Running a recruitment agency is easy, right? You simply spend your days helping candidates take the next step in their careers, while supporting companies to find the top talent they need.
The reality is that it takes a huge amount of work to make that happen and calls for an equally large amount of admin and paperwork behind the scenes to ensure it all runs smoothly. It can be a challenge to stay across all the legal, contractual and compliance documentation that is involved and each one has an important role to play.
It’s an area where it really pays to have a handle on things. In particular, knowing what to look for in any ‘terms of business’ or small print that may come your way.
Here, we explore the different types of contracts that recruiters need to be aware of and what to look out for.
So, what contracts might recruiters typically encounter?
Contracts with your employees/consultants
Contracts with your end clients
Contracts with your provisioned contractors/workers
Contracts with your suppliers
Why are contracts important?
There are several reasons why contracts are important for the ongoing health and prosperity of your business.
Protection - Contracts outline terms and conditions, and clarify expectations, responsibilities, and deliverables, reducing the risk of misunderstandings or disputes later.
Safeguarding - They will specify confidentiality agreements, ensuring that sensitive information about candidates or clients remains secure and preventing the unauthorised sharing of proprietary data.
Compliance - As recruiters there are many legal requirements that need to be complied with. Contracts confirm your commitment to the fair treatment of candidates and adherence to industry standards.
Security - Contracts are important for formally establishing payment terms, including fees, invoicing schedules, and payment method, so you can confidently pursue work.
Client Terms of Business & Worker Contracts explained
These documents are where the general legal framework and rules of engagement for the relationship will be set out. Get this part right and you’ll be setting yourself up for a healthy relationship, with terms negotiated and agreed up front. By doing so you will reduce the risk of disputes down the line, with clearly defined roles, responsibilities and expectations and everyone knowing where they stand.
Having robust and up-to-date templates to hand can be beneficial here, in several ways:
- Speed – It will save you time if you have templates, you simply need to adjust for each client / contractor, and also provide consistency.
- Professionalism – It shows you are committed and gives transparency around your offering.
- Sets standards – By defining how your company operates (and should always operate) you set a certain standard and can also quickly answer questions around your obligations
Partners should notify you of any legal changes – whether small or large – that need to be accommodated in your contractual templates, as and when legislation changes. It’s also important that these templates are fit for purpose and remain up to date, so make sure you review them regularly. Always consult a legal partner to remain protected and secure.
Terms of Business (Recruiter to End Client) explained
The first point to note is that there is a difference between Terms of Business (ToB) and a Client Assignment Schedule. Here is what you need to know.
ToB
ToB are your general terms with a client. They will need signing and are important for the audit trail. Without this, you will have no recourse to enforce your agreements.
They may typically include: Details of the recruiter, how instructions will be taken; Services; Obligations of each party; What happens if recruitment is unsuccessful; Charges; Confidentiality; Liability; Termination; and Law and jurisdiction. (Always seek legal advice on the creation of ToB specific to your business)
Client Assignment Schedule
A Schedule of Work or Client Assignment Schedule - is specific to each placement, and we fully recommended you have them. It will outline information specific for EACH placement, in addition and over and above the standard ToB. Such as services, location, health and safety, special conditions, dates and rate agreements.
These details will change with an end client depending on the type of contract assignment and perm placement. They are for information only and don’t need signing but are important and constitute good business practice.
What if a client wants you to use their contracts?
Sometimes in the case of larger companies, who outsource their talent acquisition to a third party, you may be asked to agree to their terms and conditions to be able to work with them.
Never agree to anything before you have reviewed the contracts fully to ensure they are fit for purpose. It may add a little extra time to the process of getting up and running but it’s so important you do. Ideally, get your legal partner to review any contracts for you.
At 3R, we support recruiters via our Risk & Compliance team with a scan of the particulars in the invoicing section, to ensure they don’t contradict our Finance Agreements with Recruiters or disrupt the healthy flow of money between multiple parties and as such, the growth of your recruitment agency. (please note, we are not a professional legal partner and simply offer insight from our extensive experience).
6 clauses to watch out for
As with any contractual document, the devil will always be in the detail.
In a situation where you are working with a client, or their outsourced partner (RPO/MSP) and are required to use the documentation they provide, there are some key points to look out for within the Terms of Business.
1. ‘Payment terms’ - Check the payment terms chain between the RPO and end client – it can be considerably lengthened. Lengthy payment terms need to be reviewed with your bad debt protection/trade credit insurance partner as they may sit outside of your standard agreement.
2. ‘Paid when Paid’ - When payment to the recruiter is only due upon the RPO receiving payment from the end client. This is very risky for recruiters because:
a. When you can’t see the contract between the RPO and end client, you’re blind to how they will recover any bad debt. It’ll likely move liability from the RPO to the recruiter too and give you no recourse for further action if invoices are not paid.
b. In addition, your BDP insurance will be with the RPO and not the end client – again ending any route for debt recovery from the end client.
3. ‘Tenure discounts’ - This clause can mean a reduction in margin due to discounts applied based on volume or term.
4. ‘Withholding or offsetting payments’ - Pay extra attention to any clauses using these terms. For example, your performance against KPIs could be used here and may affect payment of your invoices.
5. ‘Expiry periods’ - This could apply to submitting timesheets, expenses or raising queries after an expiry date. After these periods the RPO has no obligation.
6. ‘Timesheet and invoice processes’ - Be aware of the vendors management systems and self-bill processes that you need to follow to ensure you can get paid.
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Contracts (Recruiter to Worker) explained
As for contracts you have with provisional workers, these will vary depending on whether you are dealing with limited company contractors, PAYE workers or umbrella workers.
It is again good practice (and great for audits) for your workers to sign the relevant contract and helps keep you safe, as well as ensuring everyone is on same page about the services you supply, roles and responsibilities.
The legally binding document will be generic and apply to all placements between parties.
Temp Assignment schedule
In addition, as with a client assignment schedule, a temp assignment schedule is where specific information can be collected for each placement. It does not need signing but remains an important document to have.
A word on IR35
Historically, contractors would have had the hassle of ensuring their documented contracts were secure for trading as a Ltd company outside of IR35. As the liability for IR35 determination now sits with end clients it’s less of a worry for temp workers and with contractor onboarding tools, such as 3R’s, determination can be done easily and up-front. You can read more about IR35 here.
Need expert support?
Contracting and compliance is an area where we know having the support of an experienced partner can really help. While you must also seek the advice of your legal partner for these matters, here at 3R, we can help take the pressure off in several ways:
- Suite of contracts – We have a suite of ToB and Contract templates available for all consultants, PAYE and umbrella workers. These documents are written by recruitment experts and kept up to date by our legal team.
- Advice and support – We can review contacts for you and share thoughts based on our experiences. As former recruiters and 3R employees we’ve worked with hundreds of recruitment agencies and seen many tricky scenarios through to successful resolution.
- Making cashflow easier – In addition to legal documents, we have a formal ‘Confirmation of Hire’ process built into our Back Office system. This is sent to the invoice entity for their approval – it’s how we officially confirm the hire and all invoicing-related information to ensure you’re paid on time.
