Recruitment agencies occupy an unusual position in the commercial world: their product — a placed candidate — continues to perform (or not) after the invoice is issued, and their fees are often subject to conditions that play out over weeks or months. This creates a category of fee dispute that is unlike most commercial debts. Understanding how placement fees work legally, and how to protect them, is essential for any agency chasing an unpaid account.
Permanent placement fees
A permanent placement fee is typically charged as a percentage of the placed candidate's annual salary, invoiced on commencement. The obligation to pay arises when the candidate starts work — not when they remain employed. A client who refuses to pay a permanent placement fee because the candidate left after two months is confusing the fee obligation with the guarantee period.
The guarantee period — which most agencies offer and which is specified in their terms — is a service commitment, not a condition of payment. Under most standard terms, if the candidate leaves within the guarantee period, the agency will either find a replacement at no additional cost or provide a pro-rata refund. The guarantee is separate from the fee obligation: the fee is due regardless, and the guarantee is triggered by departure.
Temporary and contract placements
Temporary placement fees are typically charged on a timesheet basis — an hourly or daily rate for hours worked, invoiced weekly or fortnightly. These are straightforward trade debts. The most common dispute is around approved hours versus worked hours, particularly where timesheet approval processes are informal.
Ensure your terms specify how timesheets are approved, what happens if a timesheet is not approved within a defined period (deemed approval is standard), and who is authorised to approve hours on the client side. An unsigned timesheet from a client who cannot identify the approver is a documentation problem that should be prevented, not litigated.
Replacement clause disputes
A replacement clause dispute arises when a client argues that a candidate was not suitable and demands a free replacement instead of paying the original fee. Whether this is valid depends on the terms: did the candidate leave within the guarantee period? Did the client follow the process specified in the terms to invoke the replacement clause? Did the agency decline to provide a replacement?
If the client has bypassed the replacement process and simply withheld payment, they are in breach of the fee obligation. The replacement right is a remedy available to the client under the terms — it is not a unilateral right to suspend payment.
What your terms must include
- Clear definition of when the fee becomes due (commencement of employment)
- The guarantee period and exactly what it covers
- The process for invoking the replacement clause, including timeframes
- Timesheet approval procedures for temporary placements
- Payment terms and late payment consequences
- A clause covering "temp-to-perm" conversion fees
If you are a recruiting agency with an unpaid placement fee, speak to Merion. We have experience with the specific dynamics of agency fee recovery.