How Does a Recruitment Agency Work?

1. Why do recruitment agencies exist?

Recruitment agencies are around to fulfill the needs by both employers and job seekers. Employers need to fill up their job vacancies. Job seekers need to find jobs.

Recruitment agencies also come with different specialties. For example top notch worldwide agencies like Korn/Ferry, Boyden, Spencer Stuart and Russell Reynolds, which are also called headhunters, only work with the world’s largest companies and hire top executives such as CEOs, CFOs, Managing Directors and so on.

Then there are these middle level agencies that handle recruitment for mid level managers and senior executives such as Kelly Services, Manpower and Adecco, which have offices scattered around the world. Some of them also offer temporary recruitment, contract and payroll services.

2. How does a recruitment agency recruit candidates?

Through various methods. Newspaper advertisement, online job portals, their own websites, walk-in interviews and so on. Many would advertise the job vacancies even though they are not hiring, as they are accumulating candidate database. For headhunters, they would normally approach highly performing employees directly, due to the fact that most people who are good at their job are not actively looking for job.

3. How does a recruitment agency make money?

In simple terms, a recruitment agency get their money by charging their clients. Their clients, most of the time, come from the employers end. As for the fee structure, that depends on their arrangement as well as the type of positions, salary and so on.

Generally, fees by recruitment agency comes in two types – contingency fee, and retainer fee.

A contingency fee is paid only after the recruitment for a certain position is successful, i.e. the employer hires a job seeker through the recruitment agency. A retainer fee, on the other hand, is a fee chargeable to the client regardless if the recruitment drive for a certain position is successful or not. Most of the agencies will use the contingency fee structure; only reputable and proven agencies are demanding enough to charge the retainer fee.

4. How much an agency make for one successful hiring?

That depends on the agreed rate. The governing factors will include salary, position level, how close the agency with the employer, number of positions to be filled and so on. Some examples:

  • For an Accountant position with salary RM4000, the agency may charge a flat one month salary fee to the client i.e. RM4000
  • For 10 Account Assistant positions with salary RM1000 each, the fee can be 50% of monthly salary x number of position, i.e. 50% x 1000 x 10 = RM5000
  • For a Senior Manager with salary RM8000, the fee can be 20% of the manager’s annual basic salary, i.e. 20% x 8000 x 12 = RM19200

5. Why are some agencies charging the job seekers? Should I pay?

The fact that some agencies are charging their job seekers give a few not so good indications. First, it is likely that there are new in the market. A new, unproven recruitment agency will take months, or even years to make steady revenue because it takes time for them to establish their presence and make successful closures.

It can also mean that the agency has not been performing well and has not been able to charge any fees from the clients. As a result, they want to charge the candidates instead, which is not cool. As an advice, if you come across this agency, stay away from them. A good, well established agency will only charge the employers.

6. Why are the agencies paying my salary, instead of my employer?

To illustrate an example, say a recruitment agency RecruitMe send you for a job interview with Swiss Bank and you get the job. It is a 1 year contract during which your salary will be paid by RecruitMe instead of Swiss Bank. Here, you must understand that RecruitMe is not only your agent but the fact that they are paying your salary makes them your employer, not Swiss Bank.

This is part of an outsourcing agreement between Swiss Bank and RecruitMe to have you render your service to Swiss Bank, which is RecruitMe’s client. In fact, all benefits, allowances and other entitlement will come from RecruitMe. You may realize that your compensation differs with those permanent employees of Swiss Bank.

So, as a word of advice, before you go for interview with the bank, get all the details from both parties about the job and ask questions like – “Is this a contract or position?”, “Whose payroll I will be in?”, “If it is a contract under RecruitMe, is there a possibility for permanent transfer to Swiss Bank?” etc.

7. Should I work with recruitment agencies?

Yes, you should very much consider working with recruitment agencies as they can be your source for a dream job. However, always be cautious about the agency, find out information about them – their history, size, industry specialty, branches and others so you don’t end up dealing with a hanky panky type or scam recruitment agencies.

11 Replies to “How Does a Recruitment Agency Work?”

  1. Very well thought out article. I would urge all those who are potentially setting up their own recruitment firm to consider, firstly the type of area and industry they will focus on and specialise in. This is particularly important if most of the organisations are smaller in personnel size, and opt more in recruiting via Flat Fee Recruitment Agencies, than the traditional payment of a 20-30% as explained in the article. As an owner of an SME, and as I have recruited this way successfully I would not consider anything other than by flat fee recruitment, which I have found to be the most cost effective method.

    Food for thought….

    Regards

    Frank

    1. Yes, I would say flat fee system is the most widely used. But the complexity of the recruitment (e.g. difficulty of position) needs must be addressed. For example, hiring a VP would take a lot of time, resources and energy; charging a flat fee can kill you…

  2. A question on licensing – from my understanding, if you want to operate a full-fledged recruitment agency, licensing is definitely required but what about those who run executive search firms? I don’t think they have licenses, esp. those small start-ups. Is this true and would it be possible to run a search firm without having a license?

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