Staffing Agency Service Agreement: Placement Fees and Guarantees (Service Provider Guide)

Recruitment firms and staffing agencies live and die by two contract topics: how you get paid (placement fees) and what happens if a hire doesn’t work out (guarantees). When these clauses are vague—or borrowed from a generic form—revenue becomes negotiable, disputes increase, and client relationships sour.

This guide breaks down the practical contract mechanics behind placement fees and candidate guarantees in a staffing agency service agreement, written from the service provider perspective. You’ll also see common pitfalls, clause options, and negotiation tips you can adapt to your next recruitment agency agreement—whether you place direct hires, contractors, or temporary staff.

Disclaimer: This article is for educational purposes and does not constitute legal advice. Consult qualified counsel for jurisdiction-specific drafting.

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Why placement fees and guarantees are the heart of a staffing services contract

A solid staffing services contract does more than “set expectations.” It defines:

• Trigger events (what counts as a “placement,” “start date,” “hire,” or “conversion”)
• Payment mechanics (invoice timing, due dates, late fees, expense reimbursement)
• Risk allocation (what you’ll replace/refund, and what you won’t)
• Anti-circumvention rules (preventing off-the-books hiring)
• Operational clarity (who supervises, who is the employer of record, and who carries which liabilities)

When these are not explicit, clients often interpret ambiguity in their favor—especially after a candidate resigns, is terminated, or converts from contract to perm.

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Start with the right agreement type: direct hire vs. temp vs. contract-to-hire

Before drafting fee and guarantee language, confirm which service model you’re contracting for:

1) Direct hire / permanent placement

Your fee is typically a percentage of first-year compensation or a flat fee. Guarantees are commonly replacement-based.

2) Temporary staffing (W-2 temps) / temp agency model

This resembles a temp agency contract: you invoice hourly bill rates; you (often) employ the worker and handle payroll, taxes, and certain benefits. Guarantees look different here (e.g., timecard disputes, minimum hour commitments, or early termination fees).

3) Contract staffing / independent contractors

More compliance risk. Your agreement should clarify who is the employer of record (EOR), classification, and control/supervision.

4) Contract-to-hire / conversion

The agreement should define conversion fees, timing, credits, and how a “conversion” is measured.

Many agencies use a modular staffing agency contract template with addenda for each model. That’s fine—if the definitions, fee triggers, and guarantee rules are tightly drafted.

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Placement fees: how to define “what you’re owed” without ambiguity

Placement fee disputes usually come from unclear definitions. Your goal is to define (1) the fee basis, (2) the trigger event, (3) the invoice timeline, and (4) what counts as circumvention.

A. Fee structure options (choose what matches your market)

Common structures in a recruitment agency agreement:

• Percentage of compensation (e.g., 20–30% of first-year compensation)
• Flat fee (common for high-volume roles)
• Retained search (portion upfront + milestones)
• Tiered fees (percentage varies by salary band, difficulty, or exclusivity)
• Hourly markups / bill rates (for temp staffing)

Drafting tip: If you charge a percentage, define “Compensation” precisely. Clients may try to exclude bonus, commissions, or allowances.

Define compensation to include (as applicable):

• Base salary
• Guaranteed bonus
• Commissions or target incentive
• Sign-on bonus
• Car allowance, shift differential
• Equity value (if you want it included—many exclude due to valuation disputes)

If you don’t want to fight about it, define compensation as the greater of (a) the offered package or (b) the actual paid package in the first 12 months—then set an audit/right-to-confirm.

B. Fee trigger events (when the fee is earned)

A fee can be triggered by:

• Candidate acceptance of offer
• Candidate start date
• Client’s engagement of candidate in any capacity (employee/contractor/consultant)
• “Introduction” + hire within a protection period

Most staffing firms prefer the fee is earned upon start date (or upon engagement) to reduce “offer accepted but never starts” disputes.

Key concept: “Introduction” Define “Introduction” broadly. It’s typically any circumstance where the client learns the candidate’s identity through you—resume, call, interview, email, or referral.

If “introduction” is narrow, clients may claim the candidate was “already known.” If you expect that pushback, add a prior knowledge disclosure rule (e.g., client must notify within 3–5 business days of receiving the resume).

C. Protection / lookback periods (anti-circumvention)

A standard protection period is 6–12 months after:

• your introduction, or
• the last substantive interaction about that candidate

Your staffing services contract should state that if the client hires or engages the candidate (directly or indirectly) during that period, the fee is due.

Include “indirectly” to cover hiring through:

• an affiliate/subsidiary
• another vendor
• a consulting arrangement
• a different division/location

D. Conversions and temp-to-perm fees (common revenue leakage)

For agencies operating under a temp agency contract or contract staffing model, conversions are a classic loophole if not spelled out.

Define:

• What counts as “Conversion” (any direct employment or engagement by client or its affiliates)
• The conversion fee calculation (flat amount, percentage, or remaining margin credits)
• Whether hours already billed are credited against the conversion fee (and the cap on credits)
• Timing: conversions within X months trigger fee; after X months maybe reduced fee

Example approach (business logic):

• Conversion within 0–3 months: full fee
• 4–6 months: reduced fee
• 7–12 months: minimal fee or no fee (depends on your market)

E. Payment terms that actually deter slow pay

Include:

• Invoice timing (e.g., upon start date or weekly for temps)
• Net terms (Net 15 or Net 30)
• Late charges / interest (consistent with local law)
• Collection costs and attorney fees
• Dispute window (e.g., invoice disputes must be raised within 10 days or deemed accepted)

For temp staffing, address:

• Timecard approval process
• Client sign-off deadlines
• What happens if timecards aren’t approved on time (deemed approved, or approval not unreasonably withheld)

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Candidate guarantees: replacement, refund, or none?

Guarantees are not “free insurance.” They are a business lever used to win deals—so draft them to protect you from circumstances you can’t control.

A. Common guarantee types in staffing agency agreements

1) Replacement guarantee You will source a replacement candidate at no additional placement fee (or at a reduced fee), subject to conditions.

2) Refund guarantee You refund some or all of the placement fee if the hire ends within a defined period.

3) Pro-rated refund Refund declines over time (e.g., 100% in week 1–2, 50% by day 45, 0% after day 90).

4) No guarantee Sometimes appropriate for:

• highly volatile roles
• interim leadership
• clients with poor retention history
• non-exclusive, high-volume contingency work

B. Guarantee period: what’s market-standard?

Many agencies use 30, 60, or 90 days from start date. Specialized placements may justify shorter or longer terms depending on role seniority, onboarding ramp, and market norms.

Drafting tip: Define the start date clearly and require prompt written notice of termination/resignation—otherwise clients may wait and attempt to retroactively claim guarantee rights.

C. Conditions that must be met (the “guardrails”)

Guarantee rights should be conditioned on the client:

• Paying all invoices on time
• Not changing job duties, location, comp plan, or reporting line materially from what was described
• Providing reasonable onboarding/training and safe work conditions
• Not breaching the agreement (including non-solicitation or confidentiality)
• Not terminating for reasons unrelated to candidate performance (e.g., layoffs, restructuring)

If you provide a replacement guarantee, add:

• A defined window to request replacement (e.g., within 5 business days of separation)
• A limit of one replacement per placement (or a clear process for additional work)
• Clarification that replacement searches do not restart the guarantee unless expressly stated

D. Exclusions: when the guarantee does not apply

These exclusions matter. Without them, you may be on the hook for business changes at the client.

Common exclusions include:

• Layoffs, reduction in force, role elimination
• Mergers, acquisitions, restructuring
• Changes in management or job scope after start
• Candidate resigns due to client’s breach or hostile work conditions
• Client failure to pay
• Force majeure events
• Misrepresentation by the client about duties, compensation, or remote/onsite requirements

Also consider excluding:

• Termination for cause unrelated to performance (e.g., policy violations not disclosed, or background results the client delayed running)
• Client delays in running background checks, drug screens, or credential verification

E. Replacement vs. refund: which is better for service providers?

Many agencies prefer replacement over refund because:

• It preserves the value of your work
• It keeps the relationship moving
• It’s easier to price predictably

If you offer refunds, consider:

• Pro-rated refunds only
• Refund paid after client has paid the original invoice
• Refund as a credit against a future placement (less cash leakage)

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Drafting placement fee and guarantee clauses that work together

The biggest mistake in a staffing agency contract template is treating fees and guarantees as separate worlds. They must align.

Practical alignment checklist

• If the fee is earned on the start date, the guarantee should also run from start date.
• If the client delays start date or changes role terms, clarify whether that affects fee/guarantee.
• If the candidate converts from temp to perm, specify whether any guarantee applies and to which arrangement.

Define outcomes clearly

For example:

• “Refund” means money returned, not just credit (unless you intend credit).
• “Replacement” means you will present candidates, not that the client is guaranteed a successful hire.
• “Termination” includes voluntary resignation and involuntary termination (or only one, depending on your policy).

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Temp agency contract nuances: fees and “guarantees” look different

If you provide temporary staff, your “guarantee” may not be a replacement—it may be an SLA-style provision.

Key clauses in a temp agency contract:

• Minimum engagement (e.g., 4-hour minimum per shift)
• Cancellation policy (e.g., cancellations within 24 hours billed at X hours)
• Overtime and premium pay (who approves, bill rate multiplier)
• Timekeeping and approvals
• Safety and site supervision (client controls day-to-day tasks; you handle payroll)
• Conversion fee (if client hires the temp)

Also include: co-employment boundaries, workplace safety responsibilities, and indemnities (within reason and consistent with local law).

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Common negotiation pushbacks—and how to respond (without giving away the store)

Pushback: “We only pay if the candidate stays 90 days.”

Response path:

• Offer a replacement guarantee, not a contingent payment obligation.
• Or offer milestone billing (e.g., portion at start, portion at day 30).

Pushback: “We don’t agree to conversion fees.”

Response path:

• Explain the conversion fee protects your recruiting investment and encourages transparent workforce planning.
• Offer credits based on hours billed, with a cap.

Pushback: “Your guarantee should cover layoffs.”

Response path:

• Clarify guarantees cover candidate fit/performance, not business volatility.
• Offer a discounted re-engagement clause instead of a full replacement.

Pushback: “We already knew this candidate.”

Response path:

• Use a short notice window for prior knowledge claims.
• Require proof of prior active consideration (e.g., documented communication in last X months).

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Best-practice clause ideas (plain-English concepts to include)

You’ll tailor language with counsel, but your recruitment agency agreement should generally include:

• Definitions: Candidate, Introduction, Placement, Start Date, Compensation, Client Affiliate, Conversion
• Fee schedule: percent/flat, what compensation includes, minimum fee (if any)
• Protection period: 6–12 months, direct/indirect engagement
• Payment terms: invoice timing, late fees, dispute window
• Guarantee terms: type, period, conditions, exclusions, remedy (replacement vs refund)
• Conversion clause: triggers, credits, timeline
• Non-solicitation / non-circumvention: prevents bypassing you to avoid fees
• Confidentiality and data protection: resumes, candidate info, GDPR/CCPA considerations if applicable
• Limitation of liability: cap and exclusion of consequential damages (subject to local enforceability)
• Governing law / venue: pick a realistic forum
• Entire agreement and order of precedence: especially if you use SOWs or job orders

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How to operationalize your contract (so it’s not just paperwork)

Even the best staffing services contract fails if your internal process doesn’t match it.

Operational tips:

• Use written job orders that confirm comp, location, reporting line, and start date.
• Track introductions (CRM timestamps, resume submissions).
• Require client sign-off on timecards and promptly reconcile discrepancies.
• Standardize guarantee request workflows and document onboarding issues.
• Train recruiters to avoid “side emails” that contradict the contract.

Consistency strengthens enforceability and makes negotiations easier.

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Conclusion: make fees and guarantees predictable, not negotiable

Placement fees and guarantees shouldn’t be a recurring argument with every new client. A well-structured staffing agency contract template—adapted for direct hire, contract staffing, and temp agency contract use cases—helps you protect revenue, reduce disputes, and set clear expectations from day one.

If you want to generate a clean, customizable staffing services contract faster (with the right fee and guarantee options baked in), you can use Contractable, an AI-powered contract generator built for modern service providers: https://www.contractable.ai

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Other questions to keep learning

1. What’s the difference between a staffing agency service agreement and a job order or statement of work?
2. How long should a candidate “introduction” protection period be for my niche?
3. Should my placement fee be based on base salary only or total compensation?
4. What’s a reasonable conversion fee for temp-to-perm hires?
5. How do I draft a guarantee that’s competitive but doesn’t expose me to layoffs and reorganizations?
6. What clauses help prevent clients from hiring candidates through affiliates to avoid fees?
7. How should a staffing firm handle background checks and who should pay for them?
8. What’s the best way to structure payment terms to reduce late payments in staffing?
9. Do I need different terms for executive search vs. high-volume recruiting?
10. What data privacy terms should be included when sharing candidate resumes and assessments?