In general, all recruiters’ fees are based on the market value of the candidate provided, so the amount you pay can vary significantly depending on economics. If a person has more experience or achieved a higher level than another, they can command more money which translates to a higher fee required. Likewise, expect to pay more for expertise that is in high demand or skills that are difficult to find. Before getting to specifics on dollar amounts, though, there are a few different ways you can hire someone.
TYPES OF HIRING
At its simplest view, a company is either looking for help to fill a job opening via Direct Hire or Contract – here is the difference:
- Direct Hire – Also commonly referred to as a permanent hire, the company asks the recruiter to identify an employee that the company will be adding to its own payroll. The recruiter is paid in full when the candidate starts the new job and the transaction is complete.
- Contract Hire – This type of hire is meant to fill a short-term need, and the candidate is referred to as a Contractor, Consultant, or Temp. As the need is not long-term, the company does not want to hire an employee and have to fire them once the project or need is fulfilled. In this case, the employee they want is on the recruiting firm’s payroll but is “rented out” on an hourly, weekly, or monthly basis. Hourly is by far the most common.
- Contract-to-Hire – this is a combination of the first two used when a company wants to “try before they buy” by bringing on a potential future employee on a contract basis then offering them a permanent position if they perform well.
For Direct Hire, the fee is based on a percentage of the salary level the candidate is offered, with the most common being 25%. So, for a candidate that you offer a base salary of $100K, you will be charged a one-time fee of $25K, usually payable within 30 days of start date. Fee percentages can range from 20% to 30% for a variety of reasons (see blog IS PRICING NEGOTIABLE?). For executive level searches at big companies, a common method to hire is called a Retained Search, which is typically 33% of estimated first year compensation, which can easily double or triple a regular fee (see blog CONTINGENCY VS RETAINED).
For Contract, the most common method is based on an hourly rate (the “pay rate”) that the contractor will be paid which is then “marked up” to determine the hourly rate the company will pay (the “bill rate”). For example, a person that would typically be paid $100K in a direct hire situation might negotiate a pay rate around $55/hr or so, based on 2080 hours in a year and adding a slight premium to make up for benefits. Then, if the markup rate is 65%, the bill rate will be $90.75/hr. There is a ridiculously wide range of markups out there depending on the type of contractor, the work required and the business model of the search firm. For a high volume of low wage workers, the markup might be 40%. For a highly specialized consultant working for a top firm in a niche industry, it can be 150%+. Most will likely fall in the 50-80% markup range.
While every prudent business wants to save on costs, keep in mind a time-honored rule about employment that accurate MOST of the time: “Good people aren’t cheap, and cheap people aren’t good”.