What to look out for in your recruitment agency agreement

Charles BrecqueCharles Brecque
Last updated on:
October 13, 2022
Published on:
November 9, 2021

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Hiring can be one of the biggest challenges for businesses at any stage in their journey. There are 5 steps you need to complete in order to hire a new team member starting with defining the gap you are filling and ending with an offer. The time and energy involved in the process can sometimes be delegated to a recruitment agency which will help source candidates who have already been identified as a good fit for your company. This article explains what a recruitment agency agreement is and what you should look out for.

What is a recruitment agency?

A recruitment agency’s purpose is to help businesses fill in a position by identifying suitable candidates who are a good fit for a role and the business. A recruitment agency is paid for successfully placing candidates into roles by the company who put out the offer. There are recruitment agencies which focus on a specific market such as legal services or by position such as sales or administrative jobs. Recruitment agencies will either hunt for candidates for a role provided by a client or work with CVs from candidates to find a suitable position and company. Agencies will usually provide resume workshops and interview training to help candidates secure a job which means that a job in recruitment can be a great learning experience for someone starting their career.

What is a recruitment agency agreement?

A recruitment agency agreement defines the terms and conditions around the placement of a candidate in a role and the remuneration of the agency for successfully delivering their services. A recruitment agency agreement will also define what happens if a recruit does not stay with the company. A recruitment agency agreement is often entered into by the company searching for a candidate and the agency. Recruiters will not usually enter into a contract with candidates but they will keep the applicants’ information confidential in case they are still employed and to prevent companies from identifying candidates outside of the recruitment agencies’ interview process. 

How are recruitment agencies paid?

Recruitment agencies are either paid a fixed fee for successfully placing the candidate or a percentage of the successful candidate’s starting salary. A flat fee recruitment agency will usually place candidates with a lower salary. Alternatively, an agency might be paid a fixed retainer for the successful placement of a number of candidates over a period of time. A percentage fee structure is usually adopted for higher paid roles and can vary based on the salary and the seniority of the position. 

In a recruitment agency agreement, it is important to clearly define if a percentage of the starting salary or the starting package will be used to calculate the agency’s remuneration. This is important especially if the starting package includes administrative costs such as relocation and visa fees which should not be included in the calculation of the agency’s fee.

When negotiating the placement fee with the recruitment agency, it is important to consider the time and effort which a recruiter will put into sourcing relevant candidates. This process usually involves crawling through CVs and candidate profiles on professional networks such as LinkedIn, reaching out to candidates and having a number of conversations with prospective candidates before assessing if a position is a good fit and convincing them to apply to it. A recruitment fee should be correlated with the rareness and quality of the candidates which are produced to prospective employers as this saves a huge amount of time and energy for the employer. Moreover, the cost of hiring a candidate which is not suitable is much higher than any potential recruitment fee.

What happens if a candidate leaves during the probationary period?

Recruitment agency agreements should define how the agent’s fee is managed when a successful candidate does not stay with the company either within the probationary period or for example within the first 6 months. If the candidate does not stay for performance reasons during the probationary period, the agent will usually need to reimburse the fee to the company or find a suitable replacement within a reasonable time.

If the candidate passes the probationary period but does not stay much longer, either the agent will need to reimburse the fee in full or part of it and can find a suitable replacement within a reasonable time. These conditions need to be clearly defined to protect both the recruitment agency’s work and the employer. 

If the candidate leaves during the probationary period because the role turns out to be different from the advertised job, then the agency can find a replacement within a reasonable period or retain a portion of the fee if they can prove the role was not properly advertised.

What happens if a company contacts a candidate 6 months after the role?

A recruitment agency will usually define a period during which a company can’t contact candidates which have been introduced to them unless they pay the recruitment agency fee. This might happen for example if a company needs to hire for the same position again within 6 months because business is picking up. The restriction period should be reasonable and is usually based on the nature and the seniority of the position.

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What happens if a company hires a candidate through a different agency or by their own means?

A company should not need to pay a recruitment fee to an agency if it successfully hires a candidate independently of the recruitment agency. Recruitment agencies might ask a candidate for exclusive representation as applying for the same job through multiple agencies can create complications.

Recruitment agencies might also keep the name of the employer confidential in the initial conversations with a candidate to prevent them from reaching out directly to the employer and securing the position before the recruitment agency’s formal introduction as this will undercut the agent of their fee.

What should not be in a recruitment agency agreement?

Terms which are overreaching should not be present in a recruitment agency agreement. For example, a recruitment agency should not seek payment for making introductions which aren’t successful. Restriction periods should not be unreasonably long as these will harm both candidates and employers.

How to create a recruitment agency agreement?

A recruitment agency agreement should be clear and professional as it sets the tone of how a recruitment agency operates to potential employers. Whilst the recruitment agency landscape is dominated by large recruitment firms that can afford lawyers, many boutique recruitment agencies just getting started can save legal costs without compromising the quality and professionalism of their agreement by using Legislate for their agency agreement. Legislate offers a lawyer-approved recruitment agency template which can be tailored to a specific agency’s requirements by answering a set of simple questions. Employers can then be invited to the agreement for review and e-signature directly within Legislate. To get started, sign up today, watch a tutorial or get in touch for more information.

About Legislate

Legislate is an early stage legal technology startup which allows large landlords, letting agents and small businesses to easily create, sign and manage contracts that are prudent and fair. Legislate’s platform is built on its patented knowledge graph which streamlines the contracting process and aggregates contract statistics to quickly unlock valuable insights. Legislate’s team marries technical and legal expertise to create a painless, smart contracting experience for its users. Legislate is backed by Parkwalk Advisors, Perivoli Innovations and angel investors.

The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.

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