In the rapidly evolving sector of IT recruitment, entrepreneurs often find themselves at the crossroads of fostering lasting client relationships and adhering to the industry’s legal and ethical norms, a balance well-maintained through a meticulously crafted recruitment contract.
In the realm of recruitment, forging a robust contract is the linchpin that holds the client and agency relationship together. A well-thought-out contract not only streamlines the recruitment process but also fosters a trust-based professional relationship. This article elucidates the crucial elements and contemporary updates essential for a standard recruitment contract, seamlessly melding the foundational principles with the latest industry insights.
Signing a contract with a legal entity is one of the mandatory and crucial stages in working with clients, where the nuances described below should be taken into account:
1. Percentage or Fixed Cost for Personnel Selection
The freelance market currently operates from $300 to 8% (of one salary) as a fee. Agencies in Ukraine work from 8% to 25% (for executive search vacancies) and in very rare cases up to 35%. However, as there are more and more agencies, in our practice, we have encountered those willing to work for 20% of the monthly salary or a fixed $800 for a Senior Java Developer in Kyiv.
The percentage is chosen independently and depends on the current workload, the attractiveness of the client, the strategy you have decided to adhere to, and other parameters. It is essential to specify what exactly this percentage is from — Net or Gross, whether the annual salary includes bonuses and additions, whether the amount during the probation period is taken into account or not. If you have agreed with the client to fix the amount depending on the level of the developer, make sure it is detailed what exactly is meant by this or that level, what the salary thresholds are and what to do in situations where you were looking for a Project Manager, but your candidate was considered for a Business Analyst position, and the terms for it were not regulated. Whether the client pays and exactly how much. Specifications and descriptions of profiles are attached as additions to the contract.
2. Payment Terms
There can be unlimited variations, but I’ll outline the main ones:
Retaining Fee (Advance Payment)
The standard percentage for an advance payment is 30% (or 50% or your option) and can be charged immediately after signing the contract so that the agency starts working; it can be paid in advance, and the agency is obliged to provide a shortlist of a certain number of people; it can denote specific services like sourcing, market analysis, providing information on how employees feel at competitors, etc. In this scenario, it is important to think in advance from which exact amount this percentage will be — the average salary in the market, the maximum amount from the range, the minimum amount from the range, etc. Often, the client agrees on a fixed amount of $1000–$5000 (depending on the complexity and level of the position) and the conditions if the agency does not fulfill its obligations.
In Ukrainian realities, this is a very controversial point and without having worked with a client before, it is not always possible to objectively assess the likelihood of closing, how satisfied the client will be with the candidates you show in the shortlists. On the other hand, if the client invests not only a time budget but also finances, feedback, interest in you closing vacancies, and the client’s engagement increases. There will be more barriers to start working with others without getting a result from you.
Success Base. Contingency Fee (Payment upon Job Completion)
This is the most common version in IT Recruitment Entrepreneurs’ practice, and the following variations are possible
- payment/partial payment upon signing of the offer, or when a person starts working (sometimes there’s a month between the candidate signing the offer and starting, so it’s important to think about what exactly is fixed in your contract);
- partial payment after the candidate passes the probationary period;
- full payment after passing the probationary period;
- mixed options are also possible, like partial advance payment, partial payment upon starting work, and after passing the probationary period.
3. Warranty Period
The warranty period entails what the agency provides if the candidate found isn’t suitable. This could be during the probation period, and in rare cases, up to 12 months for Executive Search positions. It’s vital to describe exactly what you commit to doing – providing a replacement, within what time frame, how many replacements, and under what conditions – for free, a 50% discount, or your own term. Perhaps you choose a money-back guarantee, and the client may insist on a money-back option if you don’t find a replacement.
4. Exclusive Rights
Consider in advance whether you are ready to work with other agencies in parallel and whether an exclusive is needed. For what period, for what region (if recruiting in multiple countries). What are the sanctions if the client violates the exclusivity agreements, and will this be stated in the contract. What are the terms if you are not working exclusively. For instance, this could be the mandatory provision of stop-lists, timely informing subcontractors if there are candidates in the final stages, etc.
5. Additional Terms to Mention in the Contract
5.1. Sanctions in case the client changes requirements or cancels the selection request due to internal company situations. This concerns closing a vacancy due to a lack of budget, staff reductions, internal circumstances, but not independent closure of the vacancy by internal recruiters.
In case the client changes over 50% of the requirements, you may demand payment of a certain size of the previously discussed fee, and it’s important to describe after exactly what work done on your part: providing candidate resumes, 2–3 people who have passed the initial interview stages, etc.
5.2. Penalty or terms, can the client work directly with your employee and for how long the restriction lasts.
It’s a common practice when a recruiter, who successfully fills vacancies for a particular client, gets “lured away” or shows interest towards a favored client. For those who find it important to regulate the necessity of coordination with the current employer (agency) in the contract, indicate that for 6, 12, or 36 months, the client does not have the right to work with recruiting-involved employees or should pay a certain fee to the company for “luring away” or employing the former subcontractor.
5.3. The period during which the candidates you submitted are considered yours. There might be a situation where a person, who was considered for a vacancy, didn’t suit now but was hired after a certain period. This especially concerns cases when an external agency works with the internal database of the company and adds candidates and summaries directly to the client’s base. Specify how many years such candidates will be attached to you regardless of who will communicate with them later.
5.4. Measures in case the client loses contact or there’s a communication failure. In rare cases, it makes sense to indicate that if the client does not get in touch within a certain time after contact through the specified communication channels, the agency has the right to suspend the search and bears no obligations. Especially important in the case of advance payment.
5.5. Organizational nuances, like the languages in which the contract is; the court through which the disputes will be settled. Remember, if the client insists on not Ukraine, it’s not always bad (if the courts indeed work in that country).
Unspoken Rules
It’s highly important not to lure away the client’s employees to other projects the agency is working on. Unfortunately, in Ukrainian realities, such situations are overly frequent and contradict the classical model of working with agencies, not contributing to the client’s business development.
If the client is not ready to pay more, the agencies may also negotiate a reduction or absence of the warranty period. However, if such situations occur, the relationship with the client will also not be maintained.
There are no situations when the client paid for a candidate and happily continued working with you after the person was hunted by your colleague or a colleague from another agency/company within 3 months.
If the client doesn’t close vacancies with your help over a long period — this is a reason to terminate the contract and not “store” the client “just in case”. If you have a contract — you don’t have the right to take candidates from this company, thus you don’t recruit and limit yourself in the candidate pool. If the contract is indeed terminated, there’s a gentleman’s rule not to hunt those for whom you were paid money. Never.
Sometimes, the client insists on signing an engagement letter, in which all these principles are described, and it goes in addition to the contract. Above are some rules by which our network operates and what recruiters with a whopping 50+ years of experience were taught. What rules to follow is an individual decision and quite likely, you’ll be ok not to terminate contracts, offer candidates “if they appear” and parallelly hunt from the same companies. I described the main international practices.
Additional Contract Creation Notes for IT Recruitment Entrepreneurs
- Remember The Importance of Clear Terms in Recruitment Agreements:
It’s crucial to have clear terms in a recruitment agreement to ensure mutual understanding of obligations. For instance, it should be clear whether or not a client can go directly to a candidate without the recruiter’s involvement, and what the financial implications of such actions would be. Explore more on this topic here.
- Staying Updated on Regulatory Changes
Contract recruitment specialists often emphasize the importance of being updated on regulatory changes to ensure that the recruitment process aligns with current laws and best practices
- Model Recruiting Agreement
The American Staffing Association and the National Association of Personnel Services have jointly developed a professional template for firms providing recruiting, search, and placement services. This model agreement serves as a guide in preparing client agreements.
Conclusion
Perhaps, if these principles and in advance thoroughly thought-out contract terms are detailed and adhered to by the agency, the quality level, professional approach in the industry will be slightly higher, and the agencies’ reputation will not be as discriminated as it is observed now.
Engage competent and experienced lawyers and be sure to supplement, modernize your contract during the life of your company and obtaining new cases requiring attention discussion at the start. Thus, you can foresee “strange” and disputable situations and possibly not bring them to the point of having to be settled in court.
Besides that, IT Recruitment Entrepreneurs should pay attention to how ready the client is to work under your terms and what exactly tries to “squeeze out”. As practice shows, the more rigid contract negotiations, the “funnier” the work will go further. But that’s a completely different story.