Direct Hire

How a direct hire placement works

1. The client gives the agency a job order with requirements, salary range and fee terms.
2. The agency sources, screens and presents candidates, usually three to five.
3. The client interviews, selects and makes the offer. The agency often helps negotiate.
4. The candidate joins the client's payroll with the client's benefits, like any other employee.
5. The agency invoices its fee on the start date, or on acceptance under some contracts.

Most direct hire work is contingent: the agency is paid only if the client hires its candidate. Retained search, where part of the fee is paid up front, is used for executive and hard-to-fill roles. Either way the agency has no ongoing role once the employee starts, apart from the guarantee.

Direct hire fees

The placement fee is usually a percentage of the candidate's first-year base salary. Ranges commonly seen in the US:

• 15% to 20% for administrative, clerical and many hourly-to-salaried roles
• 20% to 25% for most professional and technical roles
• 25% to 35% for senior, niche or executive search

Some agencies charge a flat fee for lower-paid roles. Clients with large volumes negotiate lower percentages, tiered fees or caps. Check whether the fee applies to base salary only or to total first-year cash including sign-on and target bonus; the contract wording decides.

Worked example. A distribution company hires an operations supervisor at $68,000 through an agency charging 20% of base. Fee: $13,600, invoiced on the start date and payable in 30 days.

Guarantee periods

Because the client pays the full fee at the start, agencies offer a guarantee period, commonly 60 to 90 days, sometimes up to six months for senior roles. If the hire leaves or is terminated for performance during that window, the agency either finds a free replacement or refunds part of the fee on a sliding scale. Guarantees typically exclude layoffs, role changes and terminations unrelated to performance, and they usually require the client to pay the invoice on time. Read the conditions before relying on them.

Direct hire vs temp-to-hire

With temp-to-hire, the worker starts on the agency's payroll for a trial period (often 400 to 520 hours, roughly 10 to 13 weeks) and the client converts them to permanent later, sometimes paying a conversion fee.

• Direct hire suits roles where good candidates already have permanent jobs and will not leave for a temporary assignment, salaried and professional positions, and roles that need long training before value shows.
• Temp-to-hire suits hourly roles with high early turnover, roles where on-the-job performance is hard to judge from an interview, and situations where headcount approval is uncertain.

Cost comparisons depend on hours. Over a 13-week trial, a temp-to-hire markup often adds up to more than a direct hire fee, but it also includes payroll, insurance and the option to end the assignment without a termination.

Direct hire vs in-house recruiting

Direct hire placement is the most expensive way to fill a role per hire, but it involves no fixed cost. It makes sense when the internal team lacks reach in a niche market, a role is confidential, speed matters more than fee, or hiring volume is too low to justify a recruiter. Enterprises with steady hiring usually limit direct hire agencies to a short preferred supplier list with agreed fees.

Common mistakes

• Letting several agencies submit the same candidate without clear ownership rules, which creates fee disputes. Require a right-to-represent from each candidate.
• Not defining how long a candidate submission remains valid. Many contracts say 6 or 12 months.
• Paying fees on candidates who were already in your applicant tracking system.
• Missing the guarantee because the departure was not reported in time.