How to start a recruitment agency

What is a recruitment agency?

We’re all familiar with the general concept of a recruitment agency – matching jobseekers to employers. It sounds simple but in reality, recruitment involves specialist research and networking skills, patience and a lot of hard work to ensure new hire benefits both parties.  

What’s also often overlooked is how recruitment agencies act as invaluable sources of market intelligence for both candidates and companies. They serve as a great source of career information, while helping companies devise job descriptions to ensure they’re getting exactly what their business needs from the hire. It’s an industry that takes on a large amount of responsibility – from shaping people’s livelihoods to steering business success with people placement.

Why start a recruitment agency?

It’s clear there’s a strong requirement for recruitment agencies. The total industry turnover increased by 11% year-on-year in 2017-18 (Source: The Recruitment & Employment Confederation), reaching a record £35.7bn. There was also a 10% rise in the number of recruitment enterprises, which is pretty impressive given the current political and economic uncertainty.

One of the biggest reasons for using a recruitment agency is time. Millennials are likely to jump from job-to-job more frequently than past generations, using agencies as a quick way to discover exciting new roles that fit with their career plan. For employers, finding quality candidates can require a substantial amount of time that they don’t have due to other business responsibilities. Specialist research skills, a meticulous eye for analysing CVs and access to resources and networks are all additional benefits.

Be prepared to work long hours to get your agency off the ground. Many candidates will only be available outside of work hours so you’ll need to be mindful that calls and meeting times will need to be flexible.

Which sectors should I specialise in?

Businesses across all sectors require quality employees to make them a success, so when it comes to choosing the sectors your recruitment agency specialises in, the options are vast. Here are some of the main sectors:

• Consumer
• Pharmaceuticals
• Industry
• Health
• Real estate
• Financial services
• Professional services
• Hospitality & leisure
• Property & construction
• Technology
• Media
• Care
• Retail
• Banking
• Oil and gas
• Telecommunications

Focusing on one or a handful of sectors will give your agency a specialism, which can attract clients who are looking for candidates with specific skills and experience. It will also give your agency an identity amongst competitors, helping with branding and ensuring you don’t spread yourself too thin.

You might want to also consider looking at a specific functional focus for your agency, such as:

• Board/CEO/Non-executive Directors
• Finance
• Marketing
• HR
• Technology
• Sales
• Legal
• Operations
• Product Management
• Data Management/Information Management

“Having a clear niche is really important for building a strong brand, as recruitment agencies’ reputations are built on their knowledge of particular markets and how well they’re networked within them. Their worth is also measured by how well placed they are to advise clients on hiring for specific sectors and/or functions. My best advice would be to stick with what you know”

Gemma Hale, Digital Recruiter at The Up Group

Competition is also a key consideration – are there any sectors that have less competition from other agencies? Or are there any sectors where you think you can offer a better service than your competition?

How do I price my services?

The recruitment industry is extremely competitive, so pricing tends to be a pretty creative exercise. While it’s important to have a basic structure, it’s wise to be flexible to allow room for negotiation to secure clients. This is particularly important when you’re starting up and trying to build a reputation. The more clients on your books, the more opportunity for placements you’ll have. The more placements you make, the quicker your reputation will grow.

You can decide to work on a success fee ‘contingent’ basis, or a ‘retained’ one.

Contingent model

If you become a contingent firm, you usually won’t get paid until your client makes the hire. This is a common structure for firms making hires at junior through to middle management level. The end fee is usually a percentage of the salary. “Percentages vary wildly and tend to go up with the reputation of the firm,” explains Gemma. “Firms working on high volumes of hires e.g. very junior roles, tend to be able to charge less. Broadly, the contingent market can vary as much as 10-30% of salary depending on the firm’s focus and reputation.”

It’s worth noting that this pricing structure puts all the risk on the agency rather than the client, as in most cases the client will engage multiple contingent firms and let them race to make the hire.

Retained model

Retained firms traditionally charge clients their fee in three stages:

1. On beginning the search
2. After the delivery of a candidate shortlist
3. On placement

Typically this fee is also a percentage of the candidate’s salary and is often billed in equal thirds. This model allows the recruitment firm to share the risk with the client. Retained search firms tend to be more focused on senior level hires (Director through to C-suite and board level). Their fees vary in line with the level of seniority of the hire, though percentages tend to start at around 33%. Again, retained firms will negotiate in order to secure a search, so be creative with the billing process or fee if required. For example, some clients prefer a fixed fee rather than a salary percentage so be mindful of the need to create different options for clients that you really want to work with.

Earn Your Fee

Clients are willing to pay for the right candidate so the more thorough you are as an agency, the more likely you will be to succeed with a placement and earn your fee. Ensure your team receives the best training and everyone is on the same page in regards to your fee structure and any flexibility within it. If your agency retains a consistent quality of service, it’s more likely to go from strength to strength as placements rise and your reputation grows.

What laws and regulations are there?

You don’t need any official training or qualifications to set up your own recruitment agency. However, as with any craft, it’s worth attending some training sessions to get you off to the best start (especially if you have no previous experience). The REC provides training for all levels, covering essential skills, legal training, sales techniques and more.

Read the REC’s full A-Z of training courses

There are, however, some extremely important laws and regulations you must be aware of. For example, what information you’re allowed to share between the jobseeker and employer, anti-discrimination, maternity pay, etc.

The Chartered Institute of Personnel and Development (CIPD) is a useful resource when ensuring your agency acts within the law. (Please note some of its content is members-only access.)  

Read through the CIPD’s recruitment guidance

There is no single Act governing recruitment and selection, but there are a number of Acts that deal with the employment relationship that have an impact on pre-employment issues. A significant example is the Equality Act 2010, which makes it unlawful for employers to discriminate against job applicants (and existing workers) because of a ‘protected characteristic’, namely:

• Age
• Disability
• Gender reassignment
• Race
• Religion or belief
• Sex
• Sexual orientation
• Marriage and civil partnership
• Pregnancy and maternity

Read the full list of legislation governing the law on recruitment in the UK

Employment law

It’s important you’re aware of and comply with Employment Law, such as:

• New and amended statutes and statutory rates
• Recruitment legal requirements, checks and processes
• Terms and conditions of employment
• Data protection
• Holidays
• Working hours and pay
• Health and safety regulations
• Maternity and parental rights
• Discrimination
• Discipline, grievance and dismissal procedures
• Whistleblowing
• Employment tribunals
• TUPE
• Redundancy

Read more about employment law

One of the most important Acts to be aware of is the Employment Agencies Act 1973, which regulates the conduct of employment agencies that recruit and manage temporary and permanent labour. The Act covers areas such as what information you can disclose to the client and worker, how you advertise the job, how you deal with candidates under 18, how you deal with employing candidates abroad, and more.

New regulations were introduced under the Conduct of Employment Agencies and Employment Businesses Regulations 2003, which applies to employment agencies that introduce workers to a client who then contract directly with the worker (e.g. recruitment agencies) and employment businesses that enter into contracts with workers and supply their services to a client e.g. agency companies.

General Data Protection Regulator (GDPR)

A hot topic in recent years, this is important to be aware of if you’re starting a recruitment agency as you’ll be holding personal data of individuals, as well as sensitive data on clients and their businesses. You absolutely can’t afford to get this wrong. Be mindful if you’re recruiting internationally, as data protection laws can vary country to country e.g. did you know it’s illegal to ask a candidate for their salary details in several cities and states in the US?

Code of Professional Practice

 The REC has established a Code of Professional Practice to ensure their members conduct their businesses ethically, to the highest standards and promote good practice.

Download the REC’s Code of Professional Practice

Do I need insurance?

You must have an Employers’ Liability Insurance policy of up to £5m if you have one or more employees. If you’re not employing anyone, you don’t need this. This is the only insurance every business needs by law. 

Depending on the nature or size of your business, it would be worth considering motor insurance (if your business operates a vehicle/s), Professional Indemnity Insurance (business insurance, particularly if you provide a service or offer advice to clients) and Public Liability Insurance (protection against compensation claims so it’s important if you regularly interact with customers).

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