What Are Employment Agency Fees?

What Are Employment Agency Fees?

Let me explain what employment agency fees are: they're fees paid by a company to an employment agency when it successfully places a suitable employee with that employer. These fees vary widely from one agency to another, since they're set at the agency's discretion. You'll find two main types—employer-paid fees and applicant-paid fees.

Key Takeaways

You need to know that employment agency fees are paid by a company to an employment agency when it successfully places a suitable employee with that employer. With employer-paid fees, the employer pays the fee to the agency, so the employee pays nothing. Applicant-paid fees are less common and are normally claimed as a portion of a worker's hourly pay during the term of a contract.

Understanding Employment Agency Fees

Companies hire workers in different ways—either directly through their own HR departments by advertising positions or by using employment agencies. These agencies handle the legwork for employers: they post positions, find candidates, and match them with temporary or contract roles.

Employment agencies can earn fees from any employer, whether it's a public organization or a private company. Different agencies have their own methods for negotiating and charging fees. With employment agency fees, also known as placement agency fees, the amount and method often depend on factors like the difficulty of the placement, the industry, the position, market conditions, and more. These fees are generally contingent on both the employer and employee agreeing to an employment contract or terms.

Remember, employment agency fees are normally contingent on the employee being hired. Headhunters are a specific type of recruitment service. They're hired by major firms to find talent in particular categories. Since most headhunters work with executives, they're also called executive recruiters. Their fees are paid only when and if the candidate is hired.

Types of Employment Agency Fees

As I mentioned, there are two types of employment agency fees—employer-paid and applicant-paid fees.

Employer-Paid Fees

Under the employer-paid fee arrangement, the employer takes full responsibility for the fee to the agency, so the employee pays nothing. This is the more common setup and the one preferred by employment agencies. You might not even notice a fee is involved, as the hiring company could factor it into their overall hiring costs when setting compensation for the role.

Headhunters get paid for their services once an employee is hired, with fees ranging from 20% to 30% of the new hire's first-year salary. This is paid directly by the hiring company to the agency, not by the employee.

With the growth of telecommunications and IT companies, there's another variation of employer-paid fees. Some employment agencies act as the employer, and a hiring company contracts for the services of those employees from the agency. The company pays the agency a monthly fee for the employees instead of paying the employees directly. In this case, the employees remain on the agency's payroll, not the company's.

Applicant-Paid Fees

In this arrangement, also called employee-paid fees, the employment agency charges the applicant for finding an employer. This usually means the agency, acting as a staffing agency, claims a portion of the worker's hourly pay during the contract term.

For instance, if you're offered a 12-month contract at $49 an hour, the hiring company might have budgeted $60 an hour. The agency could pocket the difference or part of it as their fee, without you knowing about the setup.

Even though agencies get fees for matching people with employers, you should be cautious of any that charge you directly for placement services. A legitimate agency never charges an employee a fee to find work or place them with an employer.