Published: November 2025
Australian small and medium businesses spent approximately $4.8 billion on recruitment agency fees in the 2024-25 financial year. For many business owners, the question is not whether to use agencies, but when they make financial sense compared to hiring internally.
This guide breaks down the true costs of both approaches, provides worked examples for Australian businesses, and explains when each method delivers the best return on investment.
Recruitment agencies in Australia typically charge between 18% and 25% of the new employee's annual salary. The percentage varies based on the role's seniority, scarcity of skills, and how quickly you need the position filled.
According to the 2025 salary guides published by major Australian agencies including Michael Page and Hays, the current fee structure breaks down as follows:
For a typical $90,000 role, you are looking at an agency fee between $18,000 and $22,500. This is the advertised cost, but as we will explore, it is not the total cost of using an agency.
Beyond the placement fee, agency recruitment involves several less obvious expenses:
- Replacement Guarantees: Most agencies offer a replacement period of 30 to 90 days. If the candidate leaves or is terminated within this window, the agency will find a replacement at no additional fee. However, you still absorb the costs of onboarding the first candidate, any training provided, and the productivity loss during the transition period.
- Internal Time Investment: While agencies handle sourcing and initial screening, your team still invests significant time in briefing the agency, reviewing shortlisted candidates, conducting interviews (typically 2-3 rounds), and making the final decision. For a senior hire, this typically amounts to 15-20 hours of internal time.
- Onboarding Costs: Whether you use an agency or hire internally, onboarding costs remain constant. These include equipment, training, payroll setup, and the productivity ramp-up period where the new employee operates below full capacity.
Internal recruitment appears cheaper on the surface, but involves substantial hidden costs that many businesses underestimate.
1. Direct Advertising Costs: Job advertising across SEEK, LinkedIn, and Indeed typically costs between $500 and $2,000 depending on the role level and how long you need to keep the advertisement active. Premium placements that guarantee visibility can push this to $3,000 or more.
2. Screening and Interview Time: For a typical mid-level role, businesses receive between 50 and 200 applications. Screening these applications takes approximately 10-15 hours. Conducting first-round phone screens (assuming you shortlist 15-20 candidates) adds another 8-10 hours. Second and third-round interviews with 5-8 candidates consume an additional 12-15 hours.
In total, the hiring manager and HR team invest 30-40 hours on a straightforward hire. For senior or specialised roles where candidates are scarce, this can extend to 60-80 hours as you restart the process multiple times.
3. Technology and Tools: Professional applicant tracking systems cost between $200 and $800 per month. Background checking services charge $50-$150 per candidate. Skills assessment tools add another $100-$300 per hire depending on the role.
4. Cost of Vacancy: The most significant hidden cost is the productivity loss while the role remains unfilled. According to SEEK's 2024 data, the average time to fill a role through internal recruitment in Australia is 63 days. For agencies, this drops to approximately 42 days.
For a $90,000 role, each week of vacancy costs roughly $1,730 in lost productivity (assuming the role generates value equal to its cost). Over a 63-day internal recruitment process, this amounts to approximately $15,500 in lost productivity compared to $10,350 for the faster agency timeline.
Let us compare the total cost of filling a $90,000 Marketing Manager position through an agency versus internal recruitment.
Agency Recruitment
Internal Recruitment
In this example, internal recruitment saves approximately $7,300. However, this assumes your first attempt is successful.
A poor hiring decision costs Australian businesses between $25,000 and $50,000 according to research by the Australian HR Institute. This includes:
Agencies claim higher quality candidates due to professional screening processes, but the data shows mixed results. According to LinkedIn's 2024 Talent Trends report, 12-month retention rates are:
The small advantage for agency hires (4 percentage points) suggests that screening quality matters less than cultural fit and role clarity, both of which depend more on your internal processes than the recruitment channel.
Despite the higher cost, recruitment agencies deliver value in specific situations:
- Specialist or Hard-to-Fill Roles: For roles requiring niche skills, such as senior software developers with specific technology stacks or qualified accountants with industry experience, agencies maintain candidate pools that would take months to build internally. The time saved justifies the fee.
- Urgent Hiring Needs: When vacancy costs are high because the role is critical to revenue generation or project delivery, the 21-day time saving from using an agency outweighs the fee premium. For a revenue-generating role where each week of vacancy costs $5,000, the faster fill time saves $15,000, making the agency fee economically rational.
- No Internal HR Capability: Small businesses without dedicated HR staff often lack the systems, time, and expertise to run effective recruitment processes. The agency fee covers not just candidate sourcing but also the professional management of the entire hiring process.
- Volume Hiring: Counterintuitively, agencies can be cost-effective for volume hiring (5+ similar roles). Agencies offer discounted rates for multiple placements and the efficiency of processing many candidates simultaneously reduces your internal time investment per hire.
Internal recruitment makes more sense in these scenarios:
- Entry to Mid-Level Roles with Strong Applicant Flow: For roles that naturally attract many qualified applicants, such as customer service, administration, or junior marketing positions, the screening effort is justified by the cost saving. A $60,000 role would cost $12,000 in agency fees but only $3,000-$5,000 to recruit internally.
- You Have Established Employer Brand: Businesses with strong employer brands receive higher quality applications organically, reducing screening time and improving hire quality. If your LinkedIn company page has 5,000+ followers and your SEEK profile shows strong ratings, internal recruitment becomes more efficient.
- You Are Building Recruitment Capability: The first few internal hires are expensive in time and mistakes. However, once you develop strong processes, interview frameworks, and assessment criteria, internal recruitment costs drop significantly. Businesses planning to hire regularly (6+ roles per year) should invest in building this capability.
- Cultural Fit is Critical: For small teams where each hire significantly impacts culture, internal recruitment allows for more thorough cultural assessment. You can involve multiple team members, conduct working sessions, and take time to evaluate fit without the pressure of agency timelines.
Recruitment Process Outsourcing (RPO) has emerged as the middle ground between full agency fees and pure internal recruitment. RPO providers charge a monthly retainer (typically $3,000-$8,000) to manage your entire recruitment process.
For businesses hiring 3-4 roles per year, RPO costs approximately $36,000-$48,000 annually compared to agency fees of $54,000-$72,000 (assuming $90,000 average salaries at 20% fee). The RPO provider uses your brand, manages the process, and delivers shortlisted candidates while you retain control over the final decision.
Fractional recruitment support offers another option. A part-time recruitment specialist works 1-2 days per week managing your hiring, typically costing $800-$1,200 per day. For $10,000-$15,000, you get professional recruitment management for 2-3 months, covering multiple hires.
To determine which approach makes sense for your business, calculate your break-even point:
If internal costs exceed 15% of the annual salary, agency recruitment delivers better ROI. If internal costs fall below 12%, recruit internally. Between 12-15%, consider the intangible factors like time pressure, internal capability, and strategic importance of the hire.
According to SEEK and LinkedIn data from 2024-25:
Agency Recruitment
Internal Recruitment
The 21-day difference compounds in its impact. For roles with high revenue or productivity impact, this time difference becomes the deciding factor.
- Mistake 1: Rushing Internal Recruitment: To save agency fees, businesses rush internal recruitment by posting poorly written job ads, conducting superficial interviews, and making snap decisions. This increases the wrong hire rate, ultimately costing more than the agency fee saved.
- Mistake 2: Using Agencies for Every Hire: Some businesses default to agencies for all roles, including those that would easily attract strong applicants. This wastes approximately 15% of salary on roles that could be filled internally for 5%.
- Mistake 3: Poor Agency Briefing: When agency briefs lack detail about culture, team dynamics, and real role requirements, agencies send mismatched candidates. Multiple failed placements within the guarantee period waste internal time while providing no additional value.
- Mistake 4: Ignoring Referral Programs: Employee referrals deliver the highest retention rates and cost a fraction of either approach. A $2,000 referral bonus costs 2-3% of salary compared to 18-25% for agencies, yet many businesses neglect to promote their referral programs.
- Mistake 5: No Process Improvement: Businesses that recruit internally without systematising their process repeat the same time-intensive mistakes every hire. The time investment never decreases because no one takes ownership of process refinement.
A final cost consideration is compliance risk. Recruitment agencies carry professional indemnity insurance and HR expertise that reduces misclassification risk. Internal recruitment by inexperienced hiring managers increases the chance of:
These errors cost businesses between $10,000 and $100,000+ when discovered through audits or employee claims. While not a frequent occurrence, the risk exists and should factor into your decision framework.
Q. What percentage do recruitment agencies charge in Australia?
Recruitment agencies in Australia charge between 18% and 25% of the annual salary for permanent placements. Entry-level roles typically attract 18-20% fees, mid-level roles 20-22%, and senior roles 22-25%. Executive placements can reach 30%. These percentages apply to the base salary and do not include superannuation or other benefits.
Q. How long does it take to hire someone through a recruitment agency?
The median time to hire through a recruitment agency in Australia is 42 days from initial briefing to candidate start date. This breaks down as 10-14 days to shortlist, 7-10 days for interviews, and 14-21 days for notice period. Internal recruitment typically takes 63 days by comparison.
Q. Is it cheaper to hire internally or through an agency?
For mid-level roles with strong applicant flow, internal recruitment typically costs 8-12% of annual salary compared to 18-25% for agencies. However, for specialist roles, urgent hires, or when internal HR capability is limited, agencies can deliver better ROI despite higher upfront costs due to faster time-to-hire and reduced internal time investment.
Q. What is the cost of vacancy for an unfilled role?
The cost of vacancy equals the productivity or revenue loss while a role remains unfilled. A general calculation divides annual salary by 52 weeks to estimate weekly impact. For a $90,000 role, each week of vacancy costs approximately $1,730 in lost productivity. For revenue-generating roles, the actual impact can be significantly higher.
Q. Do recruitment agencies guarantee their placements?
Most Australian recruitment agencies offer replacement guarantees of 30-90 days. If the candidate leaves or is terminated within this period, the agency will find a replacement at no additional placement fee. However, you still absorb onboarding costs, training investment, and productivity loss for the failed hire.
Q. What are the hidden costs of internal recruitment?
Hidden costs include screening time (10-15 hours), interview time (12-15 hours), applicant tracking systems ($200-800/month), background checks ($50-150 per candidate), job advertising ($500-2,000+), and cost of vacancy during the extended hiring timeline. Total hidden costs typically add $5,000-$8,000 to direct recruitment expenses.
Q. When should a small business use a recruitment agency?
Small businesses should consider recruitment agencies for specialist roles that are hard to fill, urgent hiring needs where vacancy cost is high, when they lack internal HR capability, for senior positions requiring extensive networks, or when hiring volume (5+ roles) allows for discounted agency rates.
Q. What is Recruitment Process Outsourcing?
Recruitment Process Outsourcing (RPO) is a model where a provider manages your entire recruitment function for a monthly retainer, typically $3,000-$8,000. RPO sits between full agency fees and internal recruitment, delivering professional management at approximately 40% less cost than traditional agencies for businesses hiring regularly.
Q. How can businesses reduce recruitment costs?
Businesses can reduce recruitment costs by developing strong employer brands to attract organic applications, implementing employee referral programs with smaller bonuses, building systematic internal recruitment processes, using hybrid models like fractional recruiters for periodic hiring needs, and reserving agencies for truly hard-to-fill roles.
Q. What is the average retention rate for agency hires?
According to LinkedIn data, 12-month retention rates for agency hires in Australia average 76%, compared to 72% for internal hires, 84% for employee referrals, and 88% for internal promotions. The small advantage for agency hires suggests that process quality and cultural fit matter more than recruitment channel.
Scale Suite provides embedded HR support for Australian small and medium businesses, helping you make strategic decisions about recruitment channels based on your specific needs. Our fractional HR team can help manage internal recruitment processes, brief and coordinate with agencies when appropriate, or implement hybrid models that optimise your cost per hire.
If you are evaluating whether to bring recruitment in-house, exploring agency partnerships, or looking for a middle-ground solution, our team provides the analysis and implementation support to make recruitment a strategic advantage rather than a cost centre.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses.Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete bookkeeping to strategic CFO insights, we deliver better outcomes than a single hire - without the recruitment risk, training time, or full-time salary commitment.
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