HOW THE RECRUITING INDUSTRY WORKS ?

I can remember the first time I started working with a recruiter.
I had no idea how the recruiting industry worked.

I took my freshly created resume, sent it to a recruiter, and said, “Find me a job.” It didn’t go so well.

I kept calling day after day, asking the recruiter if they had made any progress on finding me a job.

I was under the false impression that “my recruiter” worked for me.

It was only after some time and quite a few negotiations and placements that I realized recruiters—at least for the most part—don’t work for you. They work for the company who has the job opening and has hired the recruiter to fill it.

(There is one exception, which I’ll talk about a little later on.) I know this may seem obvious to you, but I was oblivious to it. I just wanted a job.

In the years I’ve worked as a software developer and coached many other software developers to find and get the best jobs, I’ve learned quite a bit about how the recruiting industry works.

It’s actually pretty crazy.
But while it’s crazy, it’s also important that you know how the industry works so you can better navigate the choppy waters of getting a software development job.

It’s very easy to be taken advantage of, led on, and manipulated if you don’t understand this complex industry.

In this chapter, I’m going to share with you everything I know about the recruiting industry and give you some advice on how you can effectively apply this knowledge to get a good job and not end up with the short end of the stick.

Let me mention a couple of caveats before we get into it:
First, I’m not a professional recruiter, so most of my information is from what I have learned and observed.

Second, the recruiting industry is complex. I’m sure more than an entire book could be written on the topic. Here I’m simplifying, generalizing, and giving you a summary.

This is in no way meant to be a comprehensive description of the entire recruiting industry.
Still, I think you will find the information in this chapter useful and surprising.

TYPES OF RECRUITERS AND AGENCIES (AND HOW THEY GET PAID) 

Recruiters go by many different names: headhunters, employment agencies, staff augmentation, those annoying guys who send you unsolicited LinkedIn requests for jobs you aren’t even remotely qualified for.

However, not all recruiters and recruiting agencies are the same—and not all of them get paid the same way, either.
Understanding each type of recruiter and how they get paid can help you to understand how to work with them—and even which ones to avoid.

Let’s break down each of the major types of recruiters, how they make their money generally, and what this means to you.

INDEPENDENT AND SMALL RECRUITERS 

These are typically the most annoying recruiters.

Some of these recruiters work on their own. Some of them work on some kind of heavily weighted commission structure and are actually contracted out en masse by larger firms with a sort of scattershot approach.
Since these recruiters or small agencies don’t have a large presence and reputation, they have to aggressively solicit potential candidates to try and fill a position.
Why are they so aggressive, you may ask?

Ah, it’s all in how they are paid.
You see, most recruiters get paid a commission based on a percentage of a candidate’s salary.

Second, the recruiting industry is complex. I’m sure more than an entire book could be written on the topic. Here I’m simplifying, generalizing, and giving you a summary.

This is in no way meant to be a comprehensive description of the entire recruiting industry.
Still, I think you will find the information in this chapter useful and surprising.

TYPES OF RECRUITERS AND AGENCIES (AND HOW THEY GET PAID) 

Recruiters go by many different names: headhunters, employment agencies, staff augmentation, those annoying guys who send you unsolicited LinkedIn requests for jobs you aren’t even remotely qualified for.
However, not all recruiters and recruiting agencies are the same—and not all of them get paid the same way, either.
Understanding each type of recruiter and how they get paid can help you to understand how to work with them—and even which ones to avoid.
Let’s break down each of the major types of recruiters, how they make their money generally, and what this means to you.

INDEPENDENT AND SMALL RECRUITERS 

These are typically the most annoying recruiters.

Some of these recruiters work on their own. Some of them work on some kind of heavily weighted commission structure and are actually contracted out en masse by larger firms with a sort of scattershot approach.
Since these recruiters or small agencies don’t have a large presence and reputation, they have to aggressively solicit potential candidates to try and fill a position.

Why are they so aggressive, you may ask?

Ah, it’s all in how they are paid.
You see, most recruiters get paid a commission based on a percentage of a candidate’s salary.

Before I tell you how much, go ahead and take a guess to see if you can figure it out—the answer may surprise you.
Did you guess?

In general, recruiters are paid between 20 to 35 percent of the annual salary of a candidate they place.

As you can imagine, in the software development industry—especially with recruiting for top jobs— this can be a large amount of money.

Is it all beginning to make sense now?

Can you see why recruiters would be so aggressive and fill up your LinkedIn inbox with messages?

Independent recruiters are often the most aggressive because they don’t have to share their commission with an agency they work for, or they get a much larger chunk of it.
Let’s use some actual numbers, so you can understand how powerful of a motive it is for a recruiter to place someone.
Suppose a recruiter is hiring for a Senior Software Engineer position and the salary is about $100,000 a year.

An independent recruiter is likely to get a 25 percent commission on placing someone in that job.

So $100,000 * 25% = $25,000.
That is a pretty large score.
Now, like I said, recruiters usually aren’t completely independent, so they won’t get the full $25,000,
but some are and do get that full amount. The ones who work for smaller agencies, where they are more like contractors themselves, will take a large chunk of that commission.

However, that is not the only way they operate.

Recruiters can also recruit for contract positions. (See the previous chapter on contracting versus salary for more information on contracting.) For these positions, recruiters place a candidate and then get a markup on what that candidate is being paid.

Let’s suppose a company is looking for a contractor and is willing to pay $75 an hour.
A recruiter might offer that job at $50 an hour, even though the company is paying $75 for every hour that contractor works Before I tell you how much, go ahead and take a guess to see if you can figure it out—the answer may surprise you.

Did you guess?
In general, recruiters are paid between 20 to 35 percent of the annual salary of a candidate they place.

As you can imagine, in the software development industry—especially with recruiting for top jobs— this can be a large amount of money.

Is it all beginning to make sense now?

Can you see why recruiters would be so aggressive and fill up your LinkedIn inbox with messages?

Independent recruiters are often the most aggressive because they don’t have to share their commission with an agency they work for, or they get a much larger chunk of it.
Let’s use some actual numbers, so you can understand how powerful of a motive it is for a recruiter to place someone.
Suppose a recruiter is hiring for a Senior Software Engineer position and the salary is about $100,000 a year.

An independent recruiter is likely to get a 25 percent commission on placing someone in that job.
So $100,000 * 25% = $25,000.
That is a pretty large score.
Now, like I said, recruiters usually aren’t completely independent, so they won’t get the full $25,000,
but some are and do get that full amount. The ones who work for smaller agencies, where they are more like contractors themselves, will take a large chunk of that commission.

However, that is not the only way they operate.

Recruiters can also recruit for contract positions. (See the previous chapter on contracting versus salary for more information on contracting.) For these positions, recruiters place a candidate and then get a markup on what that candidate is being paid.

Let’s suppose a company is looking for a contractor and is willing to pay $75 an hour.
A recruiter might offer that job at $50 an hour, even though the company is paying $75 for every hour that contractor works.

In this case, their markup or margin would be $25 an hour.
I’m sure you can see how this would be quite lucrative as well.
LARGE AGENCIES Large agencies are going to operate in a structure similar to small agencies and independent recruiters with only a few differences.

The biggest difference is going to be reach and how commissions are handled.

Large recruiting agencies will likely have good relationships established with major employers,
so they will be much more effective in getting someone placed than a smaller recruiting agency with fewer connections—at least from the perspective of the job searcher.

Often, large agencies can have enough of a relationship with a large employer that they almost take over the hiring process from the employer, and if they deem you a good fit for a job, you are very close to getting the job already. 

(This mainly applies for contract positions.) In those cases, the only way to get in might be through that agency.

With a larger agency, as might be expected, the recruiter takes less of the commission.
It’s likely the actual recruiter may get 50 to 60 percent of the recruiting free with the rest going to the agency.

There may also be a split with an account manager who handles the big corporate accounts for the recruiting agency.

EMBEDDED AGENCIES Many corporations make use of what I called embedded agencies or on-site staffing.

In this case, a large agency gets a contract with a major employer to bring staff on-site to fill positions or even to manage entire projects on their own.

Here, the line blurs between recruiting agency and consulting firm quite a bit, especially if they have their own managers or on-site manager contractors.

When I worked at HP, there were a few of these embedded agencies on site who had hundreds of contractors working for them that they recruited and managed on site at HP When I was first recruited into one of these contract jobs, the recruiting agency did almost all the interviewing and just briefly put me in an interview with an actual HP manager before hiring me to work on site.

These agencies and companies that embed external agencies on site often run afoul of hiring and coemployment laws—at least in the US.

There have been many suits filed regarding co-employment at major corporations because the line is so blurred in this case.

HEY JOHN 

What is co-employment? How do I know if I’m being taken advantage of? Do I need to sue?

I’m not going to get into the nitty-gritty since I’m not a lawyer and it’s a fairly complex topic, but the gist of it is that when a company has a staffing agency bring in some contractors who are technically employed by the staffing agency, there is a big risk that the client could be seen by the courts as a primary employer and responsible for providing benefits to the contractor.
There is a “20-factor” or “common law” test that is applied to identify whether or not a contractor should be counted as a “common law employee.” Back in the year 2000, Microsoft got slapped with a lawsuit in which they had to settle to the tune of $97 million dollars worth of benefits because the court ruled that some of their long-term contractors should be counted as “common law employees.” Like, I said it’s a fairly complex issue, but it can be very bad news for employers who utilize staffing agencies who then bring their own contractors on-site.

As far as being taken advantage of by co-employment, personally, I wouldn’t worry about it—and I wouldn’t sue.

What I mean, is that even though legally the contractors working at Microsoft were awarded “benefits” from Microsoft because of co-employment issues, it was pretty much a dick move to sue them.

Suing your employer—or excuse me, co-employer—is not exactly something you want to have on your resume.

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