Contract Recruitment Commission: Paying on Margin

Contract recruitment commission is paid on the gross margin a consultant generates on their contractors, not on a one-off placement fee. Margin is the charge rate the client pays minus the contractor's pay rate minus the agency's on-costs (employer National Insurance, holiday pay, pension and the Apprenticeship Levy). The consultant earns a percentage of that margin — commonly 10–20% — and because a contractor bills every week they're on site, the commission accrues over the life of the assignment rather than landing in a single lump. This is the model that trips up agencies moving from perm to contract, because the maths, the timing and the IR35 rules are all different.

It's the contract counterpart to the perm placement model, and both sit under the recruitment commission plans overview.

TL;DR

Contract and temp desks pay commission on gross margin — charge rate minus pay rate minus on-costs — not on a one-off placement fee. A contractor at £400/day charge and £300/day pay, with ~£35/day of on-costs, yields £65/day of margin (£14,300 a year); a consultant on 15% earns ~£2,145 from that contractor, accruing weekly as timesheets are approved. Paying on margin rather than charge-rate revenue keeps consultants chasing profitable placements, and IR35 matters because it changes the engagement model and therefore the margin. The hard part is reconciling margin per timesheet across a constantly moving contract book every month.

Is contract commission paid on margin or revenue?

On a perm desk the billing is the fee. On a contract or temp desk, the billing is the gross margin per timesheet. The arithmetic is:

Charge rate − pay rate − on-costs = gross margin

Worked example: a contractor is placed at a £400/day charge rate and paid £300/day. The agency's on-costs (employer NIC, holiday pay and pension) come to roughly £35/day. Gross margin is £400 − £300 − £35 = £65/day. Over a 220-day year, that single contractor generates about £14,300 of margin.

If the consultant is on 15% of margin, that contractor is worth roughly £2,145 to them over the year — paid in slices as each week's timesheet is approved, not in one go.

How does contract recruitment commission work?

Two design choices define a contract scheme:

The basis: margin, not revenue. Paying on charge-rate revenue would reward a consultant for placing a contractor at a wafer-thin margin — exactly the wrong behaviour, and the recruitment version of the classic mistake of commissioning revenue when you should commission margin. Paying on gross margin keeps the consultant focused on profitable placements and protects you from a desk that's busy but unprofitable.

The timing: accrual, not event. Because margin is earned weekly while the contractor works, commission accrues continuously. Many agencies pay it monthly in arrears, once timesheets are approved and the client is invoiced. Some defer a slice until the client actually pays, to cover bad debt on long contracts.

	Perm desk	Contract/temp desk
Billing	One-off placement fee	Gross margin per timesheet
Earned	Candidate start date	As the contractor works
Paid	After invoice / rebate window	Monthly in arrears on approved timesheets
Main risk	Rebate clawback	Contractor ends early; client bad debt

How do on-costs affect the margin?

The on-costs you subtract before calculating margin are real money, and getting them wrong inflates commission. They include employer National Insurance (15% above the secondary threshold for 2026/27, per HMRC's rates for employers), holiday pay accrual, pension auto-enrolment and, for larger agencies, the Apprenticeship Levy. If your commission is calculated on a margin figure that ignores some of these, you're paying consultants a share of money the agency never actually made.

Does IR35 affect recruitment commission?

The off-payroll working (IR35) rules determine whether a contractor is taxed as employed or genuinely self-employed, and who's responsible for that decision. They don't change how you pay your consultant's commission, but they do change the engagement model — inside-IR35 assignments are often run through an umbrella company or on a PAYE basis, which changes the pay rate, the on-costs and therefore the margin your commission is calculated on. A consultant's commission should always be based on the agency's true retained margin after the engagement model is accounted for. The REC has extensive guidance for members on running compliant contract desks.

Why is reconciliation the hard part?

A contract book is a moving target: timesheets arrive late, rates change mid-assignment, contractors start and finish, and margin shifts as on-costs update. Reconciling commission across all of that every month is exactly where the billings spreadsheet breaks down and where reconciliation between sales, finance and payroll eats days. A platform that calculates margin per timesheet, applies the commission rate and feeds the result into Xero removes the manual rebuild — and gives consultants live visibility of what their contractor book is earning them.

Frequently Asked Questions

Is contract recruitment commission paid on revenue or margin?

Margin. Well-run contract desks pay a percentage of gross margin — charge rate minus pay rate minus on-costs — not of charge-rate revenue. Paying on revenue rewards consultants for placing contractors at thin margins, which is the opposite of what you want. Commission on margin keeps the focus on profitable placements.

What counts as gross margin in contract recruitment?

Gross margin is the charge rate the client pays minus the contractor's pay rate minus the agency's on-costs — employer National Insurance, holiday pay accrual, pension auto-enrolment and, for larger agencies, the Apprenticeship Levy. Only the margin left after all of those is genuinely the agency's, so that's the figure commission should be based on.

How often is contract commission paid?

Usually monthly in arrears, once timesheets are approved and the client is invoiced. Because margin accrues every week the contractor works, the commission builds up continuously and is settled on a regular cycle. Some agencies defer part of it until the client actually pays, to cover the risk of bad debt on long assignments.

Does IR35 affect recruitment commission?

Not directly — IR35 governs how a contractor is taxed and engaged, not how your consultant is paid. But it changes the engagement model (umbrella, PAYE or genuinely self-employed), which changes pay rates and on-costs and therefore the margin your commission is calculated on. Always base commission on the agency's true retained margin after the engagement model is settled.

What's the typical commission rate on contract margin?

Commonly 10–20% of gross margin, sometimes banded so higher-margin or higher-volume desks earn a larger share. As with perm, the exact percentage matters less than the integrity of the margin figure it's applied to — a generous rate on an overstated margin is worse than a modest rate on an accurate one.

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Written by the Commit Team — Commit calculates contract recruitment commission from margin per timesheet, handles on-costs and splits, and exports clean figures to Xero for payroll.