How to start a recruiting agency: niche, fees, contracts and compliance

Choose a niche you can fill

A new agency competes with established firms that have bigger databases. Your edge is depth: knowing the roles, the people and the language of one market better than a generalist. Define your niche on three lines: role type (for example, finance and accounting), industry (for example, manufacturing) and level (for example, controller to CFO).

Choose where you already have a network of candidates and hiring managers. Your first placements will come from people who already trust your judgement.

Contingency, retained or engaged

Fees are usually a percentage of the hire's first-year base salary, or a flat fee, agreed in writing before you start. How and when that fee is paid is the bigger choice.

Put the fee agreement in writing

Most fee disputes come from missing terms. Have a lawyer draft one standard agreement, then send it before you present any candidate.

• The fee, what salary it's based on, and when it's due.
• Candidate ownership: how long a candidate you introduced counts as yours if the client hires them later, or for a different role.
• Replacement terms: whether you'll find a replacement or refund part of the fee if the hire leaves within a set period, and the conditions.
• Exclusivity, if any, and how long the search runs.
• Payment terms and late fees.
• That you won't approach the people you placed for other jobs for a set time.

Compliance basics

Recruiting touches employment law at every step. This guide is general information, not legal or tax advice. Rules change and depend on your state and situation, so check with a lawyer or tax professional before you act.

• Anti-discrimination: the EEOC says it's illegal for an employer, employment agency or union to take protected characteristics such as race into account in referrals, and that job ads mustn't show a preference for a protected group. Don't follow a client's instruction to screen people out on a protected basis.
• Background checks: if you or your client use a background screening company, the Fair Credit Reporting Act applies. The FTC explains you need a stand-alone written notice and the candidate's written permission first, and specific notices before and after turning someone down because of the report.
• Agency licences: some states and cities license employment agencies. New York State requires a licence for agencies that charge a fee for placing candidates, and New York City's licensing office says certain executive search and employer-fee-paid agencies that never charge applicants are exempt. Check your own state.
• Pay ranges in job ads: some places require them. New York City, for example, has required a good-faith pay range in job ads since November 2022.
• Candidate data: store CVs securely, keep only what you need and tell candidates how you'll use their information.

Tools you'll need

• An applicant tracking system (ATS) or recruiting CRM to track candidates, clients and every search.
• A professional networking platform and its recruiter tools, used within its rules.
• Scheduling and video-call tools for interviews.
• E-signature for fee agreements.
• Accounting software to invoice placements and track what's owed.

Win your first clients

List every hiring manager and HR leader you've worked with, and every candidate you've placed who now hires their own team. Tell each one personally what you now focus on and what kinds of roles you fill. Ask for one search, not a preferred-supplier agreement.

Deliver that first search with care, then ask for a short written recommendation and an introduction to one more hiring manager. A track record of a few well-run searches in one niche wins more work than a broad promise.

The Bureau of Labor Statistics notes that some organizations contract recruitment and placement work to outside firms. Those are your buyers: make it easy for them to see exactly which roles you fill.

Questions

Sources

• U.S. Equal Employment Opportunity Commission: Prohibited employment policies and practices
• Federal Trade Commission: Background checks, what employers need to know
• New York State Department of Labor: Employment agencies
• NYC Department of Consumer and Worker Protection: Employment agency licence checklist
• NYC Commission on Human Rights: Salary transparency in job advertisements
• U.S. Bureau of Labor Statistics: Human resources specialists (including recruitment specialists)

General information, not legal, tax or financial advice. Rules differ by location; check with your own adviser.