Published: April 2025
Hiring the right talent is a critical decision for any small to medium enterprise (SME) in Australia. One common approach is to engage a recruitment agency, but this can be the most expensive channel for sourcing talent. While recruiters offer valuable expertise, their fees and associated costs can add up quickly, making it essential for SMEs to understand the full scope of expenses, weigh the pros and cons, and consider alternative hiring methods.
This article provides a detailed breakdown of the costs of hiring through a recruiter in Australia, a worked example of the true cost, and insights into the role of recruiters.
Recruitment agencies act as intermediaries between employers and job candidates, streamlining the hiring process by leveraging their networks, expertise, and resources. Their primary responsibilities include:
While these services are valuable, the perception that recruiters perform an extensive amount of work may be overstated in some cases. Much of their process relies on existing databases, automated tools like applicant tracking systems, and standardised screening methods. For SMEs, the question becomes whether the cost justifies the value, especially when compared to other hiring channels.
In Australia, recruitment agency fees typically range from 15% to 25% of the candidate’s annual salary, with an average of 15% to 20% for most roles. Fees can vary based on factors such as:
For example, hiring a candidate with an annual salary of $80,000 could result in a recruitment fee of $12,000 to $16,000. Some agencies also charge additional fees for services like background checks, psychometric assessments, or extended guarantee periods (typically 3–6 months, during which they replace a candidate who leaves at no extra cost). Notably, higher seniority roles carry a greater risk of resignation due to competitive job markets and candidate mobility, potentially triggering replacement costs within the guarantee period or requiring a new recruitment process.
Beyond agency fees, SMEs must account for internal costs (e.g., time spent by hiring managers) and onboarding expenses (e.g., training and equipment). According to a 2021 study by the Australian Human Resources Institute (AHRI), the average cost of recruitment and onboarding in Australia is approximately $4,672 for SMEs, but this can rise significantly when using agencies.
For SMEs operating on tight budgets, the cost of hiring through a recruiter can be a significant financial burden. The Australian Human Resources Institute reported that the average cost to hire an employee in Australia doubled from $10,500 in 2020 to $23,860 in 2021, with agency fees being a major contributor. This expense can strain resources, particularly for businesses hiring multiple roles or senior positions, where resignation risks may lead to repeated recruitment costs.
SMEs should consider cost-effective alternatives, such as:
With a robust recruitment strategy, SMEs can often replicate the results of agencies at a lower cost. For instance, investing in employer branding, crafting targeted job ads, and using data-driven screening tools can attract high-quality candidates. By training internal staff to conduct structured interviews and leveraging free or low-cost platforms like LinkedIn for outreach, SMEs can build a talent pipeline comparable to that of an agency, particularly for non-specialised roles. You can also engage in companies to help with building out your hiring strategy.
Let’s consider a hypothetical SME, hiring a mid-level marketing manager in Sydney with an annual salary of $90,000.
$18,000 (agency fee) + $500 (advertising) + $200 (background checks) + $1,000 (hiring manager time) + $2,500 (onboarding) + $3,000 (lost productivity) = $25,200.
If the SME used a job board ($500) and in-house HR resources ($2,000 for time and onboarding), the total cost could be as low as $5,500, saving nearly $20,000. This example highlights the significant expense of agency recruitment and the potential for cost savings through alternative methods.
To illustrate the cost variability across roles, here are estimated all-in costs (agency fees plus indirect costs) for different positions in Australia, assuming a 20% agency fee and similar indirect costs as above ($6,700):
Note that senior roles, like the COO, carry higher resignation risks, potentially doubling costs if a replacement is needed within the guarantee period.
A common misconception is that recruiters undertake an exhaustive, bespoke process for every role. In reality, many agencies rely on existing candidate databases, automated screening tools, and standardised workflows. While they add value through expertise and networks, the effort may not always align with the high fees charged. SMEs should ask agencies for detailed breakdowns of their processes to ensure transparency and justify costs.
Another misunderstanding is that agencies are the only way to access top talent. With the rise of digital platforms, SMEs can directly reach candidates through LinkedIn, SEEK, or social media, often with comparable results. By investing in employer branding, optimising job descriptions, and using structured hiring processes, SMEs can replicate agency outcomes, particularly for roles that don’t require niche expertise.
Hiring through a recruitment agency in Australia offers undeniable benefits, including access to talent, time savings, and market expertise. However, with fees ranging from 15% to 25% of a candidate’s salary and total costs averaging $23,860 per hire, it’s often the most expensive hiring channel for SMEs. The risk of resignation, particularly in senior roles, further amplifies potential costs. By understanding the true cost, as illustrated in our worked example and role-specific estimates, businesses can make informed decisions and explore cost-effective alternatives like job boards, referrals, or in-house recruitment.
We encourage SMEs to approach hiring strategically. With a well-executed strategy, SMEs can achieve agency-like results at a fraction of the cost. While recruiters have their place in any hiring strategy, leveraging technology and internal capabilities can deliver high-quality hires without breaking the bank.
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