Why Conversion Fee Matters in Recruitment

A conversion fee — sometimes called a temp-to-perm fee or transfer fee — is the charge an agency levies when a client hires a temporary worker they originally sourced through the agency on a permanent or fixed-term basis. Without a clearly defined conversion fee in the agency's terms of business, this scenario generates no revenue despite the agency having provided the initial candidate sourcing, screening, and placement. At scale, unbillable conversions represent a significant commercial leak: an agency supplying 200 temporary workers annually might convert five to ten into permanent roles without the commercial framework to capture any value from those transitions.

The Conduct of Employment Agencies and Employment Businesses Regulations 2003 give employment businesses the right to charge a transfer fee when a work-seeker is engaged by the client directly or through another agency within a defined period. The Regulations also allow clients to opt out of the transfer fee in exchange for an extended notice period — a provision many clients negotiate, often without fully understanding its implications. Agencies that do not brief their commercial teams on this Regulation 10 opt-out mechanism regularly find clients invoking it to avoid transfer fees, sometimes retrospectively.

For agencies building mixed temp and perm revenue streams, conversion fees are also a strategic pricing question. Setting the fee too high discourages clients from converting, reducing the quality signal that temp-to-perm placements represent. Setting it too low undervalues the candidate sourcing work already performed.

How Conversion Fee Works

The standard commercial structure links the conversion fee to the worker's first-year salary at the point of direct engagement. A fee of 10% to 15% of annual salary is typical for industrial and commercial placements; specialist or professional placements may attract higher rates. Some agencies price the fee as a declining scale based on tenure: a higher percentage if conversion happens within three months, reducing if the worker has been on site for six months or longer, on the basis that longer tenure demonstrates the client's own investment in the relationship.

The Regulations allow an alternative to the transfer fee: an extended hire period during which the agency continues to supply the worker, receiving its margin for a defined number of weeks before the transfer becomes fee-free. This extended hire option must be offered by the agency as an alternative to the direct fee if the client requests it. Agencies that do not include this option in their terms are non-compliant, but agencies that actively deploy it as a commercial strategy can preserve ongoing margin while still facilitating the eventual conversion.

For a recruiter who has been supplying an accounts payable administrator to a professional services firm for four months, the conversion scenario looks like this: the client offers the worker a permanent contract at £30,000. The recruiter's terms specify a 12% conversion fee after fewer than six months on assignment, generating a £3,600 invoice. The recruiter raises the invoice, documents the transfer date, and updates the candidate's record to reflect the change in employment status. If the client had requested the extended hire option, the agency would continue billing its weekly margin for an agreed further period — typically eight to twelve weeks — before the engagement concludes without an additional fee.

Conversion Fee vs Placement Fee

A placement fee is charged when the agency introduces a candidate who is hired directly from the outset — a permanent placement from first contact. A conversion fee applies when a worker the agency supplied on a temporary basis is subsequently hired permanently by the client. The key distinction is the prior temporary engagement: in a conversion scenario, the agency has already been billing margin on the temporary engagement, which is why conversion fees are typically set lower than standard permanent placement fees for equivalent roles.

Conversion Fee in Practice

An industrial staffing agency places a production team leader at a food manufacturing client on a 13-week temporary contract. At week ten, the client's HR manager contacts the recruiter to say they would like to take the worker on permanently. The recruiter references the signed terms of business, which specify a 10% conversion fee after fewer than six months, based on the confirmed annual salary of £32,000 — generating a £3,200 fee. The recruiter issues the fee note within five days of the confirmed start date of direct employment, in line with the Regulations. The client, who had not considered this cost, negotiates a slightly extended temporary period to bring the fee rate to the post-six-month level of 7%. Both parties agree, and the conversion completes at £2,240.