Understanding Recruitment Agency Contract Guarantees

Recruitment agency contracts can be confusing. Each agency has their own terms, which are often negotiated on a contract-by-contract basis.

In addition to negotiating the fee, candidate ownership, and poaching terms in your headhunter contract, we also recommend negotiating a guarantee. A guarantee protects you in the event that your new hire leaves your company within a pre-determined amount of time, so that you don’t pay a hefty agency fee only to be left with a vacant position.

There are generally 4 types of recruitment agency contract guarantees:

  1. Full money back guarantee: A full money back guarantee means your agency would refund your entire fee in the event the candidate left within your negotiated time period. This guarantee favors the employer because it gives you the freedom to find and hire a replacement candidate from any source (including another agency), without paying for a hire that didn’t work out.

    However, many agencies are reluctant to offer this type of guarantee because their job is to help you find the best candidate – not retain them. At the end of the day, though, you need a successful hire to justify your agency spend – and a full money back guarantee ensures that your agency is doing all they can to help you find the best candidate. Plus, your agency can win back their fee if they help you find a suitable replacement candidate. A good way to find a middle ground is to pair this with a shorter guarantee period of 2-3 months.

  2. Pro-rated money back guarantee: With a pro-rated money back guarantee, your agency would refund a portion of their fee, based on the length of employment, if the candidate left your company in the negotiated time period. For instance, your agency would refund 75% of their fee if you agreed on a 12 month guarantee and the candidate left after 3 months.

    Agencies would prefer this to a full money back guarantee because it means they will receive some payment for their search. Employers, however, could still end up paying quite a bit of money to end up with a vacant position. A good way to find a middle ground is to pair this with a longer guarantee period of up to 12 months.

  3. Full Replacement guarantee: A full replacement guarantee means your agency would find a replacement candidate in the event the candidate left within your negotiated time period, free of charge. This tends to favor the agency more because they keep their fee, while the employer is at the mercy of the agency to find a replacement candidate.

    The agency may not have any better candidates (or they would have submitted them sooner), and may de-prioritize the search in favor of newer contracts that will help them increase earnings, leaving the position vacant for too long. A good middle ground is to set an expiration date for a replacement candidate – like 30 days. Negotiate either a money back guarantee (full or partial) or a credit toward a future search in the event that a replacement is not found in that time period.

  4. Pro-rated replacement guarantee: With a pro-rated replacement guarantee, your agency would find a replacement candidate for a reduced fee, based on the length of the first placement’s employment. For instance, a placement with a $20,000 fee and 12 month guarantee would cost you $5000 for a replacement if the candidate left after 3 months.

    Again, this favors the agency because they will still earn a fee, even if you’re left with a mismatched candidate. However, it’s still better than no guarantee at all, because you can find a suitable replacement at a fraction of the original cost. A good middle ground is to set an expiration date by which to find a replacement candidate (and negotiate what happens in this case), and to pair it with a longer guarantee period of up to 12 months.

One more thing to consider…

Many agencies will have a set of stipulations that apply to guarantees. For instance, they won’t offer a guarantee if the candidate left as part of a lay-off, or if the candidate was fired for not having a skill that was omitted from the job description. Review these carefully and negotiate anything that seems unreasonable.

Also keep in mind that there may be gray areas, where it’s unclear whether the agency or employer is at fault for the employee leaving. Perhaps the candidate was never interested in the position to begin with, but the agency convinced them to accept the offer anyway. If you lay them off because they’re clearly not happy and it’s affecting your team’s productivity, you may not be able to exercise your guarantee.

Our recommendation?

The standard BountyJobs recruitment agency contract has a full money back guarantee if the candidate leaves for any reason. Fixed fees or fees below 19% have a 60 day guarantee, while fees 20% or higher are refundable for up to 90 days. We’ve found this to be in line with industry best practices.

This type of guarantee eliminates any situational discrepancies around who was at fault for the candidate leaving, while offering a time period that can benefit both parties. It also ensures that employers find the candidates they need, and gives agencies the opportunity to earn their fee back if a suitable replacement is found.

What type of recruitment agency contract guarantees do you use?

2017-08-02T21:39:16+00:00 September 17th, 2015|

About the Author:

Jen Dewar is a marketing consultant in the HR technology space with a focus on developing educational content for recruiters, corporate HR professionals, and staffing agency owners. She has spent the past 10 years working with a wide variety of companies — from corporate marketing for healthcare organizations and recruitment firms, to startup marketing for both Identified and Bright.com, prior to their respective acquisitions. When she's not doing marketing, you can find Jen snowboarding in Tahoe with her husband, traveling abroad, or enjoying a night in with friends and a good bottle of wine. She's a graduate of the University of California, Santa Barbara, with a degree in Socio-Economic and Political Global Studies.