Negotiating the fees
Noun: negotiation; plural noun: negotiations
discussion aimed at reaching an agreement.
Let’s face it, negotiating with a salesperson is hard. Especially when you’re either not in sales or involved in regular negotiations. Furthermore, it’s hard to sometimes grasp what is and isn’t acceptable.
We once had a “Sales Coach” ask us, what we thought his services were worth. We pitched what we thought was acceptable and within budget, which turned out was over seven times less that his price range. LOL. That was embarrassing for us, but hurtful to him.
Negotiating a recruitment fee is a funny old world. Imagine an oldy world Egyptian market with stalls of pots & pans, spices & herbs and even the odd snake charmer sat in the corner with his flute and wicker basket. You ask, “how much” and you’re met with a heap of questions, some relevant, some not, with other market traders jumping in with their prices and trying to pry you over to their stall on enchanting merchandise. You ask “how much” once more and are met with a ridiculously high price, to which you know you must haggle and reduce it down. They start high, you start low and the back and forth commences, before agreeing a some-what suitable price. You take your bag of spices away and the trader looks out for the next customer who’s shopping around.
Sound familiar? Of course not! It’s a made-up scenario that’s not even remotely similar to anything you’ve participated in real life, but you get the point, right? The reality is that negotiating a recruitment fee absolutely should not feel like haggling the price of the market’s top spices, but it often can feel that way.
When we go to purchase our groceries, we accept the price the cashier tells us. We don’t haggle there as it’s fixed prices. But when we go to purchase a car, we know there’s some scope for negotiations. It’s an unwritten rule. In the same manner, recruitment fees can be and should be negotiated. It’s how you negotiate and to what extent that will impact the process of your recruitment and next hire. That’s the part you can control. Push the fee down too low, you’ll feel it in the service you get. Agree a fee that you consider too high, you’ll become really picky about who you see and being inflexible with your wish list. Eventually, when you do make the hire, you’re expectations of the candidate will be too high and that will reflect on your relationship.
“We cannot negotiate with people who say what’s mine is mine and what’s yours is negotiable.”
John F. Kennedy
A recruitment fee negotiation is important to both parties; as a recruiting manager you must accept that the agency, you’re negotiating with has parameters in which they need/want to work. Equally, it’s important to ensure that your agency understand your position on why you wish to negotiate and what elements are non-negotiable.
Permanent recruitment fees are the simplest and most straight forward fees to negotiate upon; you’re paying for the introduction of the candidate to your business. You’ve engaged the agency; you will brief them on your criteria and they will use their experience and resources to bring forth your next hire. In exchange for the introduction of this candidate, you will agree to pay a proportional percentage of the new hires’ salary as a fee. It’s straight forward. It’s easy to calculate. No problem, right?
The problems arise when you feel the fee is either not justifiable or the fee is too low. If the introduction fee is lower than what the agency considered fair, the work involved, and resources used to find your hire will be reflective. In the same manner if you feel the fee isn’t justified, it’ll usually be because you don’t think the right amount of work has gone into the sourcing and selection of your hire.
REC:SMART TIP: Make sure you clarify what your agency will be doing in exchange for your introduction fee. Their process, their resources, their plan of action etc. This will help in your justification process.
Fixed Term Contract (FTC) fees are a little more complex to negotiate. Yes, it’s an introduction fee, but it’s usually attached to some conditions. Your FTC might be a 6-month assignment, in which case you feel a pro rata fee of 50% would be fair, right? But the agency is insisting that their FTC fees are higher than the perm fees. What? Why? Surely less work has gone in. It’s not fair, why should you pay more? The candidate will be on the market again in 6 months times so the agency can make the fee again, right? Kind of.
Sourcing candidates for an FTC is more difficult; you need to find a certain type of person at a certain point in their career. You’re looking for essentially a candidate good enough to be hired on a permanent basis, but who happens to be immediately available or on a short-term notice period. But someone who doesn’t want to be a contractor on a day or hourly rate (inside or outside IR35). Candidate pool narrowed, you’re asking for the agency to now spend time in finding this hire for a reduced (pro rata) fee.
REC:SMART TIP: Consider the long term when negotiating. If you’re planning on extending the candidate, or offering something permanent in the future, then consider proposing working to an introduction fee. Hiring an FTC in the short term is cheaper, but extension fees and subsequent permanent offers could make it a more expensive hiring process.
Then there’s the funny/complex/irritating/interesting world of contracting. You want to hire a contractor, but it’s time to negotiate the fee. You’re being bamboozled with figures and terminology like IR35, holiday pay, NI and pensions contributions, payroll charges, margin or mark up. Then you get your figure for the contractor and think, I’ll multiply the hourly charge by the full time hours and then again for 12 months and realise you’re paying closer to £50,000 per year for your £23,000 hire. What a rip off! How dare they even propose such preposterous fees!
The reality is and will always be, contractors cost you more. They’re a resource that add immediate value, fix a problem or ramp up work and so you will pay. You will pay more than what the going permanent salary rate is for them; they’re usually jumping from contract to contract with no guarantee at the end of the assignment, so there’s a level of risk for them of long term unemployment. They’re giving up the usual employee benefits of insurances, health care, pensions etc, so that needs compensating. Usually their time off will cost them, actual and physical cash. Lots to consider when thinking of jumping into that lucrative contracting world…and that’s just what the contractor needs to consider. The agency then have to manage this contractor as if they were employed by them. Payroll issue? Call the agency! Timesheets not approved? Call the agency! Want holiday approval? Call the agency! Want a pay rise? Call the agency! Someone scratched my car in the car park? Call the agency! (FYI, this actually happened). Definitely consider that the agency is still heavily involved with the contractor whilst they’re working in your business. Batting away other contract opportunities from other agencies to make sure this person sees out your assignment.
REC:SMART TIP: Please do not expect the agency to reduce their permanent fee for your contractor, if you decide to hire them permanently by the margin they have made. It’s like asking your landlord to reduce the price of his/her house you’re wanting to buy proportionately by your rent paid.
There are other things you need to be negotiating on and things you can use as bargaining chips which we’ll cover in our next article. The Harvard Business School has some great tips of the types of negotiation skills, which can be found on the link below.
We hope you’ve found this article useful and we’ll be posting a video about this topic shortly. If you have any questions, feel free to get in touch and we’ll respond via the video summary Q&A session.