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Refresh #21 The 4 Hidden Risks of Hiring a Contract Recruiter

The 4 Hidden Risks of Hiring a Contract Recruiter

When your internal recruiting staff is stretched thin, hiring a contract recruiter can be a great option. As a refresher, a contract recruiter is a recruiter who you hire on a temporary basis, and to whom you pay an hourly rate. You have other options, albeit less appealing: contingency staffing agencies, RPO’s, and executive search firms, to name a few.


Using a contract recruiter means that you’ll avoid paying placement fees. It also means that you’ll have a fully accountable member of your team who will understand your corporate culture and leverage your unique messaging and branding as they engage with candidates.


Sound great? It is….as long as you are aware of the risks of hiring a contract recruiter. Let’s explore some of the hidden risks that you need to understand. 


#1 Competence


Sadly, most recruiters are far from rockstars. Your first consideration in hiring a recruiter should be finding someone who is extremely competent. Like most sales positions, there are no average people in this field. There are only high performers, and poor performers. 


In short, you should always be assessing the following four categories of skills:

  • Sourcing
  • Candidate Engagement
  • Candidate Experience
  • Soft Skill/Culture Fit


If you plan on hiring a contract recruiter through a staffing agency, ask your recruiter at the agency how they screen the candidates that they will submitting to you. Sadly, most agencies simply ask two questions – are you available, and what’s your rate?


#2 Conversion Fees


Assuming that your contract recruiter does a great job, would you consider converting them to a full-time employee? Most staffing agencies hamper your ability to do this by imposing a conversion fee. This fee typically starts at 20% to 25%, and gradually decreases to zero after 6 to 12 months. We do not charge a conversion fee.


#3 Co-Employment Risk


Hiring a contract recruiter directly (that is, not through a staffing agency), means that you become the employer of record. Simply paying your recruiter as a 1099, or even “corp-to-corp” does not change their status as an employee in the eyes of the IRS. As long as you control their work, they are considered to be an employee. You can read more from the IRS here: https://www.irs.gov/taxtopics/tc762.


Does hiring a contract recruiter through a staffing agency insulate you from employment risk? Yes, but only if the staffing agency pays the contract recruiter as a W2. Unfortunately, most staffing agencies seek to maximize their profit by avoiding payroll costs. In other words, they tend not to pay on a W2 basis. And that puts co-employment risk squarely in your corner. Since you will be controlling their work, you will be considered their employer, even though you are using the agency as a passthrough.


#4 Flight Risk


Contract recruiters tend to be a missionary lot. Meaning that they are motivated in large part by the hourly rate that they command. You may be fortunate enough to find a recruiter that you love, only to have them jump ship for another client that is offering a few dollars an hour more. Unfortunately, there is really not much that you can do to prevent this scenario from unfolding. 


However, make it a point to ask your staffing agency how much of a markup they are adding to your contract recruiter’s rate. Markups in excess of fifty percent may mean that too little of what you are paying is going into your recruiter’s pocket, which may increase your risk of them leaving for a better-paying contract.




When you need to fortify your recruitment efforts, a contract recruiter is a highly effective option. However, like anything else, your success is dependent upon navigating your way through the potential pitfalls. The risks discussed above are certainly not a reason to avoid hiring a contract recruiter, but rather a series of guidelines to observe as you set your course.


Would you like guidance through this difficult process? We are here to help! Contact us today to grow your team. 


Page updated on October 30, 2023.

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Andrew Greenberg

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