How do recruiters make money? Who pays them?

As a job seeker, a recruiter’s payment scheme can be mysterious.

The recruiter is telling you that they are there to help you, but you know they are working with the companies you are applying for.

Who’s side are they really on?

In this article, I answer all of your questions about how recruiters make money.

Disclaimer

A quick note before we get into it, Wahl+Case operates in Japan only, therefore this will all be through the lens of recruitment in Japan.

My research has been across different markets, but I am sure there are some markets that will vary from these structures.

Ok, first question:

Do I have to pay a recruiter to help me join a company?

No. As a job seeker, you should not be paying your recruiter. The recruitment agency will invoice the employer that hires you.

There are some agencies that will charge job seekers, but I cannot vouch for how trustworthy these companies are.

There is one exception that falls into a shady area between you as the job seeker paying and the company paying. This is called contract recruitment, I will go into more detail in that section.

How do recruiters make money?

Recruiters make money by charging the company that hires you. Recruiters will not charge you as the job seeker.

The specifics of the payment structure will change depending on the type of employment contracts they are working on.

These include permanent hires, retained searches, contract recruitment, and talent acquisition.

I will dive deeper into each of these in the respective sections.

Payment Structures for recruiters in Japan

Permanent Hires

At Wahl+Case we generally work on permanent roles, with a few exceptions.

If you work with a recruiter and accept an offer, the company that is working with the recruiter will pay a fee that is calculated based on your yearly salary and any sign-on bonuses or perks included in your total package.

This fee will not affect your earnings and will be covered in its entirety by the company that has decided to hire you.

Here is an example:

Your total package is ¥10m

+

Recruiting fee is 40% of ¥10m = ¥4m

The hiring company pays a total of ¥14m, ¥10m to you throughout your first year of work, and ¥4m to the recruiter.

This is the typical fee structure for external and agency recruiters working on permanent hires.

I want to pause here for a second and highlight the fact that a higher salary for you means more money for your recruiter as well, we are on the same side.

I sometimes encounter jobseekers that feel the recruiter is intentionally going for less money, if you feel this is happening, you should stop working with that recruiter.

Now let’s talk about Haken.

Temporary Employees or ‘Haken’

For you as a job seeker, haken means that you will be employed through the recruitment agency you are working with, but you will work for the company that is hiring you.

As an example, I used a staffing agency when I was with Honest Tea. I would choose who to hire and my hires would work for me, but they were employed through the agency I was using.

In Japan, if you join Honest Tea through a staffing agency, you will be employed by that agency, but working for Honest Tea.

In haken recruitment, the company that is looking to hire would have a set budget for the role and the recruiter would get paid based on the difference between the set budget and the hourly amount you are getting paid.

The contracts can range from 3-month contracts up to 3 years, over 3 years and the company needs to convert you to a permanent contract.

Here is an example of a typical fee:

Honest Tea’s budget for this role is ¥6k

Your hourly rate is ¥5k

The recruiter would get ¥1k for each hour you work

If you want to learn more about the haken, check out this article here from le wagon.

Contract Employees or ‘Keiyaku sha-in’

You will not need to pay your recruiter if you join a company as a contractor.

You will be employed directly by the hiring company itself on a time-specific contract. These contracts could range from 3 months to a year or more.

When working on these contracts, the recruiter you are working with will get paid a fee based on your offer, just like in permanent hires. The only difference is the number of payments.

At Wahl+Case, we work with these types of contracts as they help overseas job seekers join a company in Japan before relocating to the country.

If you sign a 1 year contract, this is what it would look like:

Your 1 year package: ¥10m

+

Recruiter fee: ¥4m

Client pays: ¥14m

But if you sign a 6 month contract:

Your 6 month package: ¥5m

+

Recruiter Fee: ¥2m

The employer will pay ¥7m for the first 6 months, and an additional ¥7m when they renew your contract for another 6 months.

Retained Searches

In a retained search, you as the job seeker will not pay anything to your recruiter.

We also work on retained searches here at Wahl+Case.

A retained search means the company that is looking to make a hire will pay the recruiter an upfront fee, optional installments for hitting predetermined milestones (e.g. introducing 3 relevant candidates), and the final payment when the position has been filled.

Here is an example:

Initial fee: ¥2m

3 relevant candidates: ¥1m

Hired: ¥1m

Total fee ¥4m

Using the numbers from the first example, your total package: ¥10m.

The hiring company pays a total of ¥14m, ¥10m to you, and ¥4m to the recruiter.

A retained search may seem like a gamble for the company that is hiring, but they usually will be paying for the dedication and commitment of the recruiter.

In agency recruitment it is common to be working with a portfolio of companies, meaning your attention will be divided. A retained search helps guarantee that the position is a top priority, accompanied by regular catch-ups between the company and the recruiter for status updates.

The next two fee structures are not dependent on your offer of salary, but they would be useful to know if you are currently in the process of applying.

Internal Recruiters and Talent Acquisition

Again, you will not need to pay anything to an internal recruiter or TA (Talent Acquisition) as a job seeker. In fact, your offer amount will not have an impact on their salary.

Internal recruiters or talent acquisition teams are paid an annual salary by the company that employs them.

They may get paid additional bonuses based on the number of positions they are able to fill.

However, their salary and bonus will not be based on the total package you receive, so there is no incentive to get you the best possible offer.

If you are working with an agency recruiter there is a chance that they will be working along side the internal recruiter or talent acquisition team.

Recruitment Process Outsourcing - RPO

Recruitment process outsourcing, or RPO, refers to an internal recruiter who is staffed by an external agency.

As a job seeker, you likely won’t encounter this in an overt way, but it might be useful to know.

For example, you might see someone who is working with Slack as an RPO through another agency.

An RPO recruiter will generally be working from the company’s office and reporting directly to the team there, but they will be paid through the external agency they are employed.

In this example, Slack would pay a monthly fee to the external agency. If there is a lot of hiring to be done, this could cut costs for Slack and it also gives them the freedom to choose if and when they want to end hiring.

That covers all of the primary fee structures used by recruitment agencies in Japan, now let’s answer a few more common questions we found on quora and reddit.

Do I have to stay in the company for a certain amount of time for my recruiter to get paid?

Yes and no.

The recruiter will get the fee when you start working for the company that hired you, but if you choose to leave before your probationary period is up, the recruiter will likely need to find a replacement at no additional charge.

This can vary between agencies and even between contracts.

However, this should not affect your decision to stay or leave a company.

Here at Wahl+Case we only have one rule and it is to do what is in the best interest of our customers always, which means we are here to help you make the decision that is best for you.

We are not the ones who have to work at the company every day, we will not be working with the team you join, and we are not the ones who will be doing the work assigned to you, so we really want to make sure that you are happy where you are.

This is a big reason why we accept the risk of offering to find a replacement if you leave; it incentivizes us to make sure that we are enabling you to do what is best for you.

Do recruiters get a bonus if my salary is lower than the budget for the position?

For agency recruiters working on permanent roles, this is not the case. As I covered above, the recruiter you are working with will get a higher fee based on your total package, so they are incentivized to get you the best offer they can.

However, for contract recruiters, this can be the case. They will charge a markup on your hourly rate and are therefore incentivized to get you to sign on at a rate that is lower than the company is willing to pay so that they can keep the difference.

Internal recruiters are salaried employees and will make their salary regardless of the amount of money the company will pay you.