I was wondering how others deal with a client who is looking to hire an independent contractor and pay them a salary of 60% of all proceeds generated by that position. Is it best to charge them a one-time service fee based on an "average" expected first year's salary or to charge them on a monthly basis for the first year?

Please advise. Love to hear your thoughts and opinions on this one. I see more and more employers going for ind. contractor positions.

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Comment by Amber on April 12, 2013 at 12:59pm

I'm assuming these are sales roles...

We only have one client that hires like this. We charge them a flat fee, and then additional payments if the person is meeting goals and still working for them at certain intervals. Here is an example: At hire they pay us $7,500.00, 6 month "bonus" of $1,500.00, and a final 12 month "bonus" of $1,500.00. We came up with numbers based on lots of factors. This was a client we had already made several executive type placements with, they don't use other outside recruiters, and positions are not terribly time consuming or difficult.

Comment by Allen on April 12, 2013 at 1:05pm

Thanks, Amber. We are a healthcare recruiting service and this particular position is for a licensed clinical Psychologist to work as a contractor FT in a large counseling center. What do you base your flat service fee on, projected yearly salary? Appreciate your feedback!

Comment by Amber on April 12, 2013 at 2:20pm

Projected if it's with proven past data would be considered. I don't recruit in that field at all, so I don't know if it's one of the standard ways that these positions are normally filled. It would depend on what the projection is - for example, if the contractor generated $500k, got paid 300k, and your standard fee is 25% or 75k that would be pretty high. If the contractor generated 200k, got paid 120k, your fee = 30k, which maybe is more reasonable for the client?

Comment by Allen on April 12, 2013 at 2:25pm

That's what I'm thinking. Guessing this level position would generate something like under $200K/year. Thanks again for your feedback, Amber!

Comment by Jeff Dahlberg on April 14, 2013 at 1:58am


You may have more of an issue than you realize. You used several words that could throw up a red flag to some DOL or IRS investigators. Those were, " salary, proceeds of profits and full-time (FT).

In order for you to be either FT or take part in a salary you would have to be a W2 employee. You may or may not have intended to use these words. If this is truly a contract position in the legal sense, I would reframe from using those words to describe the compensation of the contractor. This could even land you as the recruiter in hot water should the contractor seek future damages covered under labor and employment laws. If you posted the position guess who would be to blame?

If you mistakenly used those references I would still want to know, what separates this contractor from being a W2 employee? Would they actually better off classifying them as an Exempt  employee (check DOL guidelines for managers, professionals, skilled labor and medical) if they qualify. This way they could be put on a small salary (less than $500/wk with a production bonus or salary. They could also add them as a limited liability partner who gets paid in investment income.

Regardless of your decision I know  you are more concerned about how to structure our recruiting fees. I would personally have a concern that the employer wants to pay highly skilled labor on straight commission and disguise it as something else. Everyone wants something for nothing, but I highly doubt this will yield the best recruiting scenario. if it did sales positions would not have one of the highest turnover rates. If they want this from their own employees chances are they want the same thing from you as a vendor. 

I would use the fact that this employee would typically generate a salary of X if (we'll use the $300K example from Amber). Top recruiters would charge 33% for high-level medical positions on a retained and exclusive agreement. They would also likely demand one third of the fees be paid up front. This would be a total of $99,000 with $33,000 up front. This is because these are specialized searches which often even require the assistance of outside help such as a CPA and attorney. These are for salary employees.

This employer wants to hire a contractor to do the same job while waiting to get paid and my guess will expect you to do the same thing on a contingency agreement. Granted they might make it exclusive to make you feel better that you don't have any competition. Chances are slim any other experienced non-starving recruiter would want the option to compete.

A solution that comes to mind might be to state the normal fees and the difficulty in getting a good contractor. I would then offer to waive the up front $33,000 provided they agree to allow you to staff the contractor on a back-office employee agreement at an affordable salary plus commission, bonus or what other language they prefer to use. If they truly meet the standards of a contract employee the back-office company will generally charge you less and if not the client is well protected. This will also create a steady cash flow for you based on the increase in production of the client. This way the employer gets what they want (highly skilled labor, a chance to test the contractor without messy contracts getting in the way, little out of pocket investment and someone that is taking orders from them in stead of them beholding to the contractor), a happier employee who knows they are going to get paid on time for their work, and you the happy recruiter who proposed a way for everyone to say "YES" and get paid.

Since you are the staffing agency and primary employer of the employee you are collecting payroll information with the help of the employee. Should the employer refuse to pay the back-office company should then handle  your collections and legal feels to recover those losses at not charge to you.

We do not offer back-office solutions but would recommend you look at those possibilities in this case. Ask if they cover medical where the employee has direct contact with the patient as some will not take on the liability.

As usual this post is not intended  as legal advice or tax advice. The person posting recommends you consult a legal advisor or tax consultant before making any decisions which may affect you, your business or the affairs of others.



Comment by Sandra McCartt on April 14, 2013 at 1:00pm
Standard for placing medical professionals is a flat fee of 30 to 40k. Any contract is normally negotiated between the hiring group and the professional providing services. I would suggest you find someone who is interested in joining on the basis your client wants, charge a flat fee for recruiting and stay out of any contractual agreements between the group and the professional. I have never heard of any medical group paying a fee based on a % of what a medical professional earns annually.

Medical and counseling groups have all kinds of different contracts they work out with providers due to mal practice, tail policies whether they are working locum or perm.
Comment by Allen on April 15, 2013 at 3:05pm

Jeff, I need to clarify that we are not a staffing agency but an executive search/recruiting one that specializes in placing mid to upper level medical and mental health professionals in permanent full-time positions. We do not employ any candidates at this point. This is the first time we have a client who is looking for an independent contractor (1099) candidate to work on a full time basis serving a full case load of patients in their clinic. Thanks for your response.


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