There are some recruiters out there that unfortunately give the industry a bad name. I want to pull the curtain back because there seems to be a lot of mystery around what recruiters do and how they are compensated. The truth is, there are a lot of different types of recruiters, and each have their own different strengths and weaknesses.
As a job seeker, working with a recruiter who is an industry expert can help maximize your options, and ensure you get a fair market offer. Since a recent survey determined only around 39% of people negotiated salary during their last job move the majority of candidates leave money on the table. As an employer, the right recruiter can be invaluable source of specialized candidates, and can serve as a valued partner in evaluating talent. In both cases the recruiter serves to bridge the gap between a hiring manager and their future colleague, helping to create a more cohesive hiring experience. If you hire the right recruiter, that is.
Here are the different types of recruiters, why companies hire each and what you should keep in mind during your conversation with them.
Agency/Contract House Recruiters
These are the recruiters that candidates have the most experience with early on in their career. Also known as temp or staffing agencies, these guys are all about volume. They are the big contract houses. These companies have divisions that cover everything from customer service to sales, marketing and construction management.
When do companies use them? Contract houses offer flexibility to hire and release employees due to demand or when people are needed for limited term projects but there is uncertainty about whether these roles will become long term. Some examples of this are for seasonal workers or roles with a high degree of turnover.
The advantage of working with a contract house is their hiring speed. They have a big database of contractors and people who can start ASAP. They also take all the risk and act as the employer, providing liability, insurance, benefits and payroll services.
“We recruit an almost completely new workforce each summer as most of our employees only stay in Mallorca for one season,” said Sam Howard, Director, Magaluf Tickets. “We work with high volume recruitment companies for two reasons. First is that as people leave throughout the season they have enough new recruits to replace them and second is that they had a good range of people from various backgrounds which mirrors our customer base and so provides maximum familiarity for our customers.”
As an employer, a contract house can be a great resource for temporary needs or for contract-to-hire positions so you can “try before you buy.” However, since their primary focus is on high volumes of contract employees, they are not the best resource to fill specialized or high demand positions. Candidates with these skills sets are typically employed and are rarely open to contract work, and therefore not likely to be part of a typical contract house recruiter’s network. Similarly for a job seeker, a contract house can be a great resource to get work when you need it, especially if you are unemployed. For job seekers that are gainfully employed and only passively open to new opportunities though, a more specialized recruiter would be a better choice.
How do they get paid? There is a large markup on the hourly rate of the person, and this covers benefits and administrative work. We often recommend corporate clients such as factory workers use these firms to reduce internal administrative tasks.
Usually when someone says they are “working with a recruiter,” it is a contingency recruiter. These recruiters do not get paid unless they close the deal and there is no exclusivity. Recruiters can send resumes to multiple companies and companies can use multiple recruiting firms.
The best part about hiring a contingency recruiter is that they are 100% vested in closing the deal, since they are not paid until they fill a position. These recruiters often focus in a specialized niche and since they are not high volume, they can provide a more intimate experience than contract houses.
What to watch out for: sometimes these recruiters send their best candidates to the firms that pay the highest recruiting fees. So negotiating down the recruiting fee may result in them placing their best talent elsewhere. They also are still somewhat volume driven because if they have a good candidate they have to find them a home. Also, while they are invested in deals, they are not invested in 100% closing your deal because there is no exclusivity. You cannot depend on them as your exclusive recruiter.
Contingency recruiters typically charge a percentage (20-30%) of the first year starting salary of the candidates they place.
Retained Search Firm
These recruiters have the expertise to find executive or highly specialized talent. They usually focus on roles such as VP level and above, or they work in a niche where their depth of experience makes them uniquely qualified to find people with highly specific skill sets. There are several advantages to this. That firm owns the search, manages the entire process and will spend a lot of time dedicated to one company or role. They will be more high touch with both the company and the candidates than contract houses or even contingency search, because finding executives or highly specialized candidates requires a lot of specified screening, courting, and time. Additionally, retained search firms will bring a very strong candidate network of their own.
One disadvantage of hiring these search firms include the fact that their expertise and laser focus makes them more expensive. Typically, they are paid a fee around 33% of the candidate’s first year salary. This is divided into payments of either 50% up front to cover their time and 50% when they close a candidate or 1/3 upfront, 1/3 after specific milestones and 1/3 after delivery. Some have moved to a flat fee or take specific searches in a particular market, i.e., C-suite roles of Fortune 500 companies.
There are two types of internal recruiters: full time internal employees who generally work on salary, and internal contract recruiters who are paid by the hour for a short-term contract. Generally, they collaborate with employees to find internal referrals in employees’ networks and work with candidates who apply through the company’s own job postings. The best part of having someone on the inside spearhead the hiring process is that they know the culture and the nuances of each hiring manager, the inside scoop on how candidates are evaluated, and what each team dynamic is like to work in. Internal recruiters are not only focused on closing the deal, but also on making sure the person is a success after being hired. As a result, they can be great resources for building and keeping a strong culture as a company grows.
As an employer, there are two downsides to an internal recruiter. First, as the name implies they are primarily internally focused. This is great for employee referrals and company culture, but not ideal for edge case scenarios when you need someone to actively go out into the market and pursue candidates for specialized roles. Second, an internal recruiter is your employee. Agency and contingency recruiters work on a project basis, only get paid when they succeed, and can be scaled very quickly when you need them. An internal recruiter has the same management needs and requires the same investment as any other employee. This can be hard for employers to properly provide in an early stage company, especially when both time and money are already in short supply.
Compensation for these types of recruiters are salary or hourly rather than commission and varies by location and by industry, with technical recruiters generally demanding the highest wages.
Because I come from the in-house world, my partner and I wanted to create a hybrid system that could combine the internal knowledge and partnership that comes with hiring an internal recruiter without losing the external headhunter aspect of a precision search firm. This hybrid approach leverages the fact that we are deeply ingrained in our clients’ culture but we are highly trained snipers that can quickly go in and find the right person beyond the company’s current network. We also serve as expert consultants in areas that go beyond traditional recruiting, such as headcount planning, lead time, strategy, evaluation of potential salary budgeting and forecasting, gap analysis, external evaluation of the current organizational team relative to milestones that the team needs to hit. This is often too much work for internal recruiters to handle alone.
The Best Employers are Personally Invested in Their Search
No matter which type of recruiter you speak with, some tips hold true for working with all of them. It is generally a bad idea to work with multiple recruiters. Some, especially the large contract or contingency search firms, will submit candidates proactively for roles. If the company gives feedback to the recruiter that the candidate has already been submitted, then that recruiter will probably stop submitting the person and move on to other candidates. Lastly, this is all about relationships, so if you are able to establish a good working relationship with your recruiter, and your goals and values are aligned, they will be able to send great people your way to build your team.