• How can recruiters benefit from the changing demography of the workforce?

• Which sectors of the economy are expected to generate the largest demand for staffing in the coming years?

• Is the recent growth in recruitment process outsourcing likely to continue in the future?

• Where are skill shortages most apparent and what can recruiters do to exploit this?

Recruitment consultancies, or agencies, place both temporary employees and permanent staff. In both cases the consultant or agency acts as an intermediary channel through which both parties (the job seeker and hiring company) find each other for the purpose of employment.

Agencies typically operate as:

• specific skills-based agencies supplying or finding employees suitable to particular sectors

• general skills-based agencies working in geographically specific areas

• specialist agencies dealing with head-hunting, outplacement or information provision

With such a high level of industry fragmentation it is not possible to review all industry participants in a report of this type. The companies section provides a synopsis of some of the firms selected as being representative of a cross sample of operators. They are not necessarily the largest industry participants.

All values quoted in this report are at current prices unless otherwise specified.

The term billion refers to one thousand million.

Some numbers in tables do not add exactly due to rounding.

Reports are researched and written by MBD’s in-house, specialist business-to-business consultants. Research is based on both an analysis of official information and on original, trade research, providing both a quantitative and qualitative view of the market. MBD’s unique range of frequently updated reports provide an integrated body of ongoing research, enabling deep understanding of the prevailing trends and of the drivers of these trends based on trade opinion.

The following abbreviations appear in this report:

The UK industry combines significant temporary and permanent placement sectors, although in recent times the temporary sector has held a larger share of the market. Traditionally, more firms have occupied the temporary agency sector, though this segment has consolidated in recent years.

Temporary agencies provide staff to clients to fill positions at short notice, to relieve a shortage of available permanent workers, or to cover short-term demand for extra labour. Demand for staff can occur either due to illness to existing employees or the requirement for specific skills on projects. Temporary agencies will generally have a roster of individuals available at short notice, sometimes employed directly by the agency, who are available to work for clients. Temporary agencies are generally in demand at times of economic change, when firms are adjusting their workforce to meet new conditions. In these circumstances, temporary staff provide flexibility in the labour market.

Permanent placement agencies are more likely to see demand in times of economic stability, when companies have clear hiring plans and are able to plan recruitment ahead of time. Permanent agencies will approach potential candidates both in and out of work to provide a selection of individuals to interview for a role.

Recruitment companies’ revenue generally comes from commission based on the type of employment. For temporary workers, the fee is generally a proportion of the total amount invoiced to the client, which can be up to 25%. The fee will depend on whether the staff are employed by the agency, in which case they will take into account costs such as the individual’s national insurance and holiday pay. Some online agencies are beginning to move away from this model by charging flat fees.

Fees for permanent roles are most commonly a share of the first year’s salary of the hired employee. This can be anything from 15% to 30%. For executive placements, where the total salary will often be in excess of £100,000, this figure can rise up to 35%. At this level, companies work on a retained basis, with an installment-based fee structure so that a proportion of the fee is due up front. At lower salary levels, agencies will work in competition with other recruitment firms to find a suitable candidate for clients as quickly as possible.

UK recruitment agencies generally do not require a license to operate, though some agencies providing seasonal labour may have to as part of Gangmaster licensing legislation.

Companies from a broad range of sectors, both business-to-business and business-to-consumer, use recruitment agencies. Traditionally, temporary recruitment agencies have specialised in clerical and blue collar roles, while permanent and executive agencies have worked to supply white collar workers.

Demand for recruitment services has been boosted over the past 20 years by a shift in the corporate world towards lean employment practices. This involves companies retaining the minimum amount of staff required, and employing temporary workers to deal with fluctuations in demand that change capacity. As a result, companies are more vulnerable to changes in demand as they do not have the capacity to meet them in-house. Increased outsourcing has also benefited the recruitment consultancy sector. Companies looking to focus on their core operations have tended to transfer this responsibility to third-party consultants.

In recent years, demand for recruitment agencies has increased in the information technology, engineering and healthcare sectors. Demand for temporary employees, in particular, tends to move in line with sectors increasing output at any time. For example, significant growth has recently been experienced by companies providing temporary labour for the construction industry, which traditionally grows in excess of GDP in a strengthening economy. The sector’s growth has been so rapid that it has led to specific skill shortages.