it’s too risky.

To compound this problem, some employers try to get heavily discounted rates, as if they’re haggling in a market. Only the most desperate recruitment consultant would accept a large discount, and even then, they’ll send their best applicants first to an employer willing to pay full price.

So, what is the solution?

If you’re using contingency recruiters and are happy with the quality of applicants, and the overall process, this may be the best option for you. To get increased commitment from a contingency recruiter, give exclusivity for a few weeks and time in your diary for interviews. This signals you want a quality solution and they may discount their rates slightly.

However, if you’re not happy with the results, and particularly if you have a challenging job to fill, the best option is to use a retained recruiter. You’ll pay the same recruitment fee, but the financial commitment you make by paying an amount upfront demonstrates you want to work in partnership. This allows the retained recruiter to commit to a robust and professional search, delivering the best candidates available in the market at that time. The only frustration you’ll have is that you didn’t do it sooner.

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Which Businesses Should use Recruitment Agencies?

Businesses best suited for recruitment agencies have two common characteristics:

1. Good cash flow: This is essential to afford the recruitment agency fees.
2. Time-poor: Employers are overloaded and need to delegate some responsibilities.

Based on the above it is common for businesses to be in the Young Adult and Maturity stages of their business life cycle.

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What Type of Job Can You Fill Using Recruitment Agencies?

Recruitment agencies will fill permanent and contract jobs across almost every sector, level of seniority, and geographical location

Uniquely, recruitment agencies can help employers find temporary workers, which can be a great way to manage peaks in demand or to test if a job adds value.

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<span class="grey-callout"><span class="text-color-purple">Warning: </span> A few employers have unrealistic expectations of what a recruitment consultant can achieve. This is a particular problem for contingency recruiters; because the hiring manager doesn’t initially have to pay, it doesn't matter if they waste a recruiter’s time, or they want “value for money” by demanding the “perfect” candidate. Recruitment consultants have the same limitations as everyone else and cannot magic applicants out of thin air.</span>

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If you have agreed to pay the recruitment agency their standard fee and they aren’t finding any suitable candidates, this is a good signal they won’t find anyone. The recruitment consultant wants to fill the vacancy but needs some flexibility in the scope of requirements so that it is realistic for the current market conditions.

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When Would an Employer Use a Recruitment Agency?

Use recruitment agencies after trying other direct hiring methods, particularly advertising on job sites or using recruitment advertising agencies. Essentially, it is when direct hiring methods are not appropriate:

• Capacity: There aren’t enough hours in the day for an employer to attract and shortlist applicants: they’d rather outsource and focus on making more money by getting on with their day job.
• Capability: Recruitment is a skill that can be learnt, but some hiring managers don’t have the time or inclination to do so. Importantly, successful recruitment is also about having the right mindset; pushing for action to be taken and decisions to be reached whilst also recruiting for retention.
• Confidentiality: Good recruitment consultants will show discretion and keep employer’s details confidential when required.
• Specialist: Sometimes an employer is unable to capitulate on their requirements – they need the best. In these circumstances it is necessary to approach passive candidates with retained and executive search consultants.
• Urgent situations: This is a distressed purchase for employers who haven’t planned and have a staffing problem, as in, “Send me your best three CVs now!” Because recruitment agencies are constantly advertising jobs, they continually receive a fresh supply of CVs, so they may be able to find you someone quickly.
• Blame shifting: Implicitly trying to lower political risk because if you use a well-known recruitment agency that doesn’t work out, you can pass on the blame. An HR manager once described it to me as “wearing a bullet-proof suit” because it was easy to pass blame on to a recruitment agency.

How Much do Recruitment Agencies Cost? Time vs. Money

Once you decide which recruitment agency to work with, they should ultimately save you time. You will already have your Great Performance Profile written, so they can use it to write an advert and contact applicants. You are essentially outsourcing the task of advertising and shortlisting, and all that should remain is to interview.

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<span class="grey-callout"><span class="text-color-purple">Note:</span> Recruitment agencies can only charge an employer. It is unlawful in the UK for a recruitment agency to charge jobseekers for finding work, albeit they may still charge for writing CVs, career coaching, and profit from umbrella payroll services.</span>

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A recruitment agency may have many types of fees.

A permanent placement fee is typically calculated as a percentage of the successful candidate’s assumed annual salary. Usually, the percentage charged also increases as the salary increases. For example:

<table>
<tr><td>Salary Range</td><td>Percentage</td></tr>
<tr><td>Up to £19,999</td><td>15%</td></tr>
<tr><td>£20,000 - £49,999</td><td>20%</td></tr>
<tr><td>£50,000 - £79,999</td><td>25%</td></tr>
<tr><td>£80,000+</td><td>30%</td></tr>
</table>

To illustrate, if a recruitment agency successfully introduces a candidate to an employer on an annual salary of £33,000, they may be charged 20%, which is £6,600 + VAT. (I intentionally chose £33,000 as it is near the average wage for full-time employees in the UK (Statista, 2024). Therefore, £6,600 would be a reasonable estimate of a fee an employer would need to pay the recruitment agency.)

If 30% sounds like a lot of money, it is a typical fee that a professional retained and executive search consultant is regularly paid to find senior and specialist staff, and in Japan it is around 40%.

Contingency recruiters will only charge the placement fee if they successfully introduce a candidate. You may think, “But I only pay on success,” which is correct. But eventually you will have to pay and will get mixed results.

Retained recruiters and headhunters charge an initial retainer to start a project. Further payments may then be required when a shortlist is presented, interviews are arranged, an offer made, and/or the candidate starts.

If you may want to hire multiple candidates. Often a contingency recruiter will charge you full fee for each hire. However, if a retained recruiter finds multiple candidates you want to hire, they may only charge 2/3rds for each subsequent candidate because you already paid a retainer to find those candidates.

A contract fee is often based on a pro-rata permanent placement fee. For example, if a candidate joined for six months and earned £33,000 per year, the cost could be £33,000 x 20% = £6,600, £6,600 / 2 = £3,300 + VAT. If you decide to keep the contractor on longer, they will charge an additional fee. Most recruitment agencies would never charge more than a full fee (ie. £6,600), although it’s worth checking their terms!

Similarly, if you employ a part-time person who works half the hours, recruitment agencies will often halve the fee.

It’s worth noting that most recruitment agencies charge a minimum fee. So, if you employ a contractor for a short duration or a part-time worker with low hours, you’ll probably have to pay their minimum fee.

Finally, there may be a temporary worker fee. The recruitment agency employs the temporary worker, manages all their payroll and taxes, and then charges a margin of approximately 13% for the service. All an employer needs to do is request a temporary worker; the “temp” worker starts (there is often no chance to review CVs or interview); the employer signs the temporary worker’s timesheet and pays the recruitment agency bill.

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Do Employers Have any Guarantees when Using Recruitment Agencies?

Contingency recruitment agencies should offer a guarantee – if they don’t, don’t work with them! 

If a new employee supplied by a contingency recruitment agency leaves within approximately the first 10 weeks, the employer may get a small refund. For example, if an employee leaves on the 10^th week, an employer may get a refund of 10%. Continuing the example above, 10% of £6,600 = £660 + VAT.

Unfortunately, most employers won’t qualify for a refund because they will need more time to assess a new employee. For example, in the first four weeks, an employee is being inducted. This means only six weeks remain, and given it takes a few weeks to properly performance manage an employee, you’re likely to be 12+ weeks into employment before you can consider dismissing them (so probably out of the guarantee period).

You must read the terms and conditions carefully. If you are “lucky” enough to get a refund, it may sometimes be a credit note that expires in 12 months. You may lose the credit if you don’t use the recruitment agency again. For this reason, I recommend cash refund guarantees.

Another form of refund is a replacement guarantee where the contingency recruitment agency provides a replacement at no additional cost. Unless this is from a retained recruiter who has a reputation to uphold, I’m not a fan of these guarantees because there’s no time pressure to fill the role nor a requirement to present similar quality candidates.

All guarantees will only be “valid” if the recruitment agency’s invoice has been paid in full and on time.

Guarantees from retained or executive search recruitment agencies may not be applicable. This is because an employer is paying for a team of professional’s time to follow a proven and robust process. For this reason the chances of “failure” are incredibly small, and on the rare occasions it has happened an employer may be satisfied with the outcome because they are now confident that the “perfect” candidate doesn’t exist. If an issue is identified early in the applicant research process, a project can be adjusted to find suitable alternatives. However, should a new employee subsequently leave, it may be at the discretion of the recruitment agency to find a replacement, but most will never give a credit or refund.

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How to Choose a Recruitment Agency

Having worked with and run recruitment agencies, this insider guide will help you find one that is a good ongoing fit for your requirements:

• Ask for recommendations: Be discrete and ask colleagues and industry peers. Generally, I wouldn’t ask on LinkedIn as many connections are poor-quality acquaintances, and you’ll likely get many sales calls.
• Avoid “Top 100”: There are lots of “Top 100” directories, but I largely ignore them because recruitment agencies can pay for inclusion, rather than lists being compiled with actual client feedback.
• Pay special attention to the introductory call: If you contact a contingency recruiter about a vacancy, they’ll usually say, “What’s the job title, location, and salary?... Great! I’ll have some CVs on your desk this afternoon!” They have to rush because there is so much uncertainty whether they’ll “win” a fee, so there’s little point putting in much more effort. However, when you work with a retained recruiter, they will usually spend half an hour working with you to understand your challenges, what you’re trying to accomplish, and what you’ve tried in the past.
• Shortlist individual recruitment consultants: What matters is the person you’re dealing with rather than the recruitment agency they work for. Ensure that the salesperson who sells their service (presuming you found them competent) is also the one you’ll deal with from start to finish. Check their LinkedIn profile to see how long they’ve been in the industry and whether they job hop from agency to agency, because continuity is going to be an issue.
• Contractual restrictions: Be wary of dealing with sector specialists who may be contractually locked out of approaching your competitors’ staff. On the other hand, ensure they cannot approach your staff!
• Certifications or memberships: Being a member of an industry body and displaying their certification rarely indicates quality. Almost anyone can become a member with practically no vetting, and I’ve never seen any policing of standards. In the past, I signed up my recruitment agencies for membership, and they were only interested in taking my money and never checked any credentials!
• Negotiate: Ensure you get your money’s worth and negotiate rates, but don’t negotiate too hard, as they’ll prioritise their best applicants for their most lucrative customers.
• Visits: If local, the salesperson should ideally visit your premises to learn about your business’s culture and work environment rather than just have a phone call. However, most recruitment agencies are now online, so this shouldn’t be a deal breaker.

When you’ve made your choice and begin working with them:

• Give guidance: This is a two-way relationship. They can only work with the information you give them. Share your Great Performance Profile so they clearly understand your standards and expectations.
• Give instructions: Require them to thoroughly assess each applicant by sharing your recruitment process and any screening questions you want each applicant to be asked. Whether they agree or not is a litmus test of their professionalism. If necessary, buy them a copy of my recruitment book!
• Feedback: When they present an applicant, provide specific feedback so they can tailor their service. There’s nothing worse for them than working on an unclear brief.

You can also ask candidates their opinion:

• Registration process: In my experience, recruitment agencies only place approximately 4% of jobseekers they “register”. To make the registration process more efficient, the recruitment consultant may only email or have a cursory five-minute telephone conversation with the jobseeker before their CV lands on an employer’s desk. In my opinion, this is a significant shortcut as part of the service is to thoroughly pre-screen applications. To identify if you’re at the receiving end of this technique, ask candidates at the interview, “Why did you register with this recruitment agency, and what was the process like?”
• Candidate’s experience: Make sure that they are representing you accurately. This goes beyond ensuring they portray your organisation and the role accurately without too much hype, but also being a good brand ambassador. It’s worth asking at an interview, “What’s your impression of this recruitment agency, and how happy are you with their service?”

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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; Why Use a Recruitment Agency: Evaluating the Pros and Cons.
• Article; How do Recruitment 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.
• Article; How Do Recruitment Agencies Work? A Guide for Employers.