May 17, 2024

Commission structures for recruitment agencies

John Kim

Co-founder @ Paraform

In this blog

The basics of recruitment commissionsPopular commission structures explainedImportant ConsiderationsFAQs

Recruitment is one of those jobs that comes with a unique compensation structure: commissions.

If you operate a recruitment agency, understanding these structures is crucial. Here, we’ll unravel the most common commission structures in recruitment and help you navigate setting your structure.

The basics of recruitment commissions

Unlike a traditional salary, recruitment commissions are performance-based. You earn a percentage of the fee a company pays when you successfully fill a position. This incentivizes recruiters to find top talent quickly and efficiently.

There are two main ways commission structures are typically expressed:

• Percentage of Placement Fee: This is a straightforward approach where you earn a set percentage (e.g., 15%) of the total fee the company pays for the filled position.
• Tiered Commissions: This structure offers increasing commission rates as you hit specific placement targets. For example, you might earn 10% for the first placement, 12% for the second, and 15% for placements exceeding that.

Popular commission structures explained

Now, let's delve deeper into some of the most common commission structures:

• Straight Commission: This is a high-risk, high-reward option. You only earn money if you place a candidate, with no base salary. Ideal for experienced recruiters or Freelancers comfortable with a variable income.
• Salary + Commission: This is a popular hybrid approach that is used by most recruitment agencies. It offers a base salary for financial stability, plus a commission on every placement that a recruiter makes.
• Draw Against Commission: This structure provides recruiters with an advanced payment (draw) against your future commissions. If your commissions earned don't cover the draw amount, you'll need to repay the difference. This structure is quite rare but available to those who have been in an agency for a considerable amount of time.

1. Junior Recruiters

Commission Structure: Lower base commission with opportunities for higher earnings as they develop their skills.

• 10% commission on placements for the first six months.
• After six months, increase to 15% as they gain experience and demonstrate success.

2. Senior Recruiters

Commission Structure: Higher base commission reflecting their experience and expertise.

• 20% commission on all placements, with additional bonuses for mentoring junior recruiters or achieving specific high-value placements.

3. Business Development Recruiters/Sourcers

Bonuses for acquiring new clients.

• 10% commission on placements from new clients for the first year.
• Additional bonuses for securing new client contracts or meeting revenue targets.

Important Considerations

Before diving headfirst into a particular commission structure, consider these factors:

• Commission Percentage: To choose a commission percentage, take into account the recruiter’s experience, industry expertise, and the difficulty of the placements.
• Clawbacks: Some contracts require repaying commissions if a placed candidate leaves the company within a specific timeframe. Understand these terms and negotiate if possible.
• Bonuses: Some companies offer additional bonuses for exceeding placement targets or achieving specific goals. Figure if this will be applicable to your agency

Commission structures can be a powerful motivator in recruitment. By understanding the different options and negotiating effectively, you can position your agency for success

FAQs

What is a commission structure in recruitment?

It's a performance-based compensation system where you earn a percentage of the fee the client pays when you fill a position.

What are the two main ways commission structures are expressed?

1. Percentage of Placement Fee: You earn a set percentage of the total fee.

2. Tiered Commissions: Your commission rate increases as you meet specific placement targets.

What are the most common commission structures?

• Straight Commission: High-risk, high-reward, with no base salary.
• Salary + Commission: Offers a base salary for stability, plus commission for exceeding targets.
• Draw Against Commission: Provides an advance payment against your future commissions

Which commission structure is right for my agency?

• New Recruiters: Salary + commission offers stability while new recruiters gain experience. Usually, the base salary is a standard wage + a basic commission structure.
• Mid-Level Recruiters: As recruiters gain experience, you can implement higher commission structures + a 5-10% increase in base salary.
• Experienced Recruiters: For the most experienced recruiters, you can implement a high base salary if they are to manage a team + a substantially higher percentage of all placements.