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NIJ
08-06-2012, 01:57 PM
Hi Everyone, I'm hoping you can provide me with a little bit of advice in regard to using recruitment agencies. I run a small IT company and up to now have always managed the hiring of new staff myself. We've just won a fairly large contract and need to hire staff in multiple roles over the next few months. With everything that's entailed in this new piece of work I just don't have the time to be posting ads, sifting through resume's etc...and was therefore considering recruitment agencies. Having never used them before I was hoping to understand:
Any pitfalls or things to be aware of when dealing with agencies.
More importantly, understand what fees and charges I can expect to outlay for both permanent and contractor resources recruited by an agency - I've heard the fee is about 20% of the salary which seems expensive.
Basically any other advice you can give me.

Thank you for taking the time to read this - all advice really is welcome.

Best regards

Nate

Moz
13-06-2012, 01:26 PM
Hi Everyone, I'm hoping you can provide me with a little bit of advice in regard to using recruitment agencies. I run a small IT company and up to now have always managed the hiring of new staff myself. We've just won a fairly large contract and need to hire staff in multiple roles over the next few months. With everything that's entailed in this new piece of work I just don't have the time to be posting ads, sifting through resume's etc...and was therefore considering recruitment agencies.

Hi Nate,
I'm an ex recruiter so I can shed some light on this.

Fees for permanent recruitment are usually calculated as a percentage of the total salary package value, typically this will be in the range 12% - 18%. The more senior and/or skilled the person required, the higher the fee is likely to be and it can be higher than this; 20%-25% is not unheard of for senior appointments. You’re only likely to find the 12% fee in the junior/unskilled labour market.

Fees are often negotiable at the outset, but don't try to negotiate fees at the end of the process.

Many agencies work on a "contingency" basis, meaning they only charge a fee if they make a placement with you (you hire someone they refer to you). Unfortunately many employers take advantage of this and give their requirements to multiple agencies, but this drives a lot of bad behaviour in my opinion.

Other modus operandi include contingency but on an exclusive basis, and "retained", which means you pay a "retainer" up front, usually one third of the projected fee, followed by another third of the fee on presentation of a short list and the balance of the fee on placement (when the new hire actually starts working for you).

Most agencies will offer a "replacement guarantee", which means they will find a replacement (do the work again) if the person hired leaves or is fired within a certain time frame (usually six months). There are likely to be certain conditions attached to this guarantee - such as the job being represented accurately in the hiring process and you paying the fee within the trading terms of the agency - there may be other conditions.

Personally I don't see why an agency should guarantee the performance of the employee, because it is completely out of their control, as are many other factors which could result in a person leaving during the guarantee period. Furthermore, you are not buying a "person", you are buying the recruitment “service” (because you don’t have the time to do it yourself). I also feel that the employer needs to take responsibility for the person they hire. Nevertheless, this is how the industry has been forced to operate as long as I can remember.

That said, agencies who provide a thorough and professional service are rarely called upon provide a replacement under the guarantee.

My advice would be to choose a single agency and give the job to them on an contingency basis, but exclusively. Meaning that you won’t give the job to any other agencies and will not accept resumes from other agencies if they find out that you are recruiting, (which they probably will).

Most agencies will value exclusivity (because it dramatically increases the likelihood of getting paid for their efforts) and may be willing to reduce their fee. However I would caution against trying to negotiate a fee below 15%, because if there is too great a differential between your fee structure and that of their other clients, guess who’s going to see the best candidates first!

With regard to hiring contractors from a recruitment agency, expect to pay an hourly rate + “on costs” (super, payroll tax and possibly an admin charge) + the agency’s “margin”, which is effectively a recruitment service fee levied on an hourly basis. The total cost should be hourly rate + 25% - 30%. Bear in mind also that the hourly rate will be higher than that of a comparable permanent employee because the rate will be loaded to compensate for lack of sick leave, annual leave and public holidays will be built into the rate, (with contract employees you usually only pay for the hours they work).

I almost forgot specialization. Use an agency who has a proved track record of recruiting the type of people you are looking for. That doesn’t just mean a specialization in “IT”, because as you would know there are lots of specialized streams within the IT sector, and a consultant who specialises in DBAs won’t know the first thing about the market for network specialists, for example.

Quite often specialist IT recruitment firms will have consultants who specialize in certain technical streams.

There are a huge variety of IT recruitment firms to choose from, from big multi nationals down to one man bands. Having worked in (and been an executive manager) in both, I would be more likely to choose a small to medium sized firm, although if you are hiring contractors it’s important to go with a company that has good processes in place and is sufficiently well financed (it’s important your contractors get paid on time).

That said, there are good and bad operators at both ends of the spectrum and at the end of the day it’s often the individual recruitment consultants you deal with that make the difference. I would make sure the consultant(s) manage the whole recruitment life cycle themselves, as opposed to “account managers” who have a hierarchy of faceless schleppers to do all the work! The latter is more common in the larger firms.

It’s worth asking to see the agency's pro forma contract documents just to make sure there are no unacceptable clauses in there before you get too far down the track. It is common for a permanent placement fee to be payable if you employ a contractor directly or indirectly through another entity, within 12 months of that contractor providing services to you. Make sure the contract includes a termination clause.

However, some agencies will discount the fee according to the length of time they have supplied that person on a contract basis.


Personally I would also ask to see the pro forma contract that they ask the individual contractors to sign. This may make some agencies uncomfortable, but they shouldn't really have anything to hide and it gives you the opportunity to make sure their clauses regarding confidentiality and intellectual property provide sufficient protection for you and your customer.

There’s so much more to this topic, but I can’t spare any more time right now. I hope this helps and isn’t too disjointed!

Let me know if you have any specific questions.

Moz.

Steve51
14-06-2012, 06:16 PM
Hi Nate, The biggest obstruction to getting a good result from any reputable recruitment agency is not clearly defining your requirements. Make sure that you have a clear PD and selection criteria, and insist on your minimum requirements being met. This offering is based on 40 yrs experience in HR, and several years heading up a large recruitment unit, and project managing major recruitment exercises for some well known companies. Remember that there is always that potential conflict of interest; you want "the best person for the job", whilst the agency's priority may be to "make a sale". Cheers Steve

Tiger
15-06-2012, 11:24 AM
Effective use of recruitment agencies really comes down to that personal comfort level you have with the individual recruiter. Over the years I've tended to move agencies only because the recruiter I preferred to use, moved and I followed that recruiter. That relationship is important because that recruiter knows you, your company, what you want, what you don't want, pitfalls, advantages of working there etc. It is half the battle.

The rest covered by an earlier responder - just be mindful of your guarantee period - there are often catches. I'm currently with an IT coy and we use select recruiters in our locations and they have to sign up to our company terms and conditions - not many will do that but it can and does work. It also locks in the percentage paid.

As you indicate a large scale recruitment drive, I recommend you appoint one and draw up a contract with them around what your requirements are, who will do what and include time lines and demand a reduced fee based on the bulk recruitment.

IT is a tough market at present, very hard to get exactly the skills you need so you do need to consider a specialist IT recruiter - there are a few around. I recommend inviting in several to discuss and based on how they do in that meeting, decide which one. Also, good idea to ask for references - i.e., companies who've used them (preferably for bulk recruitment jobs) so you can contact those companies to see what worked and didn't.

NIJ
15-06-2012, 01:15 PM
Thanks Moz that's a lot of helpful information. Just a question on the piece you refer to and which I've pasted below:


There are a huge variety of IT recruitment firms to choose from, from big multi nationals down to one man bands. Having worked in (and been an executive manager) in both, I would be more likely to choose a small to medium sized firm, although if you are hiring contractors it’s important to go with a company that has good processes in place and is sufficiently well financed (it’s important your contractors get paid on time).


We will be hiring contractors and this is an area I hadn't even considered - what is a normal process for Contractor payments? I just assumed that each fortnight I would remit the money to the recruiter for the number of hours worked but it sounds like the recruiter pays the contractor and then invoices me for payment. So I'm guessing it would be 30 or 60 days later that I would then pay the recruiter.. or is that really based on the recruiter/my preference?

Moz
15-06-2012, 01:56 PM
Thanks Moz that's a lot of helpful information. Just a question on the piece you refer to and which I've pasted below:

We will be hiring contractors and this is an area I hadn't even considered - what is a normal process for Contractor payments? I just assumed that each fortnight I would remit the money to the recruiter for the number of hours worked but it sounds like the recruiter pays the contractor and then invoices me for payment. So I'm guessing it would be 30 or 60 days later that I would then pay the recruiter.. or is that really based on the recruiter/my preference?

Processes may vary a little between one agency and the next, but in my experience this is how it usually works.

The agency require the contractor to submit to them a weekly time sheet approved by you or someone at your company who is authorised to approve time sheets.

The agency pays the contractor within an agreed timeframe after receiving the approved time sheet. It is common for contractors to be paid 1 or 2 weeks in arrears, but I have heard of agencies paying contractors four weeks in arrears.

When the agency receives the approved time sheet they would also invoice you. Invoice payments terms for contractor services are often 7 days. In reality very few customers pay in 7 days, 30 days is common, but 60 is pushing it.

That said, there are numerous variations on this process, depending upon the size the of the agency, their cash flow situation and perhaps even their view of each customer in terms of credit risk, etc.

mc99
14-08-2012, 05:17 PM
Hi Nate

There are also options to engage contractors through third party supplier companies that specialise in the IT market for contractors. In terms of sourcing, there is also fee for service options, as opposed to daily or hourly margins (which can be quite costly) for long term or volume contracts.

cheers
Malcolm

NicoleAnita
15-08-2012, 10:58 AM
Hi Nate
From a HR perspective be VERY CAREFUL who you use. The big ones (I wont say who - begins with a H) are absolutely terrible. They treat their prospective candiates terribly forgetting that one day they will be dealing with that exact person. They are purely and simply sales people.

If you really don't have the time or the resources you are probably better off engaging an external HR consultant. At least you know that person knows what they are doing!

Good luck.

Qld IR Consultant
15-08-2012, 01:20 PM
Nicole hit the nail right on the head. Deal directly with employers whenever you can.....

SydneyITrecruiter
16-08-2012, 11:07 PM
I currently work for a big recruitment agency in Sydney, no not the one beginning with H, even I know better!

My advice if you are solely going down the contracting route and expect there to be multiple position is to draft a contract with some basic ground rules and costs.

Most contracts have a 1 day guarantee period, meaning if you hire someone, and bring them in the next day, that's it, contracting is not the same as permanent and fixed term contracts.

also remember the agency makes money somewhere, so if you dont know where that is then how do you control your cost and budget? it might be worth having fixed "margins' which agencys have to agree to before they work with you, standard margins can be 60%, imagine hiring 2 people when really you could have got a 3rd free of charge for the same cost. my advice here would be something in the range of a fixed 25% market + on costs (remember the agency usually pays the candidates, insurance, super, admin, roughly 17% in total).

I would be happy to help and answer any inside questions you may have

Rodeb
17-08-2012, 08:51 AM
Hi Nate

I have had many successful and encouraging "encounters" with agencies. Firstly you need to negotiate with them the fee structure and the contract conditions. They are not all the same and the ones that really want your business will negotiate. I always negotiate all advertising in the commisision for example. Depending on the role you can also use interstate agencies, I am in Brisbane however use a Sydney recruiter for all my SAP recruitment (for example). I am also happy to refer you to my recruiters which will cut out the "sorting out whose good" work for you. The thing you need to remember is that they will be working for YOU not the other way around. One pitfall I encountered with one (never used again) agency was that he was trying to talk up the salary offer to the candidate saying that the candidate would never accept that however I knew he would as remuneration expectations were part of the interview process as - you have to keep in mind that the more they push up the salary the more commission they earn. (The good ones don't work like that - they keep a transparent relationship with you) I ceased that conversation and offered the candidate myself directly as I always have candidates complete an application form as part of the interview process so that I have contact details - he still works with us and have now for 6 years!

Hope that helps you - good luck and all the best!

Regards
Deb

NicoleAnita
17-08-2012, 09:46 AM
I currently work for a big recruitment agency in Sydney, no not the one beginning with H, even I know better!

My advice if you are solely going down the contracting route and expect there to be multiple position is to draft a contract with some basic ground rules and costs.

Most contracts have a 1 day guarantee period, meaning if you hire someone, and bring them in the next day, that's it, contracting is not the same as permanent and fixed term contracts.

also remember the agency makes money somewhere, so if you dont know where that is then how do you control your cost and budget? it might be worth having fixed "margins' which agencys have to agree to before they work with you, standard margins can be 60%, imagine hiring 2 people when really you could have got a 3rd free of charge for the same cost. my advice here would be something in the range of a fixed 25% market + on costs (remember the agency usually pays the candidates, insurance, super, admin, roughly 17% in total).

I would be happy to help and answer any inside questions you may have
Hi

That's great that you work for a reputable agency although being a HR Manager at a Senior level I have yet to meet one!

If a company does their homework and has a qualified HR professional to attract a candidate so much the better. Remember agencies are not there through the whole on boarding experience which includes the 6 month minimum employment period. This is usually left up to the hiring manager.

In my experience (and perhaps your agency is different) many agencies just shove someone in there just to get a fee - and believe me I have had a candidate come on board without the agency checking so called gaps in the CV or even doing ref checks. Guess what? It is now up to the company to performance manage them out if and when they don't work out.

I have worked in very complex industries and found it difficult to attract good quality candidates (engineering for example) and handed it over to a so called specialist agency. In the end they were sending me the same candidates that we were deeming not qualified!

Honestly Nate, a HR Consultant is definitely the way to go. Perhaps even hire a HR professional on a short term contract until your recruitment campaign is completed. Who knows you may even have other HR related projects that need doing, policies for example.

There is a reason why we HR professionals engage in ongoing professional development.

Good luck Nate.

RFitzlion
30-01-2013, 06:32 PM
Well said Nicole.

HR professionals (real ones) need to start tackling the firms/sales people who masquerade as HR Professionals.......not using them is a good start!

Steve Begg
05-06-2013, 10:05 AM
I am coming into this conversation 6 months later so I would be interested to know what the outcome was from Nate.

All of the above posts offer some guidance, however after 30+ yrs in the recruitment industry i am leaning towards Nicole's argument.

Sure the recruitment industry has a bad name and some of the recruiters out there are woful. However a good recruiter is worth his or her weight in gold. They can become the talent scout for your business however they are hide to find and unfortunately, you wont find out until months down the track.

I like to compare recruitment to painting (a house). Its one of those things we can all do, but until you have hired a professional to do it, you don't know how bad you were doing it.

There are other options out there now Nate and depending on how many people you need for how long, you could save yourself hundreds of thousands of dollars in recruitment agency fees. Drop in a system, build a process and hire a couple of HR contractors to run the project for you, however, make sure they are familiar with running a "full on" recruitment process and methodology, because just like painters, some HR Professionals have never ran a full scale talent attraction business and trust me, you can make a mess of it easily.

Steve