Charles Brecque

Charles Brecque


February 13, 2024

What to look out for in your recruitment agency agreement

This article provides insight into how recruiters operate and explains the key things to look out for in a recruitment agency agreement.

What to look out for in your recruitment agency agreement

Hiring can be one of the biggest challenges for businesses at any stage in their journey.

The hiring process for some companies may start with defining the gap you are filling and ending with an offer. This process can be time consuming so companies may choose to sometimes delegate to a recruitment agency. The agency will help source candidates who have already been identified as a good fit for your company.

A recruitment agency agreement is often entered into by the company searching for a candidate and the agency.

This article provides an overview of recruitment agency objectives, explains what are recruitment agency agreements, as well as things to look out for.

What are recruitment agencies?

A recruitment agency's purpose is to help businesses fill 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 legal, sales or administrative jobs.

Recruiting firms will either hunt for candidates for a role provided by a business or a client or work with CVs from candidates to find a suitable position and company. Agencies will usually provide workshops for resumes and interview training to help candidates secure a job. Working in recruitment can be a great learning experience for someone starting their career.

Skills acquired in recruitment are also entirely transferable to other professional spheres, so being able to design powerful resumes and manage complex application procedures will serve pros well whether or not they decide to stick with working in an agency.

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.

What happens to the agreement 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 contract or 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 recruiter 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 payment 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 agreement 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.

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.

How are recruitment agencies paid?

Recruitment agencies are either paid a fixed fee for successfully placing the candidate in employment, 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.

Balancing the fees with the recruitment process

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 and suitable candidates. This process usually involves:

  • crawling through CVs
  • checking 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 information relating 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 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.

About Legislate

When hiring, it's important to have legally sound employment contracts in place to protect your company and employees. With Legislate, you can easily tailor lawyer approved agreements to suit your needs, and easily extract relevant data from these agreements. Plus, our platform allows for electronic signing, making the contract process more efficient for both you and your employees. Book a demo or sign up today.

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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