How do I calculate a recruiter placement fee?
To calculate a placement fee, use: placement fee = fee percentage x first-year compensation. Work out the compensation your agreement counts, apply the percentage, then apply any split between recruiters and any refund owed under the guarantee period. All examples are illustrative, not market rates, so replace every figure with the terms in your own signed agreement.
To skip the arithmetic, use the free placement fee calculator. This guide explains the formulas behind it.
What you need
| Input | Example | Notes |
|---|---|---|
| First-year base salary | 120,000 | In the currency of the agreement |
| Bonus counted in fee | 0 | Only if your agreement counts it |
| Fee % | 20 | Your negotiated rate |
| Your split % | 100 | 100 if you work independently |
| Guarantee days | 90 | From your agreement |
| Day candidate leaves | 45 | 0 means the candidate stays |
| Refund type | Prorated, full or replacement | From your agreement |
Formulas
- Compensation = base + counted bonus
- Fee = compensation x fee %
- Your share = fee x your split %
- Prorated refund = fee x (guarantee days - day left) / guarantee days
- Full refund: whole fee if the candidate left within the guarantee days, else 0
- Replacement: no refund; a new search at no fee
Example 1: standard fee
Base USD 120,000 x 20% = USD 24,000. Independent, so your share is USD 24,000.
Example 2: 50/50 split
Fee 24,000. Your split 50% = USD 12,000.
Example 3: guarantee refund
Fee 24,000, 90-day guarantee, candidate leaves day 45. Prorated refund = 24,000 x (90 - 45) / 90 = USD 12,000. You keep 12,000.
Example 4: bonus counted in the fee
Base USD 120,000 plus a guaranteed USD 10,000 bonus that your agreement counts. Compensation = 130,000. At 20% the fee is USD 26,000. If your agreement counts base only, the fee stays USD 24,000, so read the definition of compensation first.
Step by step: calculate a fee from a signed agreement
- Find the definition of compensation in the agreement: base only, base plus guaranteed bonus, or total first-year cash.
- Add the amounts the agreement counts for the hired person.
- Multiply by the fee percentage.
- Multiply by your split percentage if another recruiter shares the placement.
- Note the invoice trigger (usually the start date) and payment terms.
- If the candidate leaves, apply the guarantee clause: replacement, full refund or prorated refund.
Quick reference: which remedy applies
| Guarantee type | If the candidate leaves in the window | If the candidate leaves after |
|---|---|---|
| Replacement | New search at no fee | No remedy |
| Full refund | Whole fee returned | Nothing returned |
| Prorated refund | Fee x remaining days / guarantee days | Nothing returned |
Common mistakes
- Using the headline salary when the agreement defines compensation differently.
- Forgetting the split when two recruiters share a placement.
- Invoicing before the trigger date in the agreement.
- Assuming a refund is owed when the agreement says replacement only.
- Rounding the guarantee days: count calendar days exactly as the agreement defines them.
Taxes on fees (US, if you are self-employed)
The IRS says self-employment tax is 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare, and that you must file Schedule SE if your net earnings from self-employment are $400 or more. You may need to make estimated payments each quarter. Ask an accountant how much to set aside.
Tax: this is not tax advice. If you are self-employed in the US you owe income tax and self-employment tax; ask an accountant what to set aside.
FAQ
Do these formulas know my agreement? No. Use the terms you signed. Your agreement controls.
Which fee percentage should I use? Your negotiated rate; see placement fee percentages.
Can I use this for India? Use the India commission guide for CTC-based figures.
When is the fee due? When your agreement says, most often on the candidate's start date. The invoice trigger and payment terms should be in writing.
Does a split change the refund? It can. Check how the agreement shares refunds between recruiters.
Sources
- Formulas are arithmetic; no external source. Rates used in examples are illustrative.
- IRS, Self-employment tax (Social Security and Medicare taxes): https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes (accessed 31 October 2026)