The employers are searching for the right candidate to hire, and the job applicants are trying hard to find the right job that they want. Job agencies or recruitment agencies are what help form the perfect, rightly-fit bond between employers and job seekers so that both can be satisfied in the end.
So, the question here is – If job agencies help create a good match for job providers and job seekers, how do Job Agencies Make Money? Let us see how the agencies make money by providing temporary staff, contract staff, temp-to-perm staff or contract-to-hire employees to various companies.
What are the sources of income for Job Agencies?
In most cases, the candidates applying for a job do not pay the recruitment agencies. It is the companies that hire these agencies and give them a commission based on the number of candidates they employ and the amount of salary they pay to the hired employee. Some agencies simply take flat fees from the company. So, basically, different job agencies have different methods of collecting fees- their methods and benchmarks differ and subsequently, they earn differently.
With the general trends, it is seen that the recruitment or job agencies collect significantly higher fees for a particular job, or maybe a high-paying job. There are staffing agencies that make the employees work under them for a different company and thus make money from it.
Other sources of money for the job agency are through advertisements sent out to find the candidates telling about job openings and performing initial screenings for the company that hires them. Every job agency has their fee structure, so, it depends on the company looking for suitable candidates to select a structure that will impact on how much they have to pay for the recruitment services of these agencies.
How Job Agencies make money through permanent placements?
There are two job types under permanent placements- Contingency and Retained
For the contingency placement, the candidate accepts the job for a guaranteed period, and likewise, the agency gets paid. Standard costs for such recruitments are between 15 and 20% of the employee’s first annual salary. Here, the competition is high, and the hiring is also done faster so that the job agency gets their suitable candidate placed first.
The job seekers in the market seek permanent placement at a company they will be happy in. Similarly, even the companies would like their employees to be the finest and a perfect fit for the job so that they do not have to replace them frequently. So, from a recruiter’s perspective, getting candidates for a permanent position is easy. Moreover, the job agency makes more money in this case as they do not require much time to find the perfect candidate and their commission from the company that hires them also increases with the efficiency of employees.
On the other hand, under the retained type of job placements, the payment process is staggered. They demand an upfront payment that guarantees exclusivity. Then another payment is taken for delivering the shortlist candidates. Then finally, a payment to the job agency is made for the successful hire of a candidate.
How job agencies make money through temporary placements
Most of the staffing agencies earn money by collecting a percentage that depends on the salary the employee earns. A temp agency charges the companies and business on an hourly basis for the employee’s work, and then the employee is being paid a considerably lower amount. For such positions, the hourly or salary rate you pay the agency includes the fees of the agency.
Mainly, they take 25% of the employer’s rate or salary. These job agencies increase their price with more skilled and hard-to-find jobs. In fact, in some markets, they are seen to be demanding rates as high as 75%.
Hourly commissions are typically demanded for temporary workers and for project-based work. The job agency does not generally provide fringe benefits to the employer because the costs of fringe benefits are not included in the expenditure of the agency. In that way, they only have to pay for the employee’s salary if they are making the employee work for some company.
The earnings of job agencies are inclusive of insurance costs, bank charges and taxes. The amount might seem unreasonably high, but such agencies provide training workshops, organize interviews to prepare the candidate, teach them to make professional and efficient resumes and give opportunities for team building activities.
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Direct and temp-to-perm placements
When a job agency directly places an employee into the company instead of making the employee work for the agency itself, they collect money depending on the employee’s pay. Rather than collecting payment continuously throughout a period, such agencies demand a percentage of the amount the employee will make in their first working year.
This percentage can bump up to 50% for highly special and executive job positions. For such job types, the job agency can ask the company to pay the fee in a bulk payment or over some time, beginning from the time when either the position was filled or from the time when the employee has been working under the company, performing the designated role for 90 days.
In a temp-to-perm arrangement, before becoming a permanent employee, the worker works as a temporary employee with the agency for a short span of time. For such recruitment types, the job agency can ask for a hybrid type of payment where the business or the company pays them based on the monthly wage of the recruited employee and also a lump sum amount.
While job agencies might seem a fancy option for big companies, they are one of the most efficient tools in the world of recruitment and personnel management as they help the employees ( the candidates) and the employers ( the companies) to find the right fit for their needs. They earn through a lot of ways depending on the type of recruitment and their fees structure, which can be thoroughly analyzed by a company looking for candidates to change the rate they pay.