Agencies full of recruiters competing to find the perfect match between candidates and companies–what fuels this? Money. Commissions that are strategically allocated.
In this blog, we explore the components of commission structures for recruiters and staffing agencies: placements, retentions, clawbacks, and replacements. These are the core of commissions for recruiters, explained clearly.
Let’s dive in.
Commission structure for recruiters - key components
Four key components in the commission structure of recruiters and recruiting agencies:
- Placement fee
- Retention commission/bonus
- Clawback
- Replacement commission
Let’s discuss how these elements shape the commission structure.
Placement fee
Definition: When a candidate is placed for a role, the recruiter earns a commission called the placement fee.
Commission rate:
- Percentage of candidate’s CTC (Cost to Company): Typically ranges from 10% to 30% of the candidate's annual salary. Higher percentages are common for senior or specialized roles.
- Flat fee: A fixed amount per successful placement, varying by industry and role complexity.
- Agency and recruiter cuts: When working through an agency, both the agency and the recruiter share the commission. Agencies may take a cut ranging from 20% to 50%, depending on the arrangement.
Roles and responsibilities:
- Sourcing candidates: Identifying potential candidates through various channels.
- Client acquisition: Bringing new clients to the agency.
- Interview and hiring Process: Assisting with interview scheduling, conducting preliminary interviews, and aiding in the final hiring process.
- Negotiation: Handling salary negotiations between the client and the candidate.
Impact on Commission:
The more involved a recruiter is in the hiring process, the higher their commission percentage. Full-cycle recruiters, who manage the entire process from sourcing to negotiation, typically earn higher commissions.
Retention
Definition: Recruiters get a commission or bonus when the candidate remains employed for a predefined period, often 3 to 6 months.
Commission rate:
- Percentage: A percentage of the CTC is given to the recruiter when the candidate stays beyond the specified probationary period. The client can also structure it in a way where a part of the entire commission is given after placement and the remaining part after probationary period.
- Bonus: Some agencies offer a retention bonus as an incentive for placements that result in long-term employment. It can be a percentage of the CTC or a fixed amount.
Read: Commission vs. bonus
Roles and responsibilities:
- Follow-up: Maintaining regular contact with the employer and the candidate to check if the candidate is employed.
- Support: Offering support to the candidate during the transition period to help with onboarding and settling into the new role.
Impact on commission:
Effective retention strategies not only ensure additional commission but also enhance the recruiter’s reputation, leading to repeat business and referrals.
When retention fails, it can lead to clawback of commission.
Clawback
Definition: Clawback occurs when a placed candidate leaves the job within a specified period, usually resulting in a refund of the placement fee to the client.
Clawback: If a candidate leaves early, a portion or all of the commission may be reclaimed by the agency to give to the client. The amount is deducted from the earnings and is cut in the next payout cycle.
Clawback types based on the agreed terms:
- The entire commission/placement fee is clawed back
- A part (predefined) of the commission/placement fee is clawed back
- If retention is paid after probation, then the recruiter keeps the placement fee but does not get the retention commission
- Retention is paid after probation, but the placement fee is still clawed back entirely or partly.
Roles and responsibilities:
- Understanding the terms and conditions related to clawbacks and replacements, ensuring
- Clear communication with clients6, candidates, and agencies.
Read: Commission issues in sales agencies
Impact on commission:
Clawback policies can reduce the recruiter’s earnings if placements do not last.
Replacement
Definition: A commission for replacing a lost placement
Commission rate:
If the entire or part of the commission for lost placement was clawed back, then the replacement commission will be treated as a new deal/placement
If there’s no clawback on the placement fee but the retention commission was not given, then only the retention commission will be given if the replaced candidate stays past the probationary period. In such cases, the retention commission will be a higher percentage, similar to the placement fee.
Roles and responsibilities:
Quickly sourcing and placing a new candidate to minimize the client’s disruption.
Impact on commission:
Regain the money lost in clawback with the replacement.
Commission structure for recruiter agency example
Here’s a simple example of commission structure and its calculation:
Assume commission is a percentage based on CTC and that the recruiter has to source candidates, conduct preliminary rounds, and schedule interviews with the company.
As an agency you can have different pricing plans where different levels of services are provided. For instance, Plan A only requires recruiters to source candidates, Plan B requires them to source and qualify and Plan C requires end-to-end from sourcing to salary negotiation and onboarding.
In that case, there will be different commission rates based on the plans.
There are also complex ways to claw back in the staffing and recruiting industry.
Elevate commission structure for recruiters and agencies
ElevateHQ lets you automate commission calculation. No matter how complex your plan, we will design it using our software.
We integrate will most CRMs and spreadsheets. Our software is easy to use for you to change and modify your plans or commissions. We also have an in-built approval workflow, so you don’t have to get stuck in email threads asking other teams to approve payouts.
Schedule a call to check if we solve for you.
