What to look for in a recruitment agency’s terms and conditions?

Recruitment agencies' standard terms of business

As a hiring company, when you recruit a temporary candidate through a recruitment agency, you need to sign a booking.

A booking is a contract with a recruitment agency confirming the candidate’s charge rate and employment details, as well as agree with the recruitment agency’s terms and conditions, also called terms of business or T&Cs.

What are the UK industry standards for the terms and conditions of temporary recruitment agencies?

As an employer, what should you be watching for in these terms of business?

Before we start, my first piece of advice is to always read the small print – as dull as it might be, you know the devil is in the details!

If you have just a few moments to spare, there are 3 main elements you need to pay attention to:

  • the payment terms – how long you have before you need to pay the agency’s invoice
  • the termination – what happens if the candidate who has started working for you is unsuitable
  • the temp-to-perm fees, also called transfer fees – how much you need to pay if you want to recruit the agency worker permanently in your company.

Payment terms – industry standard: 14 days

Recruitment agencies typically ask clients to pay within 14 days

The payment terms are the time you have before you need to pay a recruitment agency’s invoice.

As an industry standard, the payment terms are typically set at 14 days of the invoice’s date. 

It might seem quite short in comparison to generic suppliers payment terms typically set at 30 days in the UK.

Why are payment terms so short?

Because recruitment agencies pay their temporary workers on a weekly basis, before they receive a payment from the hiring company. As this has an important impact on their cashflows, they need to bridge the financial gap pretty quickly – hence this short timeframe.

What if the agency ask for shorter terms?

What if the recruitment agency is asking you for shorter payment terms (e.g., 7 days or a pre-payment)?

As recruitment agencies are taking a financial risk by paying the temp worker before being paid themselves, they often check the credit scoring of the hiring company prior to finalising a booking.

If your credit scoring as a hiring company is low, the agency might ask for shorter payment terms to ensure that they are not only paid, but also paid on time.

Termination due to ‘unsuitability’ – industry standard: cancellation or reduction of the charges

What happens if your temp worker is not suitable

If you hire a temp worker and it appears that, unfortunately, they’re ‘reasonably unsuitable’, you have the right to terminate the contract, within certain conditions.

As an industry standard, agencies would typically reimburse you the totality or part of the charges incurred when the agency worker worked for you.

There are two things you need to watch:

  • You need to inform the recruitment agency that the candidate is not suitable, very promptly, in writing – typically within 4 hours of a booking, with a confirmation in writing within 48 hours.
  • Some recruitment agencies’ T&Cs indicate that they would, ‘at their discretion’ replace the unsuitable temporary worker. This is something you might not want and will need to negotiate.

‘Temp-to-perm fees’ – industry standard: between 15% and 25% of the agency worker’s first year salary

Recruitment agencies make money by charging a ‘commission’, also called ‘margin’ or ‘mark-up’ when they place a temporary worker in a company.

If you, as an employer, are particularly satisfied with a temporary worker and want to hire them permanently in your company, you will often be requested to pay a ‘temp-to-perm fee’, also called a ‘transfer fee’.

Why might you have to pay a ‘temp-to-perm fee’? 

Because once you recruit a temp worker permanently in your company, the recruitment agency incurs a loss – they lose the margin they could have made if they had placed this temp worker in another company.

The ‘temp-to-perm fee’ is a way to compensate the agency for this loss.

As an industry standard, agencies charge between 15% and 25% of the temp worker’s first year salary.

You need to watch how the ‘temp-to-perm’ fee is calculated. It can be expressed in many ways, for example as:

  • a percentage of the first year’s salary – and the percentage might vary depending on the pay scale of the candidate. The higher the salary, the higher the percentage typically. You also need to check the definition of the ‘first year’s salary’ – is it the basic salary only or the basic salary plus the anticipated bonus and benefits? It’s often the latter.
  • a certain amount of time after the planned end of the temporary assignment, during which you will still have to pay the recruitment agency. It is often expressed in weeks.
  • a fixed fee – e.g., £10,000.

If you refuse to pay the ‘temp-to-perm fee’, by law, the recruitment agency must offer you the alternative of a ‘contract extension’, also called an ‘extended period of hire’.

This means that for an agreed period of time, after the end of the assignment, you will still have to pay the recruitment agency for the agency worker to work for you. Once this period has expired, the temporary worker becomes a permanent member of staff and you don’t have to pay the agency anything anymore.

When don’t you have to pay the ‘temp-to-perm fee’?

By law:

  • if the agency’s T&Cs don’t include all transfer fees and conditions
  • if you wait for 8 weeks after the end of the hiring period, or 14 weeks after the start of the ‘assignment’, whatever is the longest. But that might be a risky tactic as the temporary employee might find another job elsewhere, or you might not be able to wait for that long!

To conclude…

It’s worth checking the small print!

Always check the Terms of Business prior to hiring a temp agency worker

At the minimum, check 3 things: 

  • the payment terms
  • the termination conditions
  • and the ‘temp-to-perm fees’

If you notice that the temporary recruitment agency’s T&Cs are far off the industry standards, remember that there is room for negotiation or you might want to use another recruitment agency!

On your side, are there other elements you always check before confirming a booking? Is your experience in line with what I call the ‘industry standards’?

Leave a comment here – I’d love to hear from you!

Caroline from TempaGoGo

Looking to hire temp staff now?

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