If you’re looking to outsource recruiting tasks while controlling your hiring costs, contingency recruiting can be a viable solution. This approach allows you to reach a wider talent pool and offload the most time-consuming tasks in the hiring process while retaining the final say in who gets hired.
Below, I’ll explain contingency recruiting and help you decide whether it’s the right fit for your staffing needs.
What Is Contingency Recruiting?
Contingency recruiting is an arrangement in which a recruiting firm (aka a headhunter) identifies and qualifies candidates for a company’s open job and is only paid if their candidate is hired. It’s different from retainer-based recruiting, where a firm is paid a fee for its search regardless of which candidate is ultimately hired.
Contingency recruiting is a cost-effective way for organizations to outsource their hiring processes and find the most qualified, talented workers.
How Does Contingency Recruiting Work?
In contingency recruiting, the fee is contingent upon the company hiring a candidate that the recruiter presented. This means the recruiter only gets paid for identifying a person with the necessary skills and qualifications to do the job. This type of company-recruiter relationship can have pros and cons, which we’ll discuss in a moment, but first, let’s take a look at how a contingency recruiting arrangement works.
Company provides a job description
The company, which is the end-user employer (and the recruiting firm’s client), thoroughly describes what it’s looking for in the ideal candidate. This description should be specific enough to help a recruiter with little knowledge of the role understand the skills, experience, and qualities necessary for success. The company should also provide background on its culture and the unique value proposition it can offer candidates.
Master agreement/contract is signed
The company and the recruiter/agency typically sign a master service agreement as a contract to enter into a contingency arrangement. This outlines the fees that will be paid, the conditions that must be met to obtain payment, and the duration of the search, among other parameters.
Recruiter sources and qualifies candidates
The recruiter gets busy doing the work they specialize in: sourcing qualified candidates using various channels. They leverage their networks, scour LinkedIn and other social media platforms, send messages and emails, and comb through databases to find candidates who could potentially meet the company’s needs. They contact candidates, gauge their interest level in the opportunity, and conduct phone and video chat screening.
Recruiter presents candidates
The recruiter passes the strongest candidates on to the company for consideration. The company decides who they’d like to interview, and the recruiter assists with coordinating these conversations.
Company makes a hire
If the company decides any of the recruiter’s candidates are sufficiently qualified, they may choose to hire them. The recruiter is then paid based on the agreed-upon contract.
How Much Does Contingency Recruiting Cost?
Contingency recruiting fees are based on the new hire’s first-year salary and typically range between 15% and 25%. So, if a candidate were hired at a starting salary of $75,000 and the contingency fee was 20%, the recruiter who presented the candidate would receive $15,000.
This fee does not come out of the new hire’s salary; it’s paid directly to the recruiting firm by the company.
Contingency fees can vary based on seniority level, industry, specialization, and geographic location. Roles that require lengthy experience, a high degree of specialization, or are sourced by firms in high-cost-of-living areas may have fees on the higher end of the spectrum, while entry-level and easier-to-fill roles may come with lower contingency fees.
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Advantages of Contingency Recruiting
Cost-effective
With contingency recruiting, you, as the employer, only pay when a candidate is hired. If a recruiter does not find a suitable candidate, you owe nothing, making this form of recruiting a very low-risk option.
Motivated recruiters
Since contingency recruiters only get paid when they successfully place a candidate, they can be highly motivated to focus keenly on identifying candidates who are a strong fit.
Complement your in-house team
Because you only pay when a hire is made, there’s no additional up-front cost associated with using contingency recruiters to supplement the efforts of your in-house hiring team. This lets you offload hiring tasks and free up time for other activities HR typically handles, like benefits administration and employee development.
Expanded reach
Professional recruiters can access wider talent pools, and more specialized candidates than HR generalists often have time to establish. They also have experience with numerous sourcing methods that can help broaden your reach.
Expert guidance
In addition to their capacity to tackle hiring tasks, recruiters can offer useful guidance on market trends and compensation rates and assist during the negotiation phase.
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Speed
Contingency recruiters give companies quick access to top talent, which can be a competitive edge in fast-moving industries.
Disadvantages of Contingency Recruiting
Quantity vs. quality
The pay-for-performance nature of contingency recruiting means some recruiters focus on submitting a high volume of candidates fast instead of taking the time to identify a select few candidates who are a great fit. This is why shopping around and asking for references is important to verify that you’ll be working with a reputable recruiting firm.
Time commitment
Though there’s no up-front cost to work with a contingency recruiter, there is an up-front investment of time. At a minimum, you’ll need to interview potential firms and set aside time to discuss your hiring needs. You’ll have a better chance of a productive partnership if you allocate sufficient time to craft detailed job descriptions and other materials to help the recruiter be successful.
No exclusivity
Just as companies can work with multiple recruiters, recruiters can work with multiple clients. This means you won’t be getting their undivided attention, and it also means they might be submitting the same candidates for your jobs as they are for roles at other companies.
Inconsistent candidate experience
With contingency recruiting, a candidate’s first contact in your hiring process is with a recruiter. This means you’ll have much less control over the candidate experience–another reason working with an established, dependable agency is important.
Alternatives to Contingency Recruiting
Contingency recruiting isn’t the only strategy to hire faster and spend less time on recruiting tasks. Here are some other options to consider.
Retained search
Retained search is the opposite of contingency recruiting. Instead of being paid per successful hire, firms are paid a retainer in exchange for their dedicated efforts on your search. In addition to ensuring exclusivity and confidentiality, retained search is a useful hiring method when identifying candidates for high-impact jobs like C-suite positions and advanced technical roles.
Recruitment process outsourcing
If you want to retain more control over your recruitment process while still offloading some of the more tedious parts of hiring, consider recruitment process outsourcing (RPO). RPO allows you to outsource some or all of your hiring processes to a third-party vendor. For example, with RPO, you could choose to manage candidate sourcing and interviewing internally while offloading screening and background checks.
Temporary/contract staffing
Temporary staffing agencies, sometimes known as temp agencies, help companies meet their staffing needs quickly with short-term hires. Temp agencies are great for filling high-volume roles like call center workers and scaling up staffing to meet seasonal demand. While subjective, “temp” is generally associated with short-term staffing needs, whereas “contract staffing” is the term used for longer arrangements.
Related: How to Hire From a Temp Agency
Alternatively, staffing agencies offer a contract-to-hire option for companies who aren’t entirely certain if, or when, they will bring the employee onto their payroll. This is often referred to as a “try before you buy” scenario. Contract-to-hire is an increasingly popular way to staff new employees due to the inherent flexibility it allows.
The great thing about outsourced recruiting is that whatever type or level of partnership you’re looking for, there’s a solution to meet your needs. Contingency recruiting is just one option for finding suitable candidates to meet your performance goals and strengthen your workforce. If you’re ready to discuss the various staffing options available to you and learn how they could complement your existing hiring efforts, contact the reputable recruiting professionals at 4 Corner Resources today.
