The term employment agency fee refers to a fee paid by a company to an employment agency when it successfully places a suitable employee with that employer. Fees tend to vary widely from one agency to another, as they are at the discretion of the agency. There are two types of employment agency fees: employer-paid fees and applicant-paid fees.
Key Takeaways
- Employment agency fees are payments made by a company to an agency for successfully placing an employee.
- With employer-paid fees, the employer bears the cost, so the employee pays nothing.
- Applicant-paid fees are less common and typically involve a portion of the worker’s hourly pay during a contract term.
Understanding Employment Agency Fees
Companies hire workers through various methods—directly by advertising positions through their own HR departments or through employment agencies. Agencies are organizations that do the legwork for employers. They post positions, find, and match employers with temporary and contract employees.
Employment agencies may earn fees from any employer, whether they’re public organizations or private companies. Different employment agencies may have different methods of negotiating and charging fees. With employment agency fees (also referred to as placement agency fees), how and how much an agency may charge often depends on a variety of factors, including the difficulty of the placement, the industry, the position, market conditions, and several other factors. Fees are generally contingent on both parties—employer and employee—coming to an agreement on an employment contract or the terms of employment.
Specialized Recruiters
Headhunters are one type of recruitment service. These professionals are hired by major firms to locate talent, especially those who fall into a specific category. Because most headhunters work directly with executives, they are also called executive recruiters. Their fees are normally paid only when and if the candidate is hired.
Types of Employment Agency Fees
As 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 assumes complete responsibility for the fee to the agency, so the employee pays nothing. This is the more common type of fee arrangement and is preferred by employment agencies. The hiring company may even factor in these costs when determining compensation for a role.
For example, headhunters charge for their services once an employee is hired, and their fees range anywhere between 20% to 30% of the new hire’s first-year salary. This fee is paid directly by the hiring company to the agency rather than by the employee.
With the rise of telecommunications and IT companies, some employment agencies have become the official employer, allowing companies to contract employees’ services through them. In such scenarios, companies pay a monthly fee to the employment agency, which manages the employees directly, who technically work for the agency, not the company.
Applicant-Paid Fees
In this less common fee arrangement, the employment agency charges the applicant for the job placement service. This often means that a staffing agency claims a portion of a worker’s hourly pay during the contract term.
For instance, if a worker is offered a 12-month contract position at $49 an hour, the hiring company may actually have $60 an hour budgeted. The employment agency could pocket the difference or part of the difference, instead of charging a one-time fee, often without the employee knowing the details.
Although agencies receive fees to match people with employers, employees should be cautious of agencies that charge them directly for placement services. A reputable agency should never ask for a fee from the candidate to find them work or to place them with an employer.
Related Terms: recruitment service, headhunters, staffing agencies.
