How to start a recruitment agency in the US: models, licensing and the first year

To start a recruitment agency in the US, decide first what kind of agency it is: direct-hire on contingency, retained search, or contract staffing. That one choice decides whether you need a state licence, whether you become the employer of the people you place, and how long you wait to be paid. Then form an LLC or corporation with your state, get a free EIN from the IRS, check your state's and city's employment agency rules, write one set of terms of business, and win the first clients from people who already know your work. The paperwork is cheap. The real costs are your runway until fees arrive and, if you run contract staffing, the payroll you fund before the client pays you.

This guide is the US version, written for recruiters leaving an agency or an in-house team to start their own. If you are a senior search consultant setting up a retained practice, read it alongside our guide to how to start an executive search firm, which covers restrictive covenants, retained fee schedules and the UK. Every fee and rule cited here comes from the official source named in the last section. Where nobody publishes a reliable number, we say so rather than guess.

Key takeaways

• Choose the model before anything else. A direct-hire or retained agency introduces candidates and is paid by the employer. A contract staffing agency employs the workers it places, runs their payroll and carries employer duties from the first day.
• There is no federal recruitment agency licence. States and some cities decide, and the usual test is who pays the fee. In California, the Employment Agency Act covers agencies paid by job seekers, and they must keep a $3,000 surety bond on file with the Secretary of State. Massachusetts is stricter: even an agency that never charges candidates must register with the Department of Labor Standards, from $300 a year, whether or not it has an office there.
• New York City exempts executive search and employer-fee-paid agencies that place only commercial, clerical, executive, administrative and professional candidates and never charge them a fee. A licensed NYC agency needs a $5,000 bond, fingerprints and commercial premises, and cannot run from a residential building.
• An EIN is free from the IRS. If you employ contract workers, you also take on Form I-9 checks, federal unemployment tax at 6.0% of the first $7,000 of each employee's wages (0.6% after the full state credit), state unemployment tax and workers' compensation under state law.
• A contingency fee is earned only when your candidate is hired, and is usually invoiced around the start date. Plan your runway from the date cash arrives, not the date you win the role.

Which kind of recruitment agency are you starting?

"Recruitment agency" covers three different businesses in the US. They share a sales motion and almost nothing else.

Most recruiters going independent start with direct hire, because it needs the least capital and the least compliance. That makes it the easiest to start and the slowest to stabilise: every fee depends on a hire closing. Retained work pays for the research up front but needs buyers who already trust you. Contract staffing produces recurring revenue, but it is a payroll business with a recruiting front end, and the capital it needs is the payroll you fund before the client pays.

You can combine models later. Start with one, because each needs different terms, insurance and systems.

Before you resign

Read your employment contract before you tell anyone. Non-solicitation of clients and candidates, confidentiality and, in some states, non-compete clauses decide how fast you can start billing.

The Federal Trade Commission's 2024 rule banning most non-competes never took effect and was vacated in 2025, so your contract and your state's law decide what applies; the detail is in our executive search firm guide. Take advice from an employment lawyer in your state on your actual contract. Never take your employer's candidate database, client list or job orders with you: the data you rebuild from public sources and your own memory is yours, and a spreadsheet taken on the way out is the quickest route to a dispute.

How do you choose a niche?

Pick the market where hiring managers would take your call today. For most people, that is the function, industry or level they have recruited for most often.

A niche works for a new agency when three things are true:

• You can name the buyers. Thirty to fifty hiring managers or heads of talent who have hired through you or know your work.
• You can name the candidates' employers. The companies that produce the people your clients want. A market map of them is the asset you sell from.
• The fee can carry the work. Roles that fill quickly from job adverts leave little room for an agency fee. Scarce, specialist or senior roles are where clients pay for search.

How do you set up the business?

Forming the company takes days. Checking the licensing rules in every state you will work in takes longer, and matters more.

1. Form the entity. Register an LLC or corporation with your state's secretary of state. Filing and annual fees are set by each state, so check your own state's schedule.
2. Get an EIN. Apply online with the IRS after the entity exists. The IRS application is free, and the IRS warns against websites that charge for one.
3. Open a business bank account and keep the agency's money separate from your own from the first invoice.
4. Register for state taxes your state requires, and ask an accountant how your entity will be taxed before your first fee arrives.
5. Check employment agency licensing in your state, in your city, and in every state where your clients or candidates are. The next section shows how much the rules differ.
6. Arrange insurance. Many clients ask for professional liability cover before they sign. If you will employ contract workers, workers' compensation is governed by state law and comes before the first assignment.
7. Have a lawyer review your terms of business once, then reuse them.

Do you need a licence to start a recruitment agency in the US?

There is no federal licence. Whether you need a state or city licence depends on where you operate, what you place and, above all, who pays the fee. Four examples show the range:

The pattern: charging candidates almost always brings a licence, a bond or both, and most professional recruiters never do it. Employer-paid agencies are often exempt from licensing but not from every rule, and a few states, Massachusetts among them, register them anyway. Contract staffing, healthcare staffing and domestic placement often have their own rules.

Make a short sheet for each state and city you will work in: licence or registration, bond, fee, renewal date, the office that issues it. Check it again before you place your first candidate in a new state.

What changes if you place contract workers?

If you place contract or temporary workers on your own payroll, you are their employer. That brings duties a direct-hire agency never has:

• Form I-9. Every US employer must complete Form I-9 for every person it hires, examine their identity and work authorisation documents, and keep the form for three years after hire or one year after employment ends, whichever is later.
• Federal unemployment tax. The FUTA rate is 6.0% of the first $7,000 paid to each employee in the year. Employers who pay state unemployment tax in full and on time can usually claim a credit of up to 5.4%, which brings the rate down to 0.6%.
• State unemployment tax, income tax withholding and payroll filings in each state where your workers are.
• Workers' compensation, under your state's law, before the first worker starts.
• Paying workers before the client pays you. Your workers are paid on your payroll schedule; your client pays your invoice on its terms. The gap is working capital you fund, and it grows with every worker you add.

Worker classification matters too. Treating people who work under a client's direction as independent contractors when the law treats them as employees is one of the costliest mistakes a new staffing agency can make. Take advice before you place your first contractor, or use an employer-of-record or payroll-funding partner until you can carry the payroll yourself.

What should your terms of business cover?

Your terms of business decide when you are paid and how much you keep. Write them before the first client asks.

How do recruitment agencies charge, and when are you paid?

Direct-hire agencies are usually paid a percentage of the hire's first-year base salary, and only when the hire is made. Market practice for contingency fees is typically 20 to 30%; retained executive search fees are about a third of first-year cash compensation, paid in instalments. Those ranges come from search firms and fee guides and are set out in retained executive search. They are not a Topliner price.

What decides your first year is when the fee arrives. Take a hypothetical direct-hire role on contingency at a 20% fee on a $120,000 base salary. The fee is $24,000, invoiced on the start date, and paid on 30-day terms. If the search takes eight weeks to an accepted offer and the candidate then gives four weeks' notice, the invoice goes out around week 12 and the cash arrives around week 16. That is our own arithmetic from those assumptions, not a survey, and a slow client, a longer notice period or a candidate who withdraws makes it longer.

Three things shorten the gap:

• Ask for an engagement fee on searches that will need real research, credited against the final fee.
• Invoice on the earliest date your terms allow, and make payment terms short.
• Run several roles at once, so one withdrawal does not wipe out a quarter.

Contingency also carries a cost that never appears on an invoice: the research you did on roles that closed another way. If more than a few of your roles close without you, the fix is usually exclusivity or an engagement fee, not working harder.

Where do the first clients come from?

The first clients of a new agency nearly always come from people who already know your work. Build the list before you build the website.

1. Write down everyone who has hired through you, been placed by you or referred you a role, and check each name against your contract.
2. Contact them one by one. Say what the new agency does, which roles you want, and how you charge.
3. Pick a few target companies in your niche that are likely to hire soon, for example after a funding round or a leadership change, and approach them with something useful, such as a view of the candidate market for a role they will need.
4. Publish what you see in your niche, regularly, on LinkedIn or by email.
5. Keep a warm talent pipeline between roles, so the next search for a client starts from a bench.

Expect the first signed role to take longer than you hoped. A client who liked working with you at your old agency still has to approve a new supplier, its terms and its insurance.

What does the stack cost in year one?

A one-person agency needs a system of record, a source of candidate data, business email and calendar, e-signature, and accounting and invoicing. Contract staffing adds payroll and time-tracking.

The software choice is the hardest to undo. An applicant tracking system built for high-volume hiring suits an agency processing applicants; a specialist or senior desk, where most candidates never applied, needs a system built around a mapped market and a client view. Read the contract as closely as the feature list: renewal increases, whether seats can be reduced, and how you export your data. Our guides to what executive search software costs and ATS for executive search set out the differences.

What does the first year look like?

Slower to pay and lonelier than most people expect, even with a strong network.

Nobody publishes reliable figures for how many new US recruitment agencies survive their first years or what an owner earns, and we will not invent them. What tends to decide the first year is easier to see:

• How much of your network was yours. Some recruiters find that clients called the old agency's brand, not them. The first few months tell you.
• Concentration. If one client produces most of your fees, a hiring freeze there is a crisis for you.
• Capacity. Alone, you are sales, research, candidate care and billing. Count how many live roles you can run well, and say no to the rest.
• Discipline on terms. The roles that hurt most are those taken without exclusivity, without an engagement fee and without written terms.

Where does Topliner fit?

Topliner is an executive search OS for independent and boutique search firms. We sell software and research in this category, so read this section as a vendor's view.

If your new agency works on senior, specialist or retained roles, Topliner holds each search as one record: brief, market map, off-limits, approaches, shortlist and client report, with an ATS and CRM on the same data. Senior researchers can run the research beside you, so a one-person firm can deliver a mapped market without hiring a research team. Topliner is not built for high-volume or contract staffing; if that is your model, choose a staffing system with payroll and timesheets.

Topliner is not sold per seat. It works with independent firms as a partnership, on a revenue share, by invitation, so the cost follows the searches you run. A revenue share is not automatically cheaper than a licence, so compare it with your expected fees.

How do you start a recruitment agency, step by step?

1. Choose the model: direct hire, retained search or contract staffing.
2. Read your contract and take advice on non-solicitation and non-compete clauses before you resign.
3. Choose a niche where 30 to 50 buyers already know you, and start a market map of it.
4. Form an LLC or corporation, get a free EIN, open a business bank account and register for state taxes.
5. Check licensing, registration and bonds in every state and city you will work in, starting with who pays the fee.
6. If you will place contract workers, set up payroll, Form I-9, unemployment tax accounts and workers' compensation before the first assignment.
7. Have a lawyer review one set of terms covering fee basis, when the fee is earned, payment terms, guarantee, introductions, exclusivity and off-limits.
8. Size your runway from when cash arrives, not when you win the role.
9. Tell the people who already trust you, one by one, what the new agency does.

How we know

California rules are from the Employment Agency Act definitions (Civil Code 1812.501), the bond requirement in Civil Code 1812.503 and the California Secretary of State's bond forms and fees. New York State rules are from the New York State Department of Labor's employment agencies page. New York City rules are from the Department of Consumer and Worker Protection's employment agency licence checklist. Massachusetts rules and fees are from the Department of Labor Standards' guide to registering an employment, placement or staffing agency and its licence and registration fees page. The EIN details are from the IRS, the FUTA rate and credit from IRS Topic 759, and the Form I-9 rules from USCIS. All were read on 2 November 2026.

The status of the FTC non-compete rule is from the FTC, as set out in our executive search firm guide. Fee ranges are market practice as set out in our retained executive search page. Software prices are from vendors' own pricing pages, read on 29 October 2026 for our executive search software cost guide. The cash-flow example is our own arithmetic from the stated assumptions. This is a general guide, not legal, tax or financial advice. Rules change and differ by state and city, so check them for every place you work.

If you are setting up a specialist or retained desk and want the research loop on the system we use ourselves, request an introduction.

Questions people actually ask

How much does it cost to start a recruitment agency in the US?

The setup is small: a state filing fee for your LLC or corporation, a free EIN, and a licence, registration or bond only where your state requires one, such as $300 a year to register in Massachusetts. The real costs are your runway until the first fee arrives, software and candidate data, insurance, and payroll if you run contract staffing.

Do you need a licence to start a recruitment agency?

There is no federal licence. It depends on your state and city and on who pays the fee. Agencies that charge candidates almost always need a licence or bond. Employer-paid agencies are often exempt, but not everywhere: Massachusetts requires them to register.

Can you start a recruitment agency from home?

Often, yes, for a direct-hire agency that never charges candidates. Check your city's rules: New York City, for example, does not allow a licensed employment agency to operate from a residential building.

Can you start a recruitment agency with no experience?

You can, but the first clients usually come from people who know your recruiting work, so it is much harder. Some licensing regimes also ask for experience: New York State requires two years of qualifying experience or a qualified agency manager.

How do recruitment agencies make money?

Direct-hire agencies earn a percentage of the hire's first-year salary when a candidate is hired. Retained search firms are paid in instalments during the search. Contract staffing agencies earn a mark-up on each hour or day their workers bill.

Is a recruitment agency profitable?

It can be, because a direct-hire agency has low fixed costs. Nobody publishes reliable figures on typical profit or survival for new US agencies. What decides it is how many of your roles close, how fast clients pay, and how concentrated your income is.

What is the difference between a recruitment agency and a staffing agency?

In everyday US usage, a recruitment agency introduces candidates who are hired by the client, while a staffing agency employs the workers it places and bills the client for their time. The difference matters because the staffing agency is the employer, with payroll, tax and insurance duties.