Good corporate hires don't happen in a vacuum. Usually, there's a talented job recruiter behind a quality hire.
When a business has a big position to fill, they automatically need a hiring professional who can write and place employment ads, reach out to and vet qualified candidates, conduct interviews, and make and confirm job offers. It's a highly-valued "skill" position and good recruiters take years to hone their craft before demonstrating their value of the corporate hiring front.
Employment recruiters make a good living placing job candidates with the right employer. On average, corporate recruiters can make a high percentage of the annual salary earned by the employee they placed with the company.
What do recruiters do to earn that cash? That depends on how you define the term "recruiter" and what companies expect from them when they set out to land the perfect employee.
The Difference Between Internal and External Recruiters
Before you can get a handle on how recruiters make money, you need to define the position.
First, there are two primary types of recruiters -- internal and external recruiters. Let's compare the two.
An "inside" recruiter is employed by the company looking to fill jobs. The recruiter is paid a salary to handle the hiring needs of a single company.
They typically focus on the following roles:
- Hiring strictly for their company, looking for employees who fit the firm's culture and can help further the company's goals.
- Usually hire permanent, full-time employees for their companies.
- Have specific recruiting talents for their company (i.e., a recruiter who knows how to find good coders, software engineers, and technology specialists for a computer firm.)
External or "Outside" Recruiters
External, or agency recruiters, work outside a company. They're hired by firms to find good employees for multiple corporate clients.
They typically focus on the following roles:
- Some external recruiters hire for myriad industries, including technology, manufacturing, retail, and defense industry firms, for example.
- Some external recruiters focus specifically on a single industry, like technology or manufacturing
- They hire full-time, part-time, and freelance help for their corporate clients.
Inside and outside recruiters do share similarities that impact their job performance and their pay.
- Both types of recruiters need to have good pipelines for quality career professionals so they can plug quality employees into vacancies as soon as possible.
- Both types of recruiters use technology tools like project management, jobs and talent databases, and employment application tracking tools in their roles.
- Both types of recruiters need to streamline the hiring process, make tough vetting decisions, and know exactly what a company needs when looking for the right job candidate.
How Do Recruiters Get Paid?
Internal and external recruiters are paid differently.
Outside agency recruiters do earn a small base salary, but the largest part of their salary comes from the commission they make placing clients. The average commission the recruiting agency earns varies from case to case, but a 40% cut of the placed employee's first-year salary is not uncommon.
For example, outside recruiters who place a $100,000 marketing executive at a firm earn 40% in commission for their agency for the placement. That earns $40,000 for the recruiting agency while the individual agency recruiter earns a percentage of the gross commission, which can be as high as 50% to 60% for quality individual recruiters.
The pay is lower for internal recruiters. According to Glassdoor, the average pay in 2019 for an external recruiter is $51,000 annually, with $77,000 at the top end of the pay scale.
Inside recruiters earn their monthly on a salary, and in some cases with an annual bonus attached. According to Glassdoor, the average salary for an internal (or "in-house" recruiter is $45,000.
Breaking Down Recruiter Pay
Since in-house recruiters get a standard salary -- and that's the only way, outside of a bonus, they earn money, let's focus on external recruiters, who get paid in a variety of ways.
First off, external recruiters don't earn a salary in a wholesale sense. As noted above, an outside recruiter might earn a modest salary, but the bulk of their salary will be comprised of commissions and bonuses. They may also get paid in a lump sum or staggered payment model, depending on the type of employee they place (i.e. full-time versus contract employee.)
By and large, there two types of commissions external recruiters can receive -- a recruitment commission (or fee) and a placement commission (or fee). Both mean basically the same thing -- an external recruiter finds and places an employee in a job vacancy for a business client, who pays the recruitment agency fee.
The amount of money earned by placing an individual in a job varies. In general, the commission for most job placements is, using the above example, 40% of the employees first-year salary. For example, the employee is set to earn $100,000 annually in salary (not counting perks and benefits) after being placed by a recruiter in a job.
For that placement, the recruiting agency will earn 40%, or $40,000. The individual recruiter earns 50% of that amount.
One hang-up for recruiters is that the money is not paid by the client right away.
After all, the client wants to ensure the new employee hangs around for a while, so placement commissions may not come for 30, 60 or even 90 days. Occasionally, a corporate client may pay a retainer to a specific recruitment firm and some of that money may be passed down to the individual recruiter actively looking to fill the vacant job.
No matter at what timetable the individual recruiter is paid, the good news is that once the recruiter gets rolling and starts placing employees in new jobs for clients on a regular basis, those commissions start accumulating.
For example, after a few months, the recruiter may place six people in jobs totaling $400,000 in the first-year salary.
At a 40% commission, that translates into $160,000 for the recruitment firm and at a 50% commission of the total 40% of the agency's commission, the individual recruiter earns $80,000 -- not a bad chunk of change.
Here's how that breaks down, math-wise:
- Total first-year salaries earned by six newly-placed employees = $400,000.
- Total commission charged by the recruiting agency = 40%, or $160,000.
- Total commission earned by the individual external recruiter = 50% of the agency's 40% commission, or $80,000.
As the figures show, an external recruiter can earn significantly more money than an internal recruiter if all goes well and employees are placed on a regular basis. There is, however, no guarantee that employees will be placed at all, so there is more job stability as an internal recruitment specialist.
Also, not every recruiting firm earns a 40% commission on a job placement, some earn less, say 20% or 30%. That cuts into the individual recruiter earnings, and further clouds the issue of figuring out exactly how much an individual recruiter makes every year.
The Recruiting Agency's Role in Salary Earned by Individual Recruiters
It's worth noting that recruiting agencies may pay their recruiters differently than the standard commission cut based on one year's salary for a new employee placed at a client firm.
For example, if a recruitment agency helps another agency place a client (i.e., the first company has the placement order to fill but the second company has the better candidate), the two agencies can split the fee right down the middle - that's known as a split fee or a split placement fee.
Or, a recruiting firm may specialize in placing part-time or freelance help, which has a different pay structure.
For instance, if an individual recruiter places a contract software designer at a firm for one year, the client company usually pays on an "as you go" basis. In other words, the client company's pay their fee monthly, 12 months at a time. The recruiting agency then passes along the appropriate commission to the individual recruiter on a monthly basis for the duration of the 12-month assignment.
The Takeaway on How Recruiters Make Money
The plain fact is that recruiters earn their financial keep by placing good employers in vacant jobs, and do so on a regular basis.
How much an individual recruiter earns depends on whether he or she is an external or internal recruiter, how his or her company models its commission payout structure, and whether or not the job placement is for a full-time position or a contract job.
In essence, the more jobs placed for an external recruiter, the more income he or she earns. The better an internal recruiter is at finding the right employee for his or her company, the more salary he or she will earn on an ongoing basis.
In that sense, the recruiting game is all about risk and reward. The more risk you take, the bigger the financial reward, but with less income stability -- that's the name of the game for the external recruiter.
Correspondingly, the less risk a recruiter takes, the less the financial reward, but the more job stability is gained -- and that's the name of the game for the internal recruiter.