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These days, recruiters are floating a lot of different terms and conditions out there, from insurance agencies paying per resume to no money up front but six-month exclusivity. It can be confusing to know what’s standard and makes the most sense for your business. To choose the best partner, let’s go back to the basics on the key elements of an insurance recruiting contract.

#1 Fee Percentage

When car shopping, you see all the features on the window sticker, but your eye immediately goes to the price–and so it is with a recruiting agreement. In a contingency contract, for permanent placements (not contract employees) the fee will be a percentage of the first-year compensation. Some contracts calculate the fee on the base salary and others use the estimated total first-year compensation. It’s important that you find a percentage that fits your budget as well as ask questions about how the fee is calculated, especially for sales and management positions where variable compensation can be a big factor.

#2 Guarantee Period

Think about a recruiting contract like buying an insurance policy. Higher premiums mean more coverage and protection. This is the same with recruiting agreements. Fees and guarantees are inextricably linked; the higher the service fee, the bigger the guarantee you receive.

Guarantees start on the candidate’s first day of employment and extend between 30-180 days. Contracts should specify when the guarantee applies (typically if the candidate resigns or is terminated) and when it does not (typically a layoff or downsizing outside of their control). The contract should also stipulate what form the guarantee takes–i.e., a free replacement or a refund.

#3 Payment Terms

Recruiters will usually accommodate your accounting cycle, so ask for a payment window that’s reasonable for your team (15, 30, or 45 days is standard). Look for stipulations regarding late fees, interest charges, collections, and conditions that void the guarantee. This is a good time to ask the recruiter how they accept payment. Check and ACH are most common. If you pay with a credit card, expect a service charge to be applied.

#4 Right of Referral

Nearly as important as the fee percentage is the right-of-referral period. Six and 12 months is the industry standard. Remember that right of referral is reciprocal, so you and the recruiter have the same protection for one another’s candidates.

Discuss what constitutes the right of referral to avoid gray areas. There will always be situations where you and the recruiter need to discuss a unique instance. This usually happens when a candidate slipped through the cracks or wasn’t considered for a specific role.

Failure to document referrals creates big exposures, including paying two fees. No matter how a candidate you hire surfaces, if a recruiter presented them within the right-of-referral window, then you are obligated to pay a fee. This includes if the newest source was another recruiter. Unknowingly accepting the candidate twice from two different recruiters doesn’t absolve you of honoring both contracts. You will be on the hook for two recruiting fees. This is why it’s so important for your company to implement internal controls, including how referrals are accepted, documented, and tracked.

Topics Talent