Part of the staffing & recruitment agency hub — an educational cluster covering how agencies work, the placement models and how employers and candidates work with them. For decision-style reading, see the staffing & hiring comparisons.
This page explains those models conceptually so you understand how an agency is paid and what that means for the relationship. It does not quote percentages, amounts or pricing — those are set by each agency and vary by role, market and arrangement.
Who this page is for
- Employers budgeting for external hiring support
- Founders weighing agency help against internal recruiting
- HR and finance teams reviewing agency arrangements
- Candidates curious about who pays for the service
Core concept
In most arrangements the employer pays, not the candidate. The agency’s revenue comes from delivering a result the employer values — a successful permanent hire, a covered shift, or a managed hiring process — and the model simply describes how that charge is structured.
For permanent placements, a contingency fee is earned only when a hire is made, while a retained fee is paid in stages for a committed search. For temporary staffing, the agency bills for hours worked at a rate that includes the worker’s pay plus a margin covering employment costs and the agency’s service.
Understanding the model matters because it shapes incentives and risk. Contingency rewards speed and volume; retained rewards depth on difficult roles; temporary markup ties cost to usage. None of these is inherently better — the right fit depends on the role and how much certainty you need.
How it works
- Contingency: a placement fee is earned only when the employer hires a candidate
- Retained: the employer commits to a structured search, paid in stages
- Temporary markup: the agency bills hours worked at a rate above the worker’s pay
- Permanent placement: a one-off fee, commonly structured around the role’s salary
- RPO or managed service: an ongoing charge for running part of the hiring function
- Guarantee periods: many models include a replacement or rebate term if a hire leaves early
Plan the hire before you source with the recruitment planning checklist, and keep screening consistent using the candidate screening checklist.
Key considerations
- Which model matches the role, the urgency and your appetite for risk
- What a guarantee or replacement period covers if a hire does not work out
- How temporary markups bundle pay, employment costs and service
- How exclusivity changes the agency’s focus and your cost of access
- How to compare proposals on structure and value, not headline numbers alone
Advantages
- Contingency aligns cost with a successful outcome
- Retained buys depth and commitment on hard roles
- Temporary models tie spend to actual usage
- Guarantee periods share some of the risk of an early departure
- Clear structures make budgeting and comparison easier
Trade-offs
- Contingency can encourage speed over fit if briefs are weak
- Retained asks for commitment before a hire is confirmed
- Temporary markups add up over long assignments
- Bundled rates can be hard to compare without detail
- Headline structures hide differences in service and quality
Common mistakes
- Choosing a model on headline cost without weighing fit and risk
- Overlooking the guarantee or replacement terms
- Assuming a temporary worker is cheaper over a long horizon
- Comparing proposals on numbers alone, ignoring scope and service
- Not clarifying what is and is not included in a markup or retainer
Practical checklist
- Ask the agency to explain its fee structure in plain terms
- Confirm the guarantee or replacement period and what triggers it
- Understand exactly what a temporary markup includes
- Compare proposals on structure, scope and risk, not just price
- Model long-running temporary costs against a permanent hire
- Get the commercial terms in writing before you start
For interviews, draw on the interview question bank and the hiring scorecard guide; to plan the wider workforce, see the workforce planning guide.
Free, printable hiring resources
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