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Recruitment consultancy fees explained


Clients often ask us how recruitment charges are calculated, so we’ve put together a guide to explain the most common types of recruitment and how the charges are calculated. 

Before we start, it will be helpful to make two distinctions:

1. Broadly speaking, recruitment in the United Kingdom falls into two categories:

-       Contingency recruitment (a client pays once a person has commenced a role).

-       Retained (the client typically pays the recruitment fee in three parts; the first part being paid upfront to commence the search).

The information below relates only to the charging structure of contingency recruitment.

2. Within contingency recruitment companies engaging the services of recruitment consultants are in fact (depending on whether they are recruiting permanent employees or temporary employees) being supplied by two different entities. 

A recruitment company supplying permanent employees, to be paid for by the client, is acting as an employment agency whereas a recruitment company supplying you with temporaries is acting as an employment business.

Temporary Recruitment

This is where an employment business engages a worker under a contract who then works under the supervision of someone else (the client). This might just be for a few days, it could be for an indefinite period or it could be with a view to the worker becoming permanent employee after a certain amount of time. This option is used across all sectors and allows the employer and employee a great deal of flexibility.

When would you use a temporary worker? Companies might employ temporary staff on a seasonal basis during busy periods to cope with the additional workload, after a major contract win, an unforeseen event has occurred, during holiday periods when they are short-staffed or to cover employee sickness.

Increasingly, companies are choosing to recruit on a temporary-to-permanent basis, which means the work seeker is likely to be employed on a permanent contract at the end of the temporary assignment.

Advantages of using a temporary worker: Clients get the additional support required without committing to a permanent contract. This can be an extremely efficient way of meeting any of the situations (described above) and taking pressure off existing members of staff, particularly during busy times. It’s also a great way of finding permanent staff – many companies are so impressed by their temporaries they go on to offer them permanent opportunities.

Practically speaking the use of temporary workers improves the cash flow of the business and allows them to navigate internal permanent headcount freezes.

Disadvantages of using a temporary worker: Cost. As in any other industry the unit cost of hiring a resource is more expensive than outright ownership on a £ for £ basis.

Who employs the temporary worker? The temporary worker is employed by the employment business on contract for services. If the temporary worker is recruited into a permanent role their status and contract changes as they become a permanent employee of the client and receive a permanent contract.

How do temporary charges work? If you’re not sure how your employment business has arrived at the figure they are charging you, here is a formula you can use to work this out:

Temp hourly rate + holiday pay + national insurance + margin = total charge rate + VAT

Holiday pay = 12.07% of basic pay (based on 20 days holiday + 8 bank holidays)

Employer National Insurance pay = 13.8% (of basic pay + holiday pay)

Example: If a candidate is paid at a rate of £8 per hour, the actual cost to the recruitment agency before margin is £10.20 per hour (£8.00 basic pay + £0.97p holiday pay + £1.23 National Insurance).

When do I pay the employment business? For the supply of temporaries, you typically receive invoices a week in arrears and have 7 days to pay.

Permanent Recruitment

How are permanent recruitment fees calculated? Fees are normally based on a percentage of the candidate’s annual salary. This percentage rises as the seniority of the role rises – as highly skilled roles tend to be more difficult to fill and involve a lengthier recruitment process. In contingency recruitment, you should not expect to pay anything to the recruitment consultancy unless you successfully recruit the person they have introduced.

When do I pay? Typically, within 14 days of the employees’ start date.  It’s normally necessary to settle the invoice in a timely fashion to receive the guarantee the employment agency offers.

What if I hire someone and it doesn’t work out? Most employment agencies offer a guarantee period in case the candidate doesn’t work out.

Contract Recruitment

When employed on a contract the employee is an employee of the company and not the employment agency who introduced them.  A common example is when a candidate is employed to cover maternity.

If you are employing someone on a contract of less than 12 months, the recruitment fee would usually be calculated on a pro-rata basis of the annual salary. If the client decides to extend the contract, additional recruitment fees will be levied up to and including month 12.

If you’re looking for new talent to add value to your business and you want support from a recruitment consultancy who offers friendly, professional and reliable support, please give your local office a call on 01908 200270 (Milton Keynes) or 01604 439380 (Northampton).