Recruiter: An IT Contractor’s Mortal Enemy

Any job search conducted on one of the large job sites these days is sure to turn up job postings made by employment agencies. For many common IT job searches, the jobs posted by agencies far outnumber the jobs posted by the clients themselves. Employment agencies can provide value in this chain by saving clients the cost of sourcing and screening contractors. But, are those savings to the client worth a 30% fee, on every hour worked by the contractor, paid to the agency?

The popular belief is that the client, and not the IT contractor, is paying for the agency’s fees (usually ranging from 15% to 50%). However, this is not really accurate. In many cases, the contractor bears half of the burden to pay the agency it’s placement fees. A contractor can also be denied work, for a rate that would otherwise be affordable for a client, but turns out to be too expensive after the agency adds on it’s fee.

Let’s consider an example of a common placement to see the problem. Raking Half International, our fictitious agency, contracts with a technology firm to locate a software developer. The client has no concrete hourly figure but is shopping around for the right mix between cost and contractor capability. Raking Half then proceeds to search its database as well as online resume databases for suitable contractors, pre-screens them, and then submits a short list of suitable resumes to the hiring manager at the client.

One of the contractors, John, is being considered by the client, but the client is not willing to pay more than $65 per hour for John. At the same time, John wants $65 per hour for this job. Raking Half may then lobby the client to pay $75/hr and persuade John to accept $55/hr. If Raking Half’s efforts work, the client and John both lose a combined total of $20/hr. We must now ask, are the few hours that Raking Half put into this transaction worth between $20,000 and $40,000 (if John works between 6 and 12 months)?

In a second example, assume that the client is looking for a bill rate not to exceed $80 per hour. Raking Half then proceeds to do its sourcing magic and provides the client with three contractors. One of the more qualified, Frank, is willing to work for $75 per hour. If the client is not willing to budge, and Frank won’t accept less than his rate, the agency can’t make the fee they’re looking for and Frank is still out of a job. In many cases, the client is then sold a less qualified contractor that earns an hourly rate low enough for Raking Half to earn their fee. This artificial buffer that the employment agency creates prevents both clients and job seekers from extracting maximum benefit in the job market.

Though there are agencies out there that do add value to the equation, most tend to be of the “used car salesman” variety doing little more than searching the Monster resume database, short listing contractors based on resume key words, availability, and rate, making sure the contractors are breathing, and then ushering them to the hiring manager for interviewing. Keep in mind that most of the cost and effort in hiring a contractor goes into phone and in-person interviews that are conducted by the client hiring manager. The least, or more clerical, effort and cost goes into sourcing and pre-screening contractors. For most agencies, whatever little real value they add to this equation is not worth more than a few hundred dollars. They certainly should not be earning thousands of dollars over the course of a project.

The moral of this story is to find your own clients without the aid of an employment agency. If you must work though an employment agency, you should ask for their bill rate (the amount they are going to charge the client for your work). You are entitled to this information and if the agency doesn’t want to disclose it, they’re probably charging an excessive fee compared to what you’re being paid. Find another agency. Most importantly, learn to negotiate a reasonable rate for your work and don’t budge. Let the agency or the client figure out how to afford your rate.

Tags: Consulting Agreement, Employment Agency, Headhunter, IT Consultant, IT Consulting, IT Contracting, IT Contractor, Recruiter, Staffing Agency, Staffing Firm, Technology Consultant