How to Start a Recruitment Agency: US and UK

Start in a niche where you know the candidates and likely clients, then choose a fee model you can fund. A permanent placement may take months to turn into cash; a contract desk may have to pay workers before clients pay invoices. Allow for that gap before committing to costs. Use the US setup or UK setup checklist for the country-specific work.

Your first 90 days

This is an illustrative sequence for a founder starting a perm desk, not a deadline for making a placement. Choose your niche and business model first, and adjust the schedule for your setup and cash runway.

Scroll the table to see all columns →

Keep BD going every week, even when you are busy with delivery. The jobs you win in month three pay your bills in month six.

Step 1: Choose a niche you can sell on day one

Clients pay agencies for two things they can’t easily get themselves: access to candidates they can’t find, and judgment about a market they don’t know well. Both come from specialization. A new agency that recruits “anything, anywhere” competes with every other generalist, on price.

The best niche for a first agency is usually the one you have been working in. Test it with four questions:

1. Can you name 50 companies that hire these roles regularly? If you can’t list them, you can’t build a BD plan.
2. Do you have candidates you can call this week? Your network, past placements and LinkedIn connections are your starting database.
3. Are the fees worth the effort? Hard-to-fill, well-paid roles support higher fees and fewer, better placements.
4. Is the market deep enough to grow into? You will want adjacent desks later. The scaling playbook covers how agencies split a proven niche.

Before you take a client from your old employer, read your employment contract. Restrictive covenants (non-solicitation of clients and candidates, non-dealing, non-compete) are common in recruitment contracts on both sides of the Atlantic. Get legal advice on how they apply before you call anyone.

Step 2: Choose your business model

How you get paid shapes everything else: how much cash you need, what compliance applies and what kind of clients you chase.

• Contingent permanent. You are paid a fee when your candidate starts, and nothing otherwise. Robert Half describes its perm fees as generally a percentage of the new employee’s annual compensation, paid by the employer. The percentage is negotiated client by client. Low capital, high unpaid effort, and you often compete with other agencies on the same job.
• Retained search. The client pays a staged fee, starting when the engagement is signed. Large search firms such as Korn Ferry describe their fee as generally one-third of the estimated first-year cash compensation. It needs a reputation and senior network, so few new agencies start here. The retained search process guide shows how a mandate runs.
• Contract and temp. You supply workers and earn the margin between the bill rate charged to the client and the pay rate (plus employment costs) for every hour or day they work. Recurring revenue, but you pay workers before clients pay you, and the compliance load is heavier.
• RPO (recruitment process outsourcing). You run some or all of a client’s hiring under a multi-month contract, usually for a management fee, per-hire fees or both. It needs a team and reporting, so it is a later-stage move.

Most new agencies start contingent perm, add retained or exclusive work as their reputation grows, and add contract when they can fund it. That’s a sensible order.

Step 3: Set up the company and the compliance basics

Do this before your first placement, not after. The checklists below cover the essentials. They aren’t exhaustive and they aren’t legal advice.

In the United States

State licensing. There is no federal license for recruitment agencies, but several states and cities regulate them, especially agencies that charge job seekers or supply temporary labor. Two examples:

• New York. The state Department of Labor licenses employment agencies outside New York City, and the city’s Department of Consumer and Worker Protection licenses agencies within NYC. The city’s page describes an exemption for agencies paid only by employers that place only commercial, clerical, executive, administrative and professional candidates. Check whether your model qualifies.
• Illinois. The Private Employment Agency Act licenses private employment agencies, and the Day and Temporary Labor Services Act requires day and temporary labor agencies to register, with an annual fee of $3,000 plus $750 per branch and a surety bond.

Other states, including New Jersey, California and Massachusetts, have their own rules for employment agencies or staffing firms. Check your state labor department’s website, or ask an employment lawyer, before you start.

Worker classification (contract desks). Whether a contractor is an employee or independent contractor is decided by the facts, not by the contract label. The IRS explains its common-law test of behavioral control, financial control and the relationship. For wage-and-hour purposes, the Department of Labor stopped enforcing its 2024 independent contractor rule in May 2025 and proposed replacing it in 2026. If you supply temps, OSHA treats the staffing agency and the host employer as jointly responsible for their safety.

In the United Kingdom

The Conduct Regulations. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 are the core rulebook for UK recruiters. The practical points for a new agency:

• No fees to work-seekers for finding them work, apart from the entertainment and modelling exceptions.
• Agree terms with work-seekers before providing any service, and agree terms with hirers (regulation 13 guidance).
• Get enough information from the hirer about the role, and confirm the candidate’s identity, experience and qualifications, before you introduce or supply them. Stricter checks apply to roles working with vulnerable people.
• For temps, a temp-to-perm transfer fee is only enforceable if the hirer was offered an extended period of hire as an alternative, and only within the “relevant period” set by regulation 10.

There is no general license for recruitment in Great Britain. A gangmaster license is needed to supply workers into agriculture, horticulture, shellfish gathering and related food processing and packaging, and nursing and care agencies may need to register with the care regulator. Since April 7, 2026, the Fair Work Agency has enforced the Conduct Regulations in place of the Employment Agency Standards Inspectorate. Breaches can be criminal offenses, and people can be banned from running an agency for up to ten years.

Temps and contractors. If you supply temps, you must give each one a Key Information Document before agreeing terms, and the Agency Workers Regulations give them equal treatment on pay and basic conditions after 12 weeks in the same role. For contractors working through their own limited companies, the off-payroll working rules (IR35) put the status decision on medium and large clients. The agency paying the contractor’s company is usually the fee-payer and must deduct tax and National Insurance if the role is inside IR35; HMRC’s fee-payer guidance also warns that if you receive a status determination and don’t pass it on, you become the deemed employer.

Umbrella companies. Since April 6, 2026, the agency that contracts with the end client is jointly and severally liable for an umbrella company’s PAYE. If an umbrella company you use doesn’t pay the tax, HMRC can come to you. Use a short list of umbrellas you have checked, and review them regularly.

Data protection. UK GDPR applies to every CV you hold. The Data (Use and Access) Act 2025 changed parts of the regime from February 2026, and the ICO’s functions moved to the new Information Commission on September 30, 2026. Build consent tracking and deletion into your CRM from the start; it is far harder to retrofit. The UK recruitment software page shows how consent requests and expiry work in Longlist.

Step 4: Set your fees and write your terms of business

Your terms of business are the contract every client signs (or accepts) before you send a CV. Without them, you will struggle to collect a fee when a client hires your candidate six months later “through a friend.”

For contingent perm, the fee is a percentage of the candidate’s first-year salary, agreed with each client. Retained fees are usually staged. Contract rates are a bill rate per hour or day, with your margin built in. There is no regulated fee level; set yours based on the niche, how hard the roles are and what clients in your market accept, and expect larger clients to negotiate.

1. Definitions: introduction, candidate, engagement, start date, remuneration
2. Fee: percentage and what counts as remuneration (base only, or base + guaranteed bonus,
   car allowance, sign-on bonus)
3. When the fee is due: on start date or acceptance; payment terms (e.g. 14 or 30 days)
4. Introduction period: how long an introduced candidate stays "yours"
   (state a fixed period), including indirect hires via a third party
5. Rebate or replacement: what happens if the candidate leaves early
   (sliding-scale refund or free replacement, conditional on on-time payment)
6. Exclusivity and retained terms, if any
7. Contract/temp: bill rates, timesheets, invoicing, temp-to-perm transfer fee
   (UK: with the extended-hire alternative required by the Conduct Regulations)
8. Confidentiality and data protection: how candidate data may be used
9. Liability and insurance
10. Governing law, and how the terms are accepted (signature, email confirmation,
    or interviewing a candidate after receiving the terms)

Send your terms with every new client before the first CV, record that they were sent, and attach each CV to a clear submission. The candidate submission template covers the cover note and the pre-send checks.

Step 5: Plan the cash, and fund contract if you need to

Winning a brief does not pay the bills immediately. Fees can arrive months after the work starts, so forecast when the cash will reach your account.

Perm timeline. A job you win in your first week might go: two to four weeks to shortlist, two to four weeks of interviews, an offer, then a notice period (often two weeks in the US, and commonly one to three months in the UK), then an invoice on the start date and 30 days to be paid. Three to five months from first call to cash is normal. Plan for at least six months of personal and business costs with no fee income, and more if your niche has long notice periods.

Contract cash gap. On a contract desk, you pay workers weekly or monthly, but clients pay invoices 30 days or more after receiving them. The gap grows with every contractor you add.

Funding options. Founders typically combine savings, a business overdraft or line of credit, and, for contract, a specialist funding partner:

• Invoice finance or factoring. A lender advances most of the value of your client invoices as soon as you raise them, for a fee.
• Back-office or payroll funding. A provider funds and runs contractor payroll, invoices your clients, chases payment and pays you the margin, typically with credit checks on your clients and sometimes bad-debt protection. In the UK, providers include Sonovate, Giant Group and Bibby Financial Services; in the US, Advance Partners and factoring firms such as Riviera Finance work with staffing companies.

None of these providers publishes a standard price. When you compare them, ask how the fee is calculated (a percentage of invoice value or of gross margin), what the minimums and notice periods are, which client credit limits apply, and what happens if a client doesn’t pay.

Step 6: Win your first clients

Your first clients usually come from people who already know your work. Start there, then build a target list.

"Hi [Name], it's [Your name]. We worked together on [role/placement] at [Company] a
couple of years ago. I've just set up my own agency focused on [niche] in [region].

I'm not calling with a sales pitch. I wanted to ask how hiring looks for your team over
the next six months, and whether there's a role you've struggled with that I could help on.

[If yes] Could we spend 20 minutes on the brief this week? I'll send my terms beforehand
so everything's clear.
[If not now] Understood. Would it be useful if I sent you a short note each quarter on
what we're seeing in [niche] salaries and availability?"

The full playbook is in how to find clients for a recruitment agency. For scripts and channels, see the cold-calling scripts for recruiters, the recruitment email sequence templates and the recruitment lead generation guide.

Step 7: Set up a lean tech stack

A new agency needs fewer tools than vendors suggest. The essentials:

Scroll the table to see all columns →

Longlist is built for this stage: one recruitment CRM with the ATS built in, with free CV parsing, Gmail and Outlook sync, email sequences, branded CV packs, a BD opportunity board and a careers page on every plan. Growth is $59 per user per month billed monthly ($47 billed annually), and Plus, at $79 monthly, adds calling, SMS and WhatsApp from the record. There’s no annual contract on monthly billing, which matters when you are one person testing a niche.

To compare vendors and budget the full stack, see the recruitment software cost guide (with a downloadable cost worksheet), the recruitment agency software comparison and the layer-by-layer tech stack guide.

Step 8: Make your first hire

Hire when the work proves it, not when the plan says so. The signal is a couple of months of fee-agreed jobs you couldn’t properly work, plus enough cash to cover five or six months of a new person’s cost before their fees arrive.

For most founders the safest first hire is a resourcer or junior recruiter who takes sourcing and screening off your desk so you can sell. Write your job qualification and candidate qualification process down before they start, put them in the same CRM as you, and set up a simple weekly KPI scorecard from week one. The guide to scaling a recruitment agency covers the first-hire cash timeline, commission plans and when to move from 360 to 180 desks.