Recruitment Agency Margins – Inside murky world of agency margins

Recruitment Agency Margins
Recruitment Agency Margins

Recruitment Agency Margins

This article, on recruitment agency margins, is from Aussie contractors site

The longer someone has been contracting, the more recruitment agency margins play on their mind. A new contractor is often so happy just to get a job that what the agency is taking doesn‘t bother them.

With more experience, a margin that they perceive as too high can ruin the relationship between a contractor and their agency. In extreme cases, it may lead to the contractor leaving their job, or the agency attempting to replace them.

The best time for contractors to get their cut up is at contract renewal time.

It’s surprisingly difficult to find information about recruitment agency margins in the Australian market. Searching the internet reveals little. Talk to agents about their margins, and the conversation can quickly turn nasty.

I‘ve heard of agents taking 75% of a naive contractor‘s billed rate. I‘ve also seen them go as low as 8% for contractors who found their own job and shopped around for an agent to work through.

Standard Recruitment Agency Margins

So what is a standard or fair rate for an agent to take? This is a much easier question to answer in the UK market, where the standard is 15% of the rate contractors bill before VAT (the equivalent of GST).

Some UK agents will charge a little less, some a little more, but 15% is about average. Of course some will take whatever they can get.

In Australia, most contractors have no idea what their agent should be taking. Some agents refuse to say what their margins are, even making clients sign non-disclosure agreements.

In my last contract, the agent took 25% before GST. I was happy with the job, so didn‘t argue with them too strenuously until renewal time. At that time, getting them to lower the rate was like getting blood from the proverbial stone.

Refusing to Renew Contract

They argued, pressured, threatened to replace me, and called my manager saying I was refusing to renew.

They accused her of breaking the contract by revealing my rate to me.

After days of stressful negotiation, they agreed to drop their rate to 21.5%. Needless to say, this did not impress me.

Contacted Twenty Agencies

To better understand the market, I contacted more than twenty agencies before writing this article. I sent detailed questions and said that I wanted to put forward their point of view.

Only two agents cared to comment, so before we continue, well done to Duncan Amos from Hays IT and Penny Walsh from eurolinkglobal.

‘In today‘s market, the client often fixes margins,’ Amos says. ‘Clients will have preferred suppliers with whom they will negotiate pricing arrangements. These arrangements vary from client to client and usually depend upon the volume of business and exclusivity being clients offer. Clients know that the power has shifted to them recently and they are becoming tougher on agent‘s margins. Government contracts always operate on fixed margins.’

‘Agencies no longer have a free rein in the selection of margins,’ according to Penny Walsh, ‘they are dictated by the clients under preferred supplier arrangements. The days of high margin business are long gone.’

Recruitment Agency Costs

The costs that agents have to cover when you work though them depend upon the type of contract that you have. If you are working directly for the agent, they will have to keep money for PAYG income tax, super (currently 9%), insurance and workers‘ compensation.

If you are going through an umbrella company, or your own limited company, the only mandatory cost is payroll tax of 6%. On top of that, agents have to cover overheads such as office rental, phone costs, salaries, advertising and profits.

‘The margin really equates to the service the agency provides,’ Walsh says. ‘A professional, reputable agency acts in the best interests of both candidates and clients. An agency puts time and money into finding good roles and matching them with candidates with suitable skills and experience, and who are a correct cultural fit into the organisation.’

Recruitment Agencies Provide Valuable Service

Agencies do provide a valuable service, for which they should receive a fair price. They bring in the work, vet candidates, and give contractors advice. They also often pay their contractors before they themselves have been paid by the client.

Cash flow risk is of large concern to recruitment agencies. If the client dawdles with paying their invoice, they can be out of pocket for weeks after they have already paid the contractor.

A fair margin to cover these costs and risks is around 10-20% after on-costs (PAYG, super, payroll tax etc).

If your agent is charging more than that, you should try to negotiate the margin down.

Ask Recruitment Agencies Their Margin

Before signing a new contract, ask your agent what their take of the pie is. Try to get it in writing, if possible.

If the agent refuses to reveal this information to you, it should be regarded as suspicious. It will be up to you whether you want to take the contract under those terms. In rare cases, the client may refuse to let the agent reveal the margins.

You should definitely tell other contractors and your managers what occurred and who the agent was. If agents understand that their customers regard this practice as unacceptable, they‘ll soon feel the pressure to be more forthcoming.

‘I‘m more than happy to disclose margin information and explain why we charge what we do,’ Amos says. ‘To be honest though, in today‘s market, not many people ask me.’

Agencies Provide Best Possible Service

‘If[agencies are providing the best possible services then they can justify their margins,’ Walsh adds.

‘Here in the Australia, clients and contractors are far more in tune with wanting to know what the agency margins are. Eurolink has operated under an open book policy for years; we have certain clients whereby we have signed 3 way contractual agreements, in which all rates, terms and conditions, are exposed.’

If you‘re not willing to ask your agent about their margins, you shouldn‘t be surprised if they are higher than you think.