How a recruitment agency gets paid, and by whom

Most of the time the employer pays, and only when someone is hired, which is why a good agency treats you like a customer on the day it needs you. The job seeker can be charged too, but the law keeps that small. So you're the product or the customer, depending on the day.

This is about local hiring only. Foreign workers and domestic helpers run on other rules, and I'm leaving them out.

What you can be charged

Here's the bit I'd want every job seeker to know, because it's short. The Private Employment Agencies Act, in its 2018 reprint, lets an agency take two things from you.

• A registration fee of RM30 or less for a job in Malaysia, good for twelve months.¹
• A placement fee, once you accept an offer, of not more than 25% of your first month's basic wages.¹

The agency also has to give you a receipt for every fee.¹ Taking more than the schedule allows is an offence, with a fine of up to RM50,000, a year in jail or both.¹

That cap rose from 20% with the 2018 changes. The Minister can amend the schedule by order, and I've only read the 2018 reprint, so I'd check nothing has moved before quoting it at anyone.¹

Then the employer steps in

Section 14B is the clever one. It says the placement fee may be paid by the employer, and if it is, the agency can't ask you for it as well.¹

A law firm's summary of those changes says most agencies charge the employer and not the job seeker.² That's a general statement from a lawyer, not a count, but it fits what the fee list suggests. A quarter of one month's pay wouldn't feed many consultants.

What the employer pays is a different scale altogether. I couldn't find a survey, so the figures I can offer come from a recruitment firm's own blog, which is selling this service, so hold them loosely. It puts typical agency fees at 15% to 30% of gross annual salary, or about 1.8 to 3.6 months' pay.³

Say a job pays five thousand ringgit a month. Here's what the two sides could be looking at.

One made-up hire at RM5,000 a month, in ringgit

As I read the Act, the cap is on what's charged to job seekers, and I can't see a schedule rate for a separate fee an employer agrees to pay. One offence section is worded quite widely, though, so that's a question for a lawyer rather than for me.¹

Why it looks so expensive

An employer staring at that invoice sees a few weeks of phone calls. But the same blog says the fee is usually one-time and paid when a hire is made.³ So the invoice has to pay for the searches that ended with nobody.

That's the part I find most interesting. A contingency agency is a business that does a lot of work for free and then charges for it all at once, to whoever happened to say yes.

Some providers use a retainer instead, where a fee may be due whether or not anyone is hired.³ I'd think of that as paying for the search and not the result, which makes sense for a role that's hard to fill.

I haven't got a Malaysian agency's accounts to show you, so what follows is reasoning and a guess.

Where one placement fee goes, my rough guess

The free replacement isn't free

Say an agency promises to find another person for no extra charge if the hire leaves within the first few months. I couldn't find terms I could date, so that's a hypothetical, but it's the promise I'd ask about first.

To the employer it looks like insurance. To the agency, it means the money in the bank isn't really earned until that period ends, and a second search could eat much of the margin.

So a promise like that has to be priced in. I'd expect it to show up in the percentage, and I'd want to see exactly what triggers it: a resignation, a dismissal, a hire who never turns up.

Whose side is it on?

Follow the money and the incentives are mostly reasonable. A fee worked out on salary means the agency would rather you got a better offer, so on that one question it's on your side.

It's less on your side on speed. If it only gets paid when someone says yes, a quick yes beats a better job a month later, and a candidate who keeps saying no costs it time.

None of that makes agencies villains. It just means I'd listen to a recruiter the way I'd listen to anyone paid on completion: useful, well informed, and in a hurry.

A job seeker has one more easy check. Recruiting without a licence carries a fine of up to RM200,000, up to three years in jail or both, so asking to see the licence isn't rude.²