The average recruitment agency charges a hefty fee for its services, 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.
Recruiter replacement guarantees offer to replace a candidate who leaves or is terminated for free.
There are often conditions that come with a replacement guarantee that end up costing the company more than they expect.
Do your homework when hiring a recruitment agency to be sure you know what the replacement guarantee includes.
What Is a Replacement Guarantee?
A replacement guarantee is when recruitment agencies offer to replace a candidate that proves unsatisfactory to the company that hired them.
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.
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.
Example of a Replacement Guarantee Gone Wrong
A Victorian company recently experienced problems when trying to have its recruitment guarantee honored by a Melbourne-based recruitment agency.
Shortly after being billed more than $17,000 in recruitment fees by the agency to hire a sales director, 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 its 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 was proving to be unsuitable and the agency was not even returning your calls?
How To Protect Your Company When Invoking Replacement Guarantees
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 formalize 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
Replacement Guarantee Protections FAQ
What is a recruitment guarantee?
A recruitment guarantee is a guarantee that the recruiter will find another candidate if the first one proves unsuccessful.
Usually there is a time limit of a month or two for these guarantees, but a recruiter will have to do the work of finding another candidate for free if a company’s claim qualifies them for the guarantee.
Can a recruiter make a hiring decision?
No, a recruiter can’t make a hiring decision.
However, recruiters — especially if they work for recruiting firms — do have a lot of influence on the hiring managers’ decision-making. They also provide the hiring manager with their candidate options.
Can a recruiter guarantee a job?
No, a recruiter cannot guarantee a job.
They can’t guarantee placements to job candidates or perfect candidates to companies. However, many offer replacement guarantees to companies to help offset the expense of a bad hire made at the recruiter’s recommendation.
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