Why Use a Recruitment Agency? Benefits, Fees and Everything You Need to Know

Recruitment agency empty office

When you’re looking to put workers in chairs, you might consider using a recruitment agency or service to get the job done. There are a variety of services available, but should you use them, and how do you get the most for your money?

The cost of hiring can exceed $40,000 per employee. Some of that expense is in training and lost productivity, certainly. But a good portion of the cost is in the recruitment process itself: how much time HR staff and managers spend discussing the opening; advertising; hours spent screening; interviewing; re-interviewing; background checking; and more. HR departments frequently take these steps only to have to start the process all over again. If you have a dedicated recruiter on staff, you already have an idea of what the investment is annually. Have you amortized their salary/benefits/perks over the amount of hires per year? That’s just the tip of the iceberg in the cost to hire.

So why use a recruitment agency? Especially for small organizations, where employees’ time is already stretched thin, recruiting in-house often doesn’t make for a wise investment of resources. If you don’t have a dedicated recruiter, you’re pulling precious work time away from other staff members, time that affects your bottom line. A recruitment agency to get the right candidates (not just a pool of applicants) may be the way to go when you want to get the most bang for your buck.

Understand Your Hiring Needs

Before bringing on a recruitment agency, you should have an understanding of your hiring needs in order to know how to best use the agency’s services.

Infrequently
If you hire infrequently – maybe once or twice a year – having a dedicated recruiter on staff is frivolous. An agency can get the right candidate in the door, screened and guaranteed. Your job will be minimal – set up meetings to see if they’re a good fit and make the hire.  

Regularly
Maybe you hire regularly – about once a month. You might have someone who does the majority of your recruiting, trained to screen and interview compliantly, but they may need help getting candidates (again, as opposed to applicants) in the door. CareerBuilder reports that you can easily receive 75 resumes for every job opening. That’s a lot of screening. Even if you only spend five minutes on each resume/cover letter (which is generous), you’ll spend over six hours reading them in the hopes of finding a good candidate.

The same survey showed 78 percent of recruiters found that at least half the resumes were from unqualified applicants: That’s three hours wasted. A recruitment agency can help lighten the load when it comes to screening, so you can devote your focus to only on the most qualified candidates.

Frequently
Or let’s say you hire frequently: At any given time, you’re typically posting, interviewing, verifying, or filling a spot. You’ve got a lot of balls in the air at once, and it can be challenging juggling them all. Having an entire department to help would be great, but it’s not in the cards, nor the budget. A recruiting firm can be your HR department: They can take the bulk of the work off your hands and free you up to hire for quality, rather than quantity.

Nonstop
You hire en masse. You’re upsizing, have high turnover (if you ever get time, you might ask why), or are hiring to fill multiple or seasonal spots. You need help!

One of my former employers hired 400 seasonal staff members every spring to ready for the summer rush. With a staff of six, it was a challenge to get enough bodies in the door. Some agencies are equipped to deal with this type of volume: They work with community agencies, foreign workers (and verify work visas for you), and other outreach programs to help with large staffing needs.

Fill Jobs, Not Interview Slots

Agencies get paid to fill jobs, not book interviews. You’ll likely get fewer candidates, but each will be qualified. As a recruiter, and then as a recruitment agency branch manager, I got to know my clients well. They would not only tell me the skill set required, but over time I learned who would fit in well and who wouldn’t.  

While you don’t want to discriminate, you can certainly tell a recruiter about soft skills. A quiet department may not be looking for someone who’s easily excitable. Or, maybe you’ve had a lot of turnover because everyone is looking to move up in a year, so you want someone who would be satisfied with this work for the long term.

I had one company with exactly that problem: They kept hiring every six months or so for the same spot. While I appreciated the commissions, I felt bad they had to keep rehiring. In talking with the hiring manager I offered a suggestion. Stop hiring new grads and look at a more seasoned worker (upping the salary a bit). You want someone who knows what they want to do all day and isn’t looking for a stepping stone or a bright spot on their resume. The result: a long term hire that cost me in commissions, but gained me a connection with the company. A good recruitment firm will do exactly that. They’re in it for the long haul. They want to establish a relationship with you and they’ll do what it takes to make it happen, even if there’s a short-term loss.

Trial and Snare (or Pare)

If a critical team member is taking a family or medical leave, of course you’re going to hire a temp to fill their spot – you have no choice. Consider using this as an opportunity to screen someone for another vacancy you might have within the company. If they’re a good worker, work well with the team, and are willing, you might even want to cross-train them during their temp stint to see if they’d be a good fit.

Have a position that takes longer than the 30/60 day trial period to train? Temp to perm might be a good fit for you. It can take months to see if a candidate is the right fit for some openings. When you do temp to perm, you’ll have a longer trial period. And if they don’t work out, you don’t even have to fire them! Just call the agency and have them do the nasty part. They’ll send you a replacement, too.

And if you decide they’re perfect? Some companies opt to buy out the contract – paying a fee to take the hire off the “temp” payroll and put on to theirs. Depending on how long the buyout period is, you might consider leaving them as temps for as long as possible. By keeping them as an agency employee you not only spread out the cost of the buyout, you extend the probationary period. As a bonus, after they go off the agency payroll and on to yours, you can initiate your own, regular probationary period. Talk about hedging your bets!

Cashing in on the Guarantee

In addition to the recruitment help, all agencies offer guarantee periods. If the hire doesn’t work out, you don’t pay and they start the search over, not you. With some agencies you can negotiate on fees, with others guarantee periods; with some both. Never hurts to ask. Particularly if you hire volume through them, or you’re a new customer, definitely try to negotiate either or both. But whatever the guarantee period, using it strictly as a probationary period is critical. If they’re not working out, let the agency start the process over.

If you look back at the turnover you’ve had, how much can be attributed to rushed hires, lack of screening, or settling just to fill that spot? When you use a recruiter you stop making those mistakes on your own, and start making them work in your favor.

Your guarantee period is an opportunity to assure the new hire is the right hire. Set realistic goals for what the new hire should have learned/achieved/mastered within the warranty period. If they aren’t hitting those goals, it’s time to trade. It might take a few tries to get the right match, but you’ve done very little of the work to accomplish that feat: and, as a bonus, the agency learns more about your company. They’ll be better able to fill your next slot once they get a feel for your priorities and culture.

The Cost of Doing Business

There are many types of agencies out there, with varied fee and warranty structures. Here are the three main types you’ll see:

Retained
You’ll pay upfront and typically give them exclusive rights to fill the spot. These are rare and are generally for high-level or very difficult to fill spots.

Cost: On average 10 percent of annual salary to start recruiting, another 10-15 percent or more after hire

Guarantee: About six months to one year

Contingency
These agencies send in candidates and take a percentage of the annual salary after the new hire has satisfied the guarantee period.

Cost: Typically 15-25 percent of the annual salary

Guarantee: Generally 60 days

Temporary or Temp to Perm
These agencies send in temporary workers who can come and go, or, if you find they’re a good fit, can transfer to your payroll. Their contract can be bought out for a fee, or after a length of time you can have them for free. There’s typically a sliding scale on the buyout: The sooner you take them off the agency payroll and onto yours, the higher the cost.

Cost: 20 to 50 percent of the hourly wage

Buyout: Generally after 90 to 120 days

Additional Benefits

If you’re still not convinced on why using a recruitment agency may be the right move, the decision to do so can bring some added benefits that may be difficult to quantify immediately, but are nevertheless very real. For example: Unless you’re Google or Apple, you probably don’t have thousands of qualified candidates lining up to work for you. But a recruiter will “sell” your company to a candidate as strongly as they’ll sell the candidate to you.

Let’s say you’ve finally decided to hire a developer, but your HR staff knows very little about coding. Recruiters who specialize in a certain market can help you come up with fair compensation packages, let you know what you can realistically expect from the marketplace, and, probably most important, introduce you to candidates in their applicant pool who are exactly the right fit.

Using a recruitment agency can be helpful from an accounting standpoint, too. Agency fees are business expenses – which can help your bottom line. As reported by Bersin by Deloitte, the average cost to fill an open position is almost $4,000. But agency fees are a legitimate business expense that can offset a portion of that cost.

According to LinkedIn, only 12 percent of the workforce is actively looking for jobs, but 85 percent is open to hearing about new opportunities. Agency recruiters won’t just wait for a quality candidate to walk in their door – they’ll troll your competitors and the marketplace for people in similar positions, to see if anyone is interested in looking. Because they live and breathe recruiting, agency recruiters have the time to identify and reach out to passive candidates in a way that’s probably just not possible for your team.

Recruitment agencies can turn a month-long search into one that lasts just a few days. Knowing when and how to use them effectively can not only reduce the stress of recruiting, it can help you guarantee a long-term hire.