The three models
A contingency recruiter is paid nothing until somebody starts, so their working day goes to the roles most likely to close. If your brief is hard, it is not the one they are working on this afternoon.
That is not cynicism about recruiters. It is what the payment model rewards, and any honest recruiter will say the same.
| You pay | When | The firm's incentive | |
|---|---|---|---|
| Contingency | 15 to 25 per cent of salary | Only on a placement | Speed and volume |
| Exclusive contingency | Slightly less, often 15 to 20 per cent | Only on a placement | Speed, with less competition |
| Retained | 25 to 33 per cent of first-year earnings | In thirds, through the search | Completing the mandate |
VAT and the other line items
In the UK, agency fees carry VAT at the standard rate. On a £45,000 fee that is £9,000 you need in the budget, recoverable if you are VAT registered but real cashflow either way.
Advertising, assessment and psychometrics are often billed separately. Ask whether they are inside the fee or on top, and ask for a cap.
What a rebate actually protects
Most agreements offer a sliding rebate if the hire leaves early: often 100 per cent inside a month, falling to nothing by three. Some firms offer a free replacement instead, which is worth more.
Neither covers the real loss. If a senior hire leaves at four months you have lost two quarters of the function, not a percentage of a fee.
Fee by level
The percentage rises with seniority because the pool narrows, not because the work scales. Worth remembering when a firm defends its rate as reflecting effort.
| Level | UK contingency | Typical salary | Fee in money |
|---|---|---|---|
| Junior to mid | 12 to 18 per cent | £35,000 | £4,200 to £6,300 |
| Senior specialist | 15 to 20 per cent | £65,000 | £9,750 to £13,000 |
| Manager, head of | 18 to 22 per cent | £90,000 | £16,200 to £19,800 |
| Director | 20 to 25 per cent | £130,000 | £26,000 to £32,500 |
| C-suite | Usually retained instead | £150,000+ | 25 to 33 per cent of first-year earnings |
Temporary, contract and interim are priced differently
None of the above applies to a contractor. There the agency takes a margin on the day rate: you pay a charge rate, the contractor receives a pay rate, and the difference is the agency's.
Margins run from about 15 per cent on a long volume contract to 40 per cent or more on a short specialist one. The number you should ask for is the margin, not the charge rate, and many agencies will not volunteer it.
| What you pay | What the person gets | The agency keeps | |
|---|---|---|---|
| Typical interim | £800 a day | £560 to £680 | £120 to £240 a day |
| Over a 3-month engagement | About £52,000 | £36,400 to £44,200 | £7,800 to £15,600 |
| Direct engagement | The rate you agree | All of it | Nothing |
What a preferred supplier agreement changes
A PSL is a negotiated rate card across all your hiring in exchange for volume. Rates typically drop three to eight points, and the trade is that your roles go to a fixed set of agencies whether or not they are the right ones for a given seat.
It is a good deal for volume hiring and a poor one for a single senior seat, because the agency on your PSL may have no depth at all in that function. Carve out executive hires from the PSL when you sign it.
Rebate or replacement: they are not the same
Both are offered as protection and only one of them protects you. A rebate returns money. A replacement returns a person, which is what you actually lost.
| Rebate | Free replacement | |
|---|---|---|
| What you get back | A share of the fee | Another search, no fee |
| Typical terms | 100 per cent inside 4 weeks, sliding to nil by 12 | One replacement inside 3 to 12 months |
| Covers the vacancy again | No | Partly |
| Usually voided by | Redundancy, restructure, your own conduct | The same list |
| Worth more | Rarely | Almost always |
Ask what voids it, in writing
- Redundancy or a restructure inside the period. Almost always voids it.
- A change of reporting line or scope. Often voids it, and this is the one that catches people.
- The hire leaving for a counter-offer from their old employer. Sometimes excluded.
- Any delay in paying the original invoice. Frequently voids the whole guarantee, and it is buried.
What changes outside the UK
| Contingency | Retained | Note | |
|---|---|---|---|
| United Kingdom | 15 to 25 per cent | 25 to 33 per cent | VAT on top at the standard rate |
| United States | 20 to 25 per cent | 30 to 35 per cent | Charged on first-year cash; confirm whether equity counts |
| Germany and the Netherlands | 18 to 25 per cent | 25 to 33 per cent | Longer notice periods; works councils can affect timing |
| UAE | 15 to 25 per cent | 25 to 33 per cent | Visa sponsorship and relocation usually sit outside the fee |
Why do recruitment agencies charge so much?
Because most of the work an agency does is never paid for. A contingency agency earns nothing on the roles it works and does not fill, so the fee on each placement carries the cost of the ones that did not close, as well as the desk behind it.
A recruiter typically keeps 10 to 20 per cent of the fee as commission. The rest covers the desk: job boards, licences, data, the researchers, and the roles that never closed.
This is worth knowing for one reason. When a recruiter will not move on fee, it is often genuinely not theirs to move. When they will not move on terms, that is a choice.
What is worth negotiating
- The base the percentage is charged on, and whether bonus counts.
- An expense cap, or expenses inside the fee.
- The guarantee period, and exactly what voids it.
- Payment terms: thirty days from invoice rather than on offer acceptance is normal and rarely refused.
Common questions
Do recruitment fees have VAT?
In the UK, yes, at the standard rate on the whole fee. Budget for it as cash even if you can recover it.
Are recruitment fees tax deductible?
For a UK company, generally yes: a fee paid to recruit staff for the trade is normally an allowable business expense against corporation tax, and the VAT is recoverable if the company is VAT registered. Confirm the treatment of any unusual arrangement with your accountant.
What is a normal recruitment fee percentage?
Contingency is typically 15 to 25 per cent of salary in the UK and 20 to 25 per cent in the US. Retained executive search sits higher, at 25 to 33 per cent and 30 to 35 per cent respectively.
How do agencies charge for contractors?
As a margin on the day rate rather than a percentage of salary. You pay a charge rate, the contractor gets a pay rate, and the difference is the agency's. Margins run from about 15 per cent to 40 per cent. Ask for the margin, not the charge rate.
What is a preferred supplier list?
A negotiated rate card across your hiring in exchange for volume, usually three to eight points below standard. Good for volume roles, poor for a single senior seat, so carve executive hires out when you sign.
How much of the fee does the recruiter keep?
Typically 10 to 20 per cent as personal commission. The rest covers the desk and the roles that never closed, which is why fee often genuinely cannot move even when terms can.
More of them, on hiring, contracts and what a fractional engagement costs, on the fractional executive FAQ.