Recruitment Agencies: The Hidden Truth Behind the Sales Pitch!
What is a recruitment agency?
A recruitment agency, also sometimes known as a staffing agency or employment agency, is a company that principally helps employers find suitable candidates to fill jobs. The agency also endeavours to help a jobseeker find a job that is aligned with their skills, experience and goals.
Most of the time recruitment agencies will be given a specific job to fill. However, there have been instances where recruitment agencies have intentionally advertised fictious jobs to attract applicants.
Occasionally a recruitment agency may get an great applicant and speculatively share their details with employers (hopefully with the applicant’s permission). However, sometimes they may suggest they have a great applicant simply to encourage conversations with employers that may lead to future assignments.
Most recruitment agencies work on a contingency basis (aka no-success-no-fee). This means when they make a successful introduction they charge the employer (it is unlawful for them to charge jobseekers). A recruitment agency may also guarantee their work by giving a ‘rebate’ if a jobseeker leaves an employer shortly after starting.
Recruitment agencies can specialise in particular sectors and/or 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!
Years ago recruitment agencies used to attract applicants by having High Street locations with lots of foot traffic and by placing large advertisements in newspapers. As jobseekers have moved online, so to have recruitment agencies, and so most applicants are not found by advertising on job sites.
Unfortunately the recruitment industry has a bad reputation. This is because, despite all the pleasantries, the primary aim of a recruitment agency is to sell. Even if they have a fancy job title such as “Head of Partnerships” they’re just sales people. Just read a job advert for recruitment consultants and it will largely be about large earning potential and uncapped commission. Having worked in the industry for years and seen some of the sales techniques used, I sometimes question their motives.
When would an employer use a recruitment agency?
It may be reassuring to know that they have very little unique knowledge. Nevertheless, there are a limited number of situations when recruitment agencies can help:
- When you don’t have the time or inclination to attract and shortlist applicants. (You’ll still need to interview, reference check and make job offers).
- As a distressed purchase for employers who haven’t planned ahead and have a 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 may be able to find you someone quickly.
- For sensitive and confidential roles.
- When hiring for unusual roles or when entering international markets.
- Implicitly trying to lower political risk because if you use a well-known recruitment agency and it doesn’t work out you can pass on the blame. It was once described to me by an HR manager as “wearing a bullet-proof suit” because it was easy to pass blame on to a recruitment agency.
What jobs do recruitment agencies fill?
Most often recruitment agencies will fill permanent and contract jobs. You’ll find some recruitment agencies can be incredibly niche. For example, some recruitment agencies may work in the finance sector, but others may focus on a niche within the finance sector such as actuarial. However, most recruitment agencies will not help you find commission only staff.
Uniquely recruitment agencies can help employers find temporary workers. They employ the temporary worker, manage all their payroll and taxes, then charge a margin of approximately 13.5% for the service. All an employer needs to do is request a temporary worker; the temporary worker starts (there is often no chance to review CVs or interview); sign a timesheet; pay the recruitment agencies bill.
Temporary workers can be a great way to ‘test’ if a job adds value (discussed in my Six Tests of Recruitment). They are naturally great for managing peaks in demand, and often can be hired on a just-in-time basis. Additionally you may find a temporary worker is a Great Performer so you offer them a permanent job. This is an effective technique to identify if someone is a good fit, and I discuss this later on Job Simulations. However, it can really only be used for applicants that are immediately available, and not everyone want to have a permanent job, so it significantly limits the number of applicants you can approach.
<span class="grey-callout"><span class="text-color-purple">Note:</span> If you do employ a temporary worker on a permanent basis you will be expected to pay a temp-to-perm fee.</span>
How much do recruitment agencies charge?
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 attempt to charge for writing CVs, career coaching, and profit from umbrella payroll services.
Generally recruitment agencies charge employers on a no-success-no-fee service (aka a contingency service). This is where the employer only pays a recruitment agency when they find a new member of staff. The fee is typically calculated as a percentage of the successful applicant’s annual basic salary. Typically the percentage charged also increases as the salary increases. For example:
<td>Up to £19,999</td>
<td>£20,000 - £49,999</td>
To illustrate this example further: If a recruitment agency 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 the average salary for full-time employees in the UK (Statista, 2022). There £6,600 would be a reasonable estimate.
How £6,600 is not necessarily ‘reasonable’ and it is these high fees, some would say “extortionate”, that partly give recruitment agencies a bad reputation.
You may be thinking “but I only pay on success”, and that is correct. But, eventually you do have to pay a lot of money, and the contingency-pricing model can have the side effect of encouraging employers to use many recruitment agencies who compete against each other. This can make agencies scared of another agency sending an applicant first and winning the sale. Rather than carefully screening applicants they might send lots of unsuitable candidates.
In addition, several recruitment agencies could be speaking with the same candidates about your job. Because so many recruitment agencies are making irrelevant approaches, your reputation may get tarnished by association.
<div class="grey-callout"><p><span class="text-color-purple">Note:</span> I’ve recently noticed some recruitment agencies charge a non-refundable upfront ‘retainer’ for starting an assignment. This is largely because a sales trainer has ‘mis sold’ the idea to the recruitment industry. </p><p>The sales technique broadly goes “You [the employer] have a very difficult job to fill that will require a lot more effort and I need to be even more motivated to fill this job by receiving an upfront retainer. Your [the employer] commitment demonstrates to me you’re serious, so I’ll be more serious.”</p><p>I had to laugh when I saw this. If you come across a similar sales patter I bet you also struggle to keep a straight face!</p></div>
I mentioned above that recruitment agencies may also help you find a contractor. This is a jobseeker who works for a specified time period, say six months and would pro-rata their fee. For example if a contractor was employed for six months and earnt £33,000 per year, the fee could be £33,000 x 20% = £6,600, £6,600 / 2 = £3,300 + VAT. If you decide to keep the contractor on longer, they would then charge an additional fee. Most recruitment agencies would never charge more than full fee (e.g. £6,600), although it’s worth checking their terms!
Similarly if you employee a part-time person who works half the hours, recruitment agencies will often halve the fee.
It’s worth noting that most recruitment agencies will have a minimum fee. So if you employ a contractor on a short duration, or a part-time work on low hours, you’ll probably have to pay their minimum fee.
Overall recruitment agencies are often expensive, and you may overpay for poor service or at least with no guarantee in advance of good service.
What guarantees do recruitment agencies offer?
All recruitment agencies should offer a guarantee – if they don’t, don’t work with them!
Often if a new employee found through an agency leaves within approximately the first 10 weeks, the employer may get a small refund. For example, if an employee leaves on the 10th 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 larger refund because they’re likely to need more time to assess a new employee. For example, in the first week an employee is learning the fundamentals and in the first four weeks still being properly 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.
You do need to 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. If you don’t use the recruitment agency again, you may lose the credit. For this reason, I recommend guarantees that give cash refunds.
Another form a refund is a replacement guarantee. If the new employee leaves within a certain time period, the recruitment agency provides a replacement at no additional cost. I’m not a fan of these guarantees because there’s no time pressure to fill the role, nor a requirement to present similar candidates.
Both a refund/credit and replacement guarantee are often dependent on the recruitment agency receiving payment of the original invoice for the introduction in full and within payment terms.
How to choose a recruitment agency
Having worked with and run recruitment agencies, here are my top tips for using them if you can justify paying a recruitment agency fee:
- What matters is the person you’re dealing with rather than the recruitment agency they work for. Ensure that salesperson who sells their service, presuming you found them to be competent, is 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.
- In my experience, recruitment agencies place approximately 5% of candidates they ‘register’. To make the registration process more efficient it is often an email conversation or a cursory five-minute telephone conversation before a CV lands on an employer’s desk. In my opinion this is a significant shortcut. To identify if you’re at the receiving end of this technique ask candidates at interview, “Why did you register with the recruitment agency and what was the process like?”
- 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. While you can’t blame a jobseeker for going to a bad recruitment agency, it’s worth asking at interview, “What’s your impression of the recruitment agency, and how happy are you with their service?”
- Be wary of dealing with sector specialists who may be contractually locked out from approaching your competitors’ staff. On the other hand, ensure they’re unable to approach your staff!
- Ask for recent customers you can talk to. Run away if they refuse.
- Being a member of an industry body is rarely important or an indication of 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 with a seemingly reputable industry body and they were only interested in taking my money and never checked any credentials.
- The salesperson should ideally come to your premises to find out about your culture and work environment rather than just have a phone call.
- They can only work with the information you give them. Share your Great Performance Profile so they have a clear understanding of your standards and expectations.
- Require them to conduct a thorough assessment by sharing your recruitment process and the 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 this book!
- When they present an applicant, provide specific feedback so they can tailor their service. There’s nothing worse than working to an unclear brief.
- One of the problems with recruitment agencies is that people expect to pay a lot, which makes it easier for them to charge a lot. Make sure 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.
<div class="grey-callout"><p><span class="text-color-purple">Tip:</span> Recruitment agencies have sales people and they’re normally going to give their best candidates to their best customers. This means if you’re a new customer it is pointless negotiating reduced rates because you’ll often get a reduced service. However, you can become their best customer in the long-term, and then it will be practical to have a discussion about fees.</p><p>If you do want to try negotiating as a new customer, try extending their guarantee period. If they refuse it could be an indicator they don’t have much confidence in their service.</p></div>
Having said all that I’ve got a really important lesson I’d like to share with you. My first job in recruitment was in a very professional recruitment agency. We prided ourselves in offering a impartial services and earned no commission or bonuses of any kind that may bias our judgement. Whilst working on one particular assignment I realised a very dodgy competitor was working on the same job (this was the sort of competitor who gives everyone a bad reputation). I spoke to the employer about my concerns and asked why he was using them. His response humbled me: “You can’t blame a great candidate for going to a bad agency.” The morale of the story being that if you’re willing to put up will appalling service and all manner of sales manipulation techniques just to get a great candidate, work with every recruitment agency you can.
But before you work with a recruitment agency…
If you’re thinking of using recruitment agencies, I’d just like to provide some final points to consider:
- The barriers to entry are very low and most training is on sales technique rather than actual recruitment.
- Recruitment agencies generally get their applicants from job sites. You can do the same far cheaper. I’ve seen so many examples of employers fed up because they paid a recruitment agency fee when they realise how little effort was involved. Think carefully about trying alternatives first.
- You are probably more capable and know your job better than any sales person.
- If you’re a business owner, you could pay yourself more if you don’t pay recruiters.
- If you’re a manager, you could spend less budgets, if you spend less with recruiters.
- If you want to use a recruitment agency because you don’t have the time, do you have the time to brief them, provide feedback on applications, hold interviews, offer and then train new starters?