How Recruiters Get Compensated

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As a recruiter, I’m compensated based on the portion my company takes in. My current company handles both contract and direct hire work and I’ll explain details for both of these.

For direct hire work, we charge our clients a percentage of a candidates first year salary. These percentages range from 15% up to 25%, with the occasional 30% mixed in. For example, if your first year salary would be $100,000 and we had a 20% agreement with our client, they would pay us $20,000. Most of the time, this $20,000 would be paid between 30-90 days of employment. Of course, if you were to quit, get fired, etc, we would pay back a pro-rated portion of that fee.

Now, of that 20%, most recruiters would see somewhere around 10% of that. So, on a $20,000 fee, a recruiter would see $2,000. An account manager would see a similar amount.

Contract work is a bit different. Most of the time, our client will tell us what they need as far as skills go, and then tell us a bill rate that they’ll pay us, per hour. Let’s just say that’s $100/HR. My job at that point, is to go find someone with that skillset. Let’s say I do just that, and that person is asking for $60/HR. Assuming this person works on my company’s W2 (and not as an independent consultant), we incur an additional burden, somewhere between 15% and 20%. Add that in and that candidate’s total cost to us could be as high as $72/HR. At this point, the difference between the bill rate and the pay rate (what we call, the spread) is $28/HR.

Recruiting companies compensate contract placements differently. Some companies make tiers out of it. For example, a $5 spread earns you 3%, a $7 spread earns you 5%, a $10 spread earns you 7%, so on and so forth. Some companies will compensate you based on how much you’ve built up. For example, if you’re making $100/HR in spread, a company will pay you 5%, if you’re making $200/HR in spread, you’ll be compensated at $7%, etc. Another way to compensate it is based on the margin %. If my margin is 30% (Pay Rate * 130% = Bill Rate), then perhaps I’ll get a certain percentage. If my margin is 40%, then I’ll get a higher percentage. There’s just a wide variety of ways of doing things.

Now, admittedly, recruiters have an incentive to lower your contract dollars in order to make more money. It happens. It’s a practice. We’re not trying to hurt anyone. It’s just a practice that’s taught and we’re just trying to do the best for our company. But personally, I’d much rather keep a $10 spread, keep you as a candidate happy, and make a placement, instead of haggling with you for an extra few dollars, leave a bad taste in your mouth, and you look for a new job two months into a contract. That’s just me though.

Jacob Smith

Jacob Smith / @jacobsjobs

Technical Recruiter, currently in Atlanta, GA