8 Steps for Starting a Recruitment Agency in the UK

Starting a new business can be an exciting and stressful time for any aspiring entrepreneur. The tremendous effort of putting a business plan to action and watching it come to life can be risky in even the best of economic situations. In the aftermath of the century-defining disruption caused by the global COVID-19 pandemic, many aspects of the workforce have been permanently altered. 

Workers in jobs that rely on face-to-face interactions who were let go during 2020 lockdowns - as well as traditional office workers who spent several months working from home under strenuous circumstances - are re-evaluating their options as the economy begins to roar back to life over two years later. 

The reshuffle of labor, acceleration of digitalization, and lingering concerns about COVID risks have exacerbated talent shortages in certain industries despite the surge in job openings. 

Describing the challenge facing the recruitment industry, Recruitment & Employment Confederation (REC) Chief Executive Neil Carberry said, “As we have recovered, new headwinds have blown up, including labor shortages. The 2020 figures show what the industry can do in times of crisis, and 2021 has shown unprecedented vacancies. In 2022, all employers will expect proper partnership from the government on skills reform, support for the unemployed, and immigration rules.” 

With tens of thousands of recruitment firms employing more than 100,000 professionals, the industry’s value to the UK economy is clear. In 2020 despite the massive disruptions, the REC reported that the industry contributed £35.9 billion in Gross Value Added (GVA) to the UK economy - a decline of only 11% from the previous year. Before the pandemic, more than 80% of the UK employers who used recruitment firms reported that they were happy with their service and with the candidates they received. This is a strong indicator that employers will continue to lean on recruitment agencies to help fill vacancies quickly. 

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Although international incumbents such as Adecco, Manpower, and Hays have a strong presence in the UK market, there are opportunities to start a competitive enterprise that takes advantage of the significant changes reshaping the labor market. 

Chief among the changes are rapid digitalization and the expansion of online recruitment and virtual hiring. The global online recruitment market is expected to exhibit a 7.1% CAGR between 2020 and 2027 despite the impact on hiring during the worst of the pandemic. Additionally, as more professionals prefer to work remotely and employers expand their hiring criteria to include professionals outside of local areas, virtual hiring practices have become established norms.

It is under these unique circumstances that new recruitment agencies have the chance to flourish. Addressing current market needs without the hindrance of legacy systems and processes can be a valuable advantage for a newcomer. If you are willing to embark on a new adventure during this unprecedented time, make sure to take the following critical steps to get off to a strong start.

Determine your niche

An important starting point for any new business is determining what the enterprise’s area of focus will be. In the recruitment industry, determining your niche begins with deciding whether to be a generalist or a specialist agency. There is no right or wrong answer, only which path makes the most sense for you. 

Generalists have broad knowledge across multiple industries. Recruiters can offer candidates opportunities in a wider range of industries and tend to have the flexibility to work on filling job vacancies in the areas of the highest demand. 

The drawback is that these recruiters may not have deep enough relationships to source candidates for more senior or specialist roles in a particular industry. Specialist recruiters, on the other hand, are deeply entrenched in a specific industry, and this gives them a tremendous perspective on employers’ hiring needs and where to look for the most qualified candidates. A lull in hiring demand in your chosen area can slow down business growth.

There is also the question of whether to set up the business to function as a temporary staffing agency for companies seeking short-term or specialized staffing solutions, a traditional or contingency recruitment agency that tends to focus on lower-level or non-specialist positions, or a retained recruitment firm - also known as an executive search agency - that sources talent for top positions in an organization.

Regardless of the path you choose for your recruitment agency, demand for talent is hot across a variety of industries. According to IbisWorld, healthcare staff recruitment has surged since 2016 to accommodate changes from the UK’s exit from the European Union and an aging population. IT and technology-focused jobs such as machine learning engineer and site reliability engineer are also in high demand.

The key to selecting your niche is assessing your strengths, understanding the current market demand, and examining how the industry may evolve in the long term. 

Assess your competitors

Another important factor is to assess the level of competition in your chosen area of operation.

The overall hiring market in the UK is facing divergent pressures, which is causing employers to lean heavily on recruitment agencies. 

According to the KPMG and REC, UK Report on Jobs, hiring rose sharply at the beginning of 2022 while the availability of candidates continued its decline that began last summer, and job vacancies continued to grow at a historic pace. This is despite an increase in staff appointments over 11 consecutive months through January 2022.

Recruiters will need to demonstrate solid results for employers and help them find the right talent quickly to meet their hiring goals. A newcomer to the recruitment industry will also need to quickly establish their brand identity and distinct value proposition to succeed in such a challenging environment. Spending time on this step will attract the right employees and clients to stand out from the pack.

Brand preference and customer loyalty go hand-in-hand, so it is also essential to obtain a firm understanding of the players in your chosen niche and appeal to potential clients by exploiting gaps in their services or offering a new market approach. This will allow you to shape the perception of your agency’s brand from the start. An important way that many start-ups establish an advantage in a crowded market of incumbents is to build a lean and nimble organization.

Assess your finances

Starting a business can be a costly endeavor, especially when you do not fully consider all of the one-time and ongoing expenses along with the revenue structure of the agency. Making a realistic assessment of how much money it will take to make your recruitment agency a reality is a crucial step to ensuring its success.

To fully understand the associated costs of creating and running a recruitment agency, let’s first look at the initial start-up costs.

  1. Business registration: £12 (one-time fee); Setting up your agency as an official business is a straightforward process that gets the whole operation going. Register your company in the UK here.
  2. Business bank account: Free
  3. Phone/internet: Selecting the right provider and service package is crucial - particularly in a post-COVID environment where more business and employee collaboration is taking place remotely.
  4. Office space: Costs will vary based on office location; Although pandemic restrictions have eased since the start of the year, all employees are not running back to offices and some may choose to continue working from home permanently. In light of this, it may not be necessary to invest in an office space now, but it may be in the future. When that time comes, consider the location. Also, don’t rule out a co-working space as a first step to securing an office space.
  5. Website and social media presence: Costs depend on if you go DIY or with a designer; To obtain a website, purchase the domain, then build the site on your own through a DIY provider - if you are comfortable with doing that - or hire a web designer. Get a full download on web design costs here. Creating social media accounts is free, but managing these pages may require a social media manager.
  6. Business hardware and software: If you opt to forgo office space, the only hardware you may need is a computer and printer. When selecting software, consider tools that will simplify day-to-day operations and improve the client experience, such as customer relationship management (CRM), a Microsoft or Google office suite, accounting, and applicant tracking system (ATS) solutions.
  7. Insurance: Protect your business from day one by ensuring the agency is against key business liabilities. 

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Next, determine the costs associated with recruitment operations such as posting on job boards, purchasing a LinkedIn premium membership, joining professional associations like the REC, employee salaries, IT support, and marketing.

These ongoing costs of operating a recruitment agency may be overlooked at the beginning but quickly add up.

Finally, it is essential to determine the potential earnings based on the type of agency you create. In a contingency recruitment model, for example, the agency is paid a one-time fee equivalent to 15-20% of the role’s annual salary. However, that amount is only paid if your agency provides a successful candidate. Retained recruiters can charge a higher fee (up to 50% of the role’s annual salary), but these are for highly specialized or senior-level positions. Temp agency fee models are more complex and take into account factors such as the cost of the worker, holiday pay, and National Insurance.

Research laws and regulations

Next, you should make sure that you have a firm understanding of the laws and regulations governing the industry. A recruitment agency can be doomed before it gets off the ground if you fail to comply with basic regulations.

The recruitment industry is highly regulated. Most agencies do not have to obtain licenses, with a few exceptions. Agencies that provide staffing services for the agriculture, horticulture, or food processing and packaging sectors must obtain a license from the Gangmaster and Labour Abuse Authority (GLAA). Some recruitment agencies focused on areas of the healthcare sector - like nursing - may also need to register with the Care Quality Commission (CQC). Some key rules that every agency must follow are:

  • Recruiters must not charge job seekers for finding them a job.
  • Agency workers must be given a contract.
  • Payment to agency workers can’t be withheld, nor can agencies make unlawful deductions.
  • Agencies must be transparent about the jobs they are advertising for.

Other laws that recruitment agencies need to be aware of are Income Tax Self Assessment (ITSA) returns, HMRC: The Income Tax (Pay As You Earn) (Amendment No. 2) Regulations 2015, Agency Worker Regulations (AWR), Equality Act 2010, the Data Protection Act, GDPR, and the Cap Code. For more information, please refer to industry membership associations like the British Institute of Recruiters and REC, or the  Employment Agencies Standards Inspectorate (EAS).

Set up business goals

Creating a vision for how your agency will operate in the future has many benefits. First, it encourages you to dream big and imagine all of the potential paths your business may take. It will also ensure that you create a business model that is scalable and agile in response to market changes. It will also help you paint a clear picture of the agency’s strategy and values for employees and other stakeholders and establish incremental goals that can be measured regularly.

Develop a marketing plan

A strong marketing plan is another important facet of building a successful recruitment business. The development of measurable digital marketing practices is delivering value to the brand at a time when authenticity and personalization are preferred by consumer audiences. It is incredibly important to determine how your agency will utilize online and traditional channels to raise awareness and build the brand.

Focusing on building strong relationships with influencers and candidates in your intended niche will result in a loyal and engaged audience. Additionally, the more you can do to simplify engagement and interactions with your agency, the better. Minimizing negative experiences and erosion of the brand value will allow your agency to attract the best talent for the job listings you have to fill. Over time, this investment in marketing can have a real and positive impact on revenue. 

Invest in tech tools

Another area that can have a noticeable impact on the agency from the start is technology. Digitalization is accelerating rapidly in many industries, including recruitment. A key advantage of a start-up over traditional incumbents is the ability to embrace advanced technology and the cloud, as well as pioneer other industry trends without legacy solutions or processes getting in the way. Professionals also prefer to work for companies that allow them to learn how to use leading-edge technologies or provide career advancement opportunities. In this way, investing in tech tools can help you attract top talent and potential high-performers. 

In addition to solutions that are dedicated to specific business functions like finance or payroll, recruitment agencies can gain an advantage by investing in cloud-based CRM and applicant tracking system (ATS) solutions. Deploying these solutions will simplify daily tasks, speed up candidate sourcing and hiring processes, and provide intelligence about how the business is functioning. Powerful recruitment technology like Manatal combines the ATS and CRM capabilities into one solution to make recruiters’ jobs easier. Ensure that you are selecting tech solutions built with security and local regulations in mind that will grow and evolve with your business.

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Invest in people

The final and most important piece of the puzzle is your workforce. As your agency’s most valuable asset, it is essential to invest in finding the right fit. These people are the face of your organization to candidates, clients, and future employees. Keeping them happy and motivated is a must to maintain a low turnover and protect the agency’s reputation.

Some important ways to invest in your workforce include:

  • Providing career development and training opportunities
  • Cultivating positive and diverse work environments
  • Hiring management that displays empathy and listens to employees
  • Creating a work environment and business model that are conscious of and responsive to employees’ well-being, happiness, and workload

The final word

Starting a new business will always be difficult. However, with a clear vision, a solid plan, and trusted partners, your business will have a chance to succeed in this competitive landscape. As you begin to get your recruitment agency up and running, look to company partners like Manatal to offer you peace of mind while you focus on the daily responsibilities of running a business. It is both a challenging and exciting time to start a recruitment agency in the UK.

Start your 14-day Free Trial to discover Manatal’s ability to help its users firmly establish their recruitment business and head towards accomplishment within a snap of fingers.  

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