How Do Recruiters Get Paid?
Recruiters are sales people. In sales, money is the motivating factor to land more deals, secure more clients, and negotiate more successful contracts. Most firms or agencies create a commission based structure for recruiters. They do this while providing an agreed upon base pay. The base pay a recruiter receives varies from agency to agency. It often depends on experience, skills and past successes. The base pay itself isn’t what motivates a recruiter to join an agency.
The percentage of placed temporary and direct hire candidates will provide additional compensation making the job more competitive in the marketplace. It isn’t uncommon to hear that entry-level recruiters are earning an average of $46,000-$50,000 in their first few years. This number depends on the geographic market as well. Some technology recruiters in the Bay Area or New York report six figure incomes in their first few years on the job.
Recruiters can get a commission bonus by placing a candidate (like you) at a client in either a temporary or permanent position. The details of the contract between the client and the recruiting agency are often worked out in advance. This contract is often referred to as a staffing agreement. The contract will likely include:
- Rate Information
- Benefit Waivers/Information
- Confidentiality Agreements
- Additional Fees
- Agency Guarantees
Temporary vs. Direct Hire Fees
If a company hires a candidate on a temporary basis, recruiters provide an hourly rate. This will will be billed to the client. Within that rate, your hourly pay is included as a markup which goes back to the agency. These markups could cover fringe benefits or worker’s compensation coverage the agency needs to carry. Also included is the commission for the recruiter. For every hour a temporary employee works, their recruiter makes money as well.
This income source isn’t as reliable. Temporary employees could start or end assignments at any time. If a recruiter is able to keep a steady number of temporary employees on work assignments, they can count on a regular commission in his paychecks.
For permanent (also known as direct hire) opportunities, the recruiter and their client will sign a contract. The company will agree to pay a certain fee if the recruiter successfully places a candidate in a job. Recruiters in these situations are often up against other agencies, as well as the company’s own external search.
It is not uncommon to hear that these one-time fees are 20-25% (sometimes even as high as 30-35%) of the candidate’s first year base salary.
Example: If a recruiter places a direct hire employee at a starting salary of $70,000, the recruiter could stand to make around $14,000 off once placement (less any fees their agency withholds).
Direct hire placements seem like the most lucrative option. Placing the final candidate within an organization isn’t as easy as passing along a resume. Companies are looking for that unique candidate who is worth paying a lot of money for. For recruiters, this may mean expanding their search for candidates into a larger geographic area. When that happens, salary negotiations aren’t the only hurdle before an offer can be made. Recruiters may also have to deal with:
- Candidates traveling in to interview
- Potential relocation reimbursement discussions
- The possibility that a final candidate may back out if they decide moving isn’t in their best interest
Recruiters don’t receive the commission from direct hire placements immediately. It’s typical that the contract includes a clause which outlines a certain amount of time the candidate must be employed with the organization for the arrangement to be considered a success.
The length often follows company policies in regards to introductory or probationary periods (about 90-120 days). If for any reason the candidate doesn’t work out during that time period, the recruiter doesn’t receive the commission and is often responsible for finding a replacement.
Retained vs. Contingency Recruiters
While the recruitment principles behind both retained and contingency recruiters is the same, their relationship with the contracted company is not.
Retained recruiters charge a company and up-front fee to conduct a job search for them. They’re doing so on an exclusive basis, which means the business is all but guaranteed to them. There are no other recruiters vying to fill the position.
The fee for a retained recruiter may be up to 50% of the candidate’s salary. While that’s can calculate to hefty sum, it’s important to remember that the recruiter won’t see all the money. The recruiter’s agency will have overhead fees which need to be removed from the payment before the final commission can be determined.
Working with retained recruiters can also be a much slower process. They work closely with the company to:
- Determine a job description
- How to source candidates
- Screening candidates
The retainer fee may seem high at first glance. It makes sense once you realize the amount of hours and work a recruiter puts into locating the right candidate.
Contingency recruiters get paid once they find the right candidate for position. This is typically about 20-25% of candidate’s salary. Contingency recruiters are often competing with other recruiting agencies as well as a company’s internal HR department. Since they are competing, contingency recruiters often have superior sales skills. They use these skills to present their candidates to a company.
Contingency recruiters want to land the business (and commission). They may even put forth multiple candidates from the same agency to compete for the position. The more qualified applicants a recruiter can provide, the more likely they’ll add to their annual salary.
A successful recruiter will be comfortable with sales, negotiating and even cold-calling. Getting the right candidates in your office to promote and finding the right companies to show them off too is the only way to make good, steady money as a recruiter.