Do headhunters and recruiters cost money when utilizing them to find you a job? The short answer, is yes and no, it depends on the situation. Typically, there are two types of headhunters/recruiters in the world. One is recommended to work with while I would highly recommend avoiding the other type of recruiter, except for select situations. Let’s break it down below.
Agency (3rd party) Headhunters and Recruiters:
Agency based 3rd party recruiters typically work on a base salary plus commission for an established company, be it in your geographical location or outside of it. These recruiters fill positions for other companies, called “clients”, and are paid a commission based upon how many individuals they place at client companies and how profitable they are for the company.
Working with an agency recruiter should NEVER cost you money, although the way in which these individuals get paid is important to note because it can directly affect your future compensation.
The commission structure differs from recruiting agency to recruiting agency, however there are two main concepts of how recruiters make money that you should be aware of.
Contract or Contract to Hire
In contract or contract-to-hire positions, recruiting companies make money by paying a consultant (you) an hourly rate and charging the client (the company you’re working directly for) another hourly rate. This set up might look something like below.
I’m working on a 12-month contract at a company through a 3rd party recruiting agency. I work onsite every single day at my company, but my paychecks come from the recruiting agency that originally placed me.
My recruiting agency pays me $25/hour of work.
My recruiting agency will actually charge the company I’m working with a marked-up bill rate, usually anywhere from 50-100% of your hourly rate. That rate may be anywhere from $35/hr to $50/hr depending on how difficult it is to staff the position, how hungry they are for revenue and how strong of a relationship they have with the client.
In this case, your recruiting agency may be more inclined to charge the client a standard rate, but pay you as little as possible, to increase their margin (also called “spread” in the recruiting industry). In a contract scenario, it’s best to negotiate your hourly rate as high as possible, so that you’re the one making a good portion of the bill rate, not just the recruiting agency making a huge margin.
Permanent, direct-hire positions
This section is actually pulled directly from one of our previous articles, discussing “How to Negotiate with Recruiters”, and explains how recruiters get paid on direct-hire placements. The answer to the question of whether recruiters cost money in this instance is, no, they don’t! And as you can see below, they’re incentivized to get you a higher salary!
The more you make, the more agency recruiters make
Yes, you heard that correctly. The higher salary you receive for a position that a permanent position that a recruiter places you in, the higher commission that recruiter will likely receive. This is because, for permanent positions, recruiting companies bill their clients a percentage of your starting salary (typically 10-25%), which is then payed out in smaller commission rates to the placing recruiter.
A recruiter places you at a salary of $90,000 per year. The recruiting company charges your new employer 20% of your salary. So the recruiting company generates $18,000 in revenue, which the recruiter will then receive commission on.
Or… A recruiter places you at a salary of $100,000 per year. The recruiting company charges your new employer 20% of your salary. So the recruiting company generates $20,000 in revenue, which the recruiter will then receive commission on.
So in the mindset of the recruiter, which position would you rather place someone at? A position that generates $18,000 in revenue or a position that generates $20,000 in revenue. Obvious answer!
Diving deeper into the conversation, you can’t price yourself out of the position or go for an excessive salary just because you and the recruiter have an incentive to make more. However, knowing that recruiters will make more if you make more in this situation is usually a great thing to keep in mind in the negotiation phases.
There are recruiters out in the world that charge a fee to the candidate for their services. Personally, I wouldn’t work with these individuals. Why? Because why pay for something when you can receive the same exact, if not better, service for free! This individuals will usually charge a standard fee to the job candidate, so you’re essentially paying this recruiter to directly find you a job.
There are some cases where this might be a good thing, if you have extra money and you prefer to have someone work for you and only you. But, in my opinion, if you can work a relationship correctly with an agency recruiter, there is no need to pay a fee to a recruiter for work that can be done for free and charge to your future employer!
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