This post was originally published on the RecruitLoop Blog, by Paul Slezak.

It's generated some interesting comments, so thought we'd share it here as well.

Help! A recruitment agency stole my wallet:  The myth of guaranteed...

The average recruitment agency charges a hefty fee for its service, and will often try to justify it by offering their clients a guarantee. However, if you ever need to take up that guarantee, you could be left with a nasty surprise.

The guarantee

Recruitment agencies today charge clients anywhere from 15% to 30% of a new hire’s total salary package for the first year. For more senior appointments, this fee can equate to the price of a new car.

Many firms are happy to pay this if their newly appointed employee turns out to be everything they’d hoped for.

But if the new hire doesn’t work out, that’s a lot of money down the drain, so recruitment agencies nearly all now offer the reassurance of a guarantee.

A typical guarantee promises that if the new appointment either leaves or is terminated within a certain period of time (usually 3 to 6 months), then the recruitment agency will undertake to find the client a suitable replacement candidate free of charge.

The problems

While that all sounds well and good, the reality can in fact be quite different. For one thing, the client has paid all that money to fill a position and now they are left with a vacancy that needs to be filled even more urgently than before.

The recruiter may have already received their commission, so they may not necessarily feel the same sense of urgency and their attempts to find another suitable candidate can in fact take a lot longer and produce candidates of a much lower calibre. Hence, they’ve ‘stolen your wallet’, because you’ve already paid them the full fee.

There are also a number of conditions that are often attached to such a replacement guarantee. These might include:

• Further advertising expenses will be billed to the client
• The replacement is only subject to the availability of suitable candidates
• Whether the client has paid their invoice in full within the stipulated terms of business
• If the new hire was dismissed, whether the client has provided satisfactory written evidence of their unsuitability, in light of the agreed-upon job description
• The guarantee is void if the client employed someone else in the meantime, using another recruitment agency
• The guarantee is void if the job description changes from that agreed upon in the initial brief
• The guarantee is void if the new hire is made redundant or is incapacitated in any way and can no longer perform the role.

Case study

A Victorian company recently experienced problems when trying to have their recruitment guarantee honoured by a Melbourne-based recruitment agency.

Shortly after being billed more than $7,000 in recruitment fees by the agency to hire a sales person, the company found that the new hire was unsuitable and requested a replacement candidate from the agency.

There was no reply from the agency for three months (coincidentally, the period of the guarantee), after which time the company requested a refund.

The agency refused to pay, claiming the company was late in paying their initial recruitment fee and therefore, the guarantee was void.*

The question that would have to be asked is, would you, as the client, have been in a hurry to pay the initial fee if the appointed person had proved to be unsuitable and the agency was not even returning your calls?

Conclusion

Obviously, there are good and bad operators in every industry and two sides to every story, but it begs the question of whether the recruitment industry needs more self-regulation. Perhaps there is a need to formalise the terms of such a guarantee and to draw up best-practice guidelines to be observed by all recruitment agencies.

In the meantime, there are a number of ways in which hiring companies can protect themselves when dealing with recruitment agencies offering such a replacement guarantee:

• Discuss all the possible outcomes with the agency before agreeing to any terms.
• Shop around for the agency that offers the most comprehensive guarantee in writing.
• Negotiate to pay only a percentage of the fee upon hiring, with the remainder to be paid when the guarantee period has expired.
• If you already have an ongoing relationship with an agency, negotiate with them to receive a credit for any unsatisfactory appointments (for whatever reason) in the form of a percentage of the fee for the next assignment.
• Make sure the agency is a member of the RCSA, which requires all members to observe the highest ethical standards.
• Look for an agency with a demonstrated record of successful job placements, so that there is less likelihood of you needing such a guarantee in the first place.

*Source Australian Graphic Design Association