TL;DR

An agency fee is the payment a recruitment agency charges a client organisation for successfully placing a candidate. It is usually calculated as a percentage of the placed candidate's first-year base salary, typically between 15 and 30 percent. It is the primary revenue model for contingency and retained search firms, and understanding its structure helps both hiring managers and candidates navigate the agency relationship clearly.

How Agency Fees Work

The percentage sounds simple, but the structure underneath it varies enough to create real misunderstandings between agencies and clients. The core model is a percentage of base salary on placement. A 20 percent fee on a £60,000 base salary is £12,000. That calculation is standard. What varies is the base used for calculation, the payment timing, the rebate policy, and whether the fee is contingency (paid only on placement) or retained (partially paid upfront).

Contingency fee arrangements mean the agency is only paid if the candidate they submit is hired. This creates a strong incentive to fill the role quickly, but it also means agencies working on contingency are often sharing the role with multiple other agencies or the client's internal team — everyone racing to place someone first. The quality of candidates can suffer when speed is the primary competitive lever.

Retained search works differently. The client pays a portion of the fee upfront (typically one-third), a second instalment when a shortlist is delivered, and the final payment on placement. This arrangement suits senior roles where the search requires dedicated effort over weeks or months. A retained firm takes on fewer roles simultaneously and goes deeper on each one.

The fee base matters. Some agencies calculate on total compensation (including bonuses and benefits), which can inflate the invoice significantly. Clarifying upfront whether the fee is on base salary alone or total package avoids disputes at the point of hire.

Why This Matters in Recruitment

Agency fees are a significant line item in hiring budgets, and the structure of the fee shapes [recruiter](/glossary/recruiter) behaviour. Hiring managers who understand the fee model are better positioned to manage agency relationships and negotiate terms.

The rebate policy is particularly important. Most agencies offer a replacement guarantee or partial fee rebate if the placed candidate leaves within a certain period — commonly 90 to 180 days. The terms vary: some agencies offer a full rebate if the candidate leaves within 30 days, then sliding-scale rebates up to 90 days. Some offer a replacement candidate rather than a cash rebate. Reading this clause before signing the agreement prevents arguments later.

For candidates, the agency fee is invisible in the sense that it is paid by the employer, not deducted from salary. However, the fee structure creates incentives that affect how the candidate is represented. A contingency recruiter who earns nothing unless the candidate is placed has strong motivation to put the best possible spin on the candidate to the client — and to push the candidate to accept an offer quickly, even if the fit is marginal. Understanding this dynamic helps candidates interpret recruiter advice with appropriate scepticism.

In Practice

A SaaS company in London hires a software engineer at a £90,000 base salary through a contingency agency that charges 20 percent. The invoice is £18,000. The engineer leaves after 11 weeks. The agency's terms include a 50 percent rebate for departures within 12 weeks, so the company receives a £9,000 credit toward a replacement placement. If the company had reviewed the rebate terms more carefully before signing, they would have known to push for a 12-week window rather than 8 weeks to retain more protection. The terms were negotiable — they just did not negotiate them.

Key Facts