In a split placement, the prevailing wisdom is that the partner providing the candidate is at the most risk of financial harm. The fee is paid to the partner working with the client. The candidate provider (we say ‘exporter’ in NPAworldwide) is completely at the mercy of the partner to pay them as promised.
However, the job order partner (we say ‘importer’) also faces financial risk. What happens if the candidate quits (or is terminated) AFTER the fee is paid, but BEFORE the guarantee period expires? How do you handle refunds to your client when you’ve given half of the fee to a partner? This does happen, although it’s not common. Make sure you understand this scenario before you enter into a split placement arrangement. Here are some things to consider:
Refunding the fee
If you are the importer, and your guarantee provides a cash refund to the client, do you expect that the exporting partner will refund their portion of the fee? Or is it your policy to pay your partner AFTER the completion of the guarantee period? Clearly define the refund terms in your split fee agreement. If you are the exporter, and you’ve agreed to refund your portion of the fee in the event of a fall-off, can your cash flow support the repayment of a large chunk of cash? Or do you need to hold that money in escrow until the guarantee period is satisfied? Be sure you understand the terms that you have agreed to AND that you can abide by those terms in a worst-case scenario.
Replacing the candidate
If your guarantee provides for a replacement instead of a refund, how does that work? Is there a time limit? Who decides that? Do you give your partner the first opportunity to provide a replacement? What if they are unsuccessful? Do they have to refund their portion of the fee? If you are the exporter, do you want to be involved in a replacement? Do you understand you may be obligated to repay your portion of the fee if you are unable or unwilling to find a replacement? Again, take time to work out these details in writing BEFORE any split placement activity begins.
Speaking of guarantees
It may be time to revisit your policy. I believe that a money-back guarantee is a disservice for recruiters, especially those who work on a contingency basis. If you’re offering a refund over an extended period of time, why? Can you really control what happens AFTER the employee starts work? Why would you offer a refund for a situation you aren’t controlling? It’s not the same as selling someone a broken or defective item. You provided a service. People don’t expect a refund from other professional service providers, such as accountants or attorneys. Why should recruiters be any different?