Recruitment agency fees come in two main shapes: a contingent fee, paid only when you hire, and a retained fee, paid in part before you hire. Most small employers meet the first. Executive searches use the second. Either way, the fee and the guarantee sit in the agency's terms of business, so read those before you agree to anything.
Contingent versus retained: who pays when
With a contingent fee, you pay nothing until a candidate accepts your offer or starts work. The agency carries the risk of a failed search. That is why this model suits most roles.
With a retained fee, you pay part of the cost up front, and the agency commits to the search. Randstad Australia's standard terms for permanent staff show how this can look. A non-refundable service fee of 40 per cent of the estimated placement fee is invoiced when a retained or executive search is accepted. The rest is invoiced later in the process.
Ask which model is on offer, and ask why. A retainer makes sense for a hard-to-fill senior role. It is a poor fit for a role that many people can do.
What the fee is worked out on
Permanent placement fees are usually a percentage of the candidate's pay package. Randstad's terms say the fee is a percentage of the "Salary Package" under an attached schedule, and that it is payable within 14 days of the invoice. Other agencies set their own rates and terms.
The key question is what counts as pay. Base salary is the clear part. Superannuation, bonuses and allowances may or may not be in the number. A fee worked out on total package costs more than one worked out on base salary, even at the same percentage. Ask for the definition in writing, and ask for a worked dollar example for the role you are filling.
Also check when the fee falls due. In Randstad's terms, a fee is owed if you hire a candidate the agency introduced within 12 months of the introduction, even if you hire them by another route. That is a common clause. Know your own window before you share a candidate list with anyone else.
Guarantee periods: what they really promise
A guarantee covers you if a new hire leaves early. Read it closely, because most are a promise to search again, not to refund your money.
Randstad's standard guarantee runs for three months from the start date. If the hire leaves in that time, the agency will "endeavour to find a replacement" at no extra charge. It sets conditions: the original fee must be paid when due, you must give written notice, and the agency must get at least four weeks to find a replacement. If it cannot, you may choose to keep searching or take a credit against the fee, valid for 12 months.
Use that as a checklist. For any agency, ask how long the guarantee runs, what the remedy is, what notice you must give, and what ends the cover. Ask whether a refund is ever possible, and whether a credit expires.
Your rights when the terms are standard
Agencies usually give every client the same terms on a take-it-or-leave-it basis. Australian law has rules for that. From 9 November 2023, the unfair contract terms rules cover standard form contracts with small businesses, defined as those with fewer than 100 employees or turnover under $10 million. The contract value limit was removed. Courts can now impose penalties for unfair terms. For companies, the maximum is the greater of $50 million or three times the value gained from the breach. If that value cannot be worked out, it is 30 per cent of the company's turnover in the period.
The test for whether a term is unfair has not changed. The ACCC lists terms to watch for, such as ones that let a business change the service on its own with no penalty-free exit, and ones wider than needed to protect its legitimate interests. In an agency contract, think of a fee clause that is hard to understand, or a long clause that makes you pay if you hire a past candidate later.
These rules do not mean you can rewrite the contract. They mean an unfair term may be void, and a business that sets one risks a penalty. Still, it is better to spot a problem before you sign than to rely on a dispute afterwards.
What stays with you as the employer
An agency finds the person. You are still the employer. The National Employment Standards are minimum entitlements for employees in the national system, and the Fair Work Ombudsman says no award, agreement or contract can offer less. They cover items such as maximum weekly hours, annual leave and notice of termination. You must give every new employee a Fair Work Information Statement when they start.
So check that the offer you make through an agency follows these rules. Do not leave wording on pay, hours or leave to the agency alone.
Five questions before you sign
Ask these in writing. First, is the fee contingent or retained, and what is paid when? Second, what pay counts toward the fee, and can you see a dollar example? Third, how long does the guarantee run, and is the remedy a replacement, a credit or a refund? Fourth, how long after an introduction do you owe a fee if you hire that person yourself? Fifth, is GST included in the quoted fee?
An agency with fair terms will answer these in plain words. If you get vague answers, treat that as information. Compare at least two agencies on the same role, and sign only when you can explain the fee to a colleague in two sentences.
One limit: the figures above come from one large agency's published terms. Other agencies charge and guarantee differently, so use these as a guide to what to ask, not as a price list.