Do Recruiters Take a Cut of your Salary?

A common question among people who start working with a staffing agency is if the recruiter will take a cut of your salary.

It’s a reasonable question to ask. Because many people don’t know exactly how staffing agencies work. And it can be confusing. There is a lot of mystery surrounding the process of recruiting agencies.

The entire process of how a staffing agency is paid is mysterious, and most staffing agencies do nothing to make it clear to the people who work with them.

What I’ve set out to do here is to demystify the process. It will help make everything a bit clearer because the staffing industry is completely unclear when it comes to pricing, billing, and pay rates.

How Do Agencies Get Paid?

There are two different ways that agencies can get paid. The first one, which is typical amongst higher end staffing firms, is that the staffing agency marks up the bill rate.

The second methods which you find commonly among lower level staffing agencies, is that the client pats nothing and the profit is taken from the candidate’s salary. This can happen one of two ways:

1. The first way that a staffing agency can take the profit via a candidates salary is by a weekly deduction from their paycheck for a set number of weeks.
2. The second way –and one which is highly controversial- is to take a set fee from a candidate. This is something I suggest everyone run far away from. The reason is that if the staffing agency requests the fee before hand, you’re dealing with a low rent agency that might be dealing with shady companies.

Moral of the story is to stick to agencies that do not take a cut of your salary.

Do Recruitment Agencies Take a Cut of Your Salary?

Most recruitment agencies do not directly take a cut of your salary. However, they do profit from your pay in different ways.

Suppose that the staffing agency that you contact wants to pay you $20 an hour. Well, if that’s the case, then they have two options. The first is to bill the client at a higher number. So, for example, if Jane Doe is working as an admin and she is being paid $20 an hour, then the staffing agency can mark up her bill rate for the client. They might choose to bill the client $30 an hour. That provides the staffing agency with a %50 markup.

The other way that recruitment agencies make money is to take a fee. This fee is taken directly from the client in the form of a direct hire fee. For example, when a client is hiring someone for a perm role, and they want

How Much of a Cut do Recruiters Take?

The percentage depends upon the agency you are working with. Some agencies charge a higher fee than others, and that all depends upon what agency you are working with.

The main way that a recruiter takes their cut is by the direct payment. This comes in the form of a one-time fee that the agency gets a fee of. For instance, suppose candidate X is offered a salary of $90,000 dollars. And the contract will stipulate the percentage that is charged.

Do Recruiters Get Paid from your Salary?

The method by which recruiters get paid depends on the agency that the recruiter works for. Some temp and direct hire agencies pay their recruiters based upon sliding scales. Or they pay them a fixed rate dependent upon the direct hire contingency plans.

The most important thing to understand is that a recruiter is advocating for you to work. If you don’t work, they don’t make money. The method by which they make money differs from agency to agency.

This depends upon the company that you are working with. Some firms do take a percentage from your salary. I will elaborate on this below with some firm examples of how different agencies work with regards to staffing and recruiting and payment.

The way that this works is that the company has a set number in mind for a permanent salary. That number might be something along the number of 30%. If it’s attractive, then you can move forward and work with the firm and when the candidate is placed you (as the recruiter and agency) will receive 30 percent of the candidates eventual salary.

The more common method is for the recruiting firm to charge a higher bill rate for service provide than the pay rate to their temp workers.

For instance, if an administrative assistant is being paid $16 an hour, then the staffing firm is going to charge the client anywhere from $24 to $36 an hour. The spread and the markup depends upon how high they can negotiate. With large government funded non-profits, there are large markups. Smaller white collar companies have smaller budgets.

This is why government funded projects (social welfare agencies, and other tax payer funded companies) have so many firms working with them. Their budgets are automatically approved due to legal processes, grant writers being creative, and enormous legal pressure.

Examples of How Recruiters Get Paid From Your Salary:

Example 1: A Direct Hire Executive Search

This is a typical compensation package for a executive search recruiter. Essentially, what happens is that the recruiter will take a percentage of the firms cut. So, here’s an example.

Jamie is an executive recruiter at Acme Recruiting. His comp package with this agency is that he will be paid a base salary of 50k and receive 30% of all direct hire commission.  After placing a marketing director at a salary of 180k, Jamie is entitled to make 30% of the firms percentage.

The tricky thing here is that Jamie should know what the percentage is. If the firm he is working for is going to take 35% of the placements first year salary. Then Jamie is entitled to make 20% of 35%.

However, as is often the case in staffing firms, Jamie might now know exactly what the staffing firm’s contract details were. This is why there is such a high turnover in staffing and why recruiters jump from agency to agency. Jamie is entitled to $10,800. However, in many cases the agency might only give Jamie 5k and tell him the contract details were different. That’s why recruiters tend to jump ship over and over.

Successful executive recruiters tend to want to end up in partnership positions because the people who run agencies never want to pay their recruiters honestly.  So, instead of making 10k on a placement, Jamie might make 5k or even less. This is why you see recruiters on LinkedIn agency hopping so frequently.

Example 2: The Temp Hire Method

This is a more common example in all manners of recruiting agencies. What happens here is that a person is seeking a job, comes to the job search agency, and then is placed successfully in a job.

The method of payment and compensation is a bit different and seems convoluted but is actually quite clear to comprehend. Let’s take as an example the case of Billy Joe who is going to start working as an administrative assistant for Acme Company.

So, Billy Joe is recruited by Jamie the recruiter to work as an admin assistant. Here is how that pay and salary and recruiter compensation will breakdown.

Billy Joe is going to be paid $16 an hour. The client will be billed at $30 an hour. That’s close to an 80 percent markup.

So, how does Jamie the recruiter make money? Well, at his agency, he is paid 5% of the spread. That amounts to seventy cents per hour. Where does the other money go to? Good questions. But first, let’s look at Jamie’s commission.

For every hour that Billy Joe works, Jamie will make seventy cents. For a 40-hour work week, he will make around $28 dollars.

The agency, on the other hand, will make around $13.5 an hour. That is a huge number. Of course, you have to deduct the costs associated with running a temp agency (capped at around 30%) and so that number might be 9 dollars.

So, Billy Joe the admin who is making $16 an hour is making Jamie the Recruiter seventy cents an hour and the agency they all work for $13 an hour.

Obviously the clear takeaway here is that recruiters at temp agencies do not make much money unless they can make a high volume of placements. You will not get rich placing one or two admins. Your boss will. The person who runs the agency will. But aside from that, it’s nothing that will make you rich.

Jamie the Recruiter will take home: $28 dollars a week for placing an administrative assistance.

Jamie’s boss (the one who runs the agency) will take home: $530 dollars a week.