Placement guarantees: replacement, refund or pro-rata?
How to choose and word a placement guarantee: free replacement, refund or pro-rata rebate compared on one example fee, plus the conditions that void it.
By the Recruiting ATS team (How we write)Published 6 min read
Every fee you invoice carries a promise: if the hire doesn't last the first few months, you'll put it right. How you word that promise decides whether a hire who leaves on day 45 costs you a few weeks of extra work or the whole fee. For most boutique agencies, a free replacement with a pro-rata credit as the fallback is the safest default. A full cash refund is the most expensive promise you can make.
The three ways to guarantee a placement
Free replacement
If the hire leaves inside the guarantee period, you run the search again for the same role at no extra fee. You keep the fee you already collected. What it costs you is time: a second round of sourcing, screening and interviews on a search you thought was closed.
Clients like it because they get someone in the seat. You like it because the money stays in your account. The weak spot is the case where you can't find a replacement, or the client no longer wants one, so the clause needs a fallback.
Refund
You return the fee, in full or in part. It's the easiest promise to explain and the hardest to live with. A full refund means you ran the whole search for nothing, and you're returning cash that may already have gone out as salaries.
Pro-rata rebate
You return a share of the fee based on how much of the guarantee period was left, either as a straight line by days or with a stepped scale by month. It's fairer to you than a full refund and simpler than a replacement when the client has stopped hiring for that role.
Pay it as a credit against the next placement rather than a bank transfer when you can. It's gentler on your cash, and it keeps the client working with you.
Worked example: the hire leaves on day 45
These are example numbers, chosen to show how differently the three models behave on the same placement:
- Fee: 20% of a $100,000 base salary = $20,000, paid 30 days after the start date.
- Guarantee: 90 days from the start date.
- The hire resigns and their last day is day 45. Half the guarantee is used.
- Your cost to run a replacement search: 50 hours at $50 an hour = $2,500 of work.
| Model | What the client gets | Cash you return | What it costs you |
|---|---|---|---|
| Free replacement | A new search for the same role | $0 | About $2,500 of time |
| Full refund | The whole fee back | $20,000 | The whole fee |
| Pro-rata by days | 45 unused days out of 90 = 50% | $10,000, or a $10,000 credit | Half the fee |
| Stepped scale (example: 75% in month 1, 40% in month 2, 15% in month 3) | 40% of the fee | $8,000, or an $8,000 credit | 40% of the fee |
In this example the full refund costs you eight times what the replacement does. The gap narrows only when the role is so hard to fill that a second search would eat far more than 50 hours. Even then, the replacement cost is time you control. A refund is cash you don't.
Side by side: which model fits which situation
| Free replacement | Refund | Pro-rata rebate | |
|---|---|---|---|
| Best when | You fill this kind of role often | You need to win a cautious first client and can absorb the risk | The client may not rehire for the role |
| Risk for you | Time on a second search | Losing the whole fee | Losing part of the fee |
| What the client hears | "We'll find you someone else" | "You get your money back" | "You pay for the time the hire stayed" |
| Cash impact | None | High | Medium, low if paid as a credit |
| Fallback you need | A pro-rata credit if no replacement within an agreed window | None | None |
My recommendation: lead with replacement, fall back to a pro-rata credit, and keep refunds for the rare client where it's the only way in. Keep the period short enough that you can stand behind it. Stretching a guarantee to 180 days to close a deal is a discount that shows up months later, usually at a bad moment.
If the client has a probation period for new hires, set by law or by contract, find out how long it is before you set your guarantee. A guarantee that ends long after probation covers a performance risk the client has already had time to judge for themselves.
Conditions that should void the guarantee
The guarantee covers one risk: that the person you placed wasn't the right fit. It shouldn't cover the client's business decisions or their payment habits. Put these conditions in the clause:
- Late payment. The guarantee applies only if the fee was paid in full by the due date. This is the one that matters most. Without it, a client can sit on the invoice and, if the hire leaves, argue they shouldn't pay at all.
- Changed role. If the client materially changes the job after the start (duties, reporting line, location, salary, or full time to part time), it's no longer the role you recruited for.
- Redundancy or restructuring. If the role is eliminated, the team is cut or the company closes, the hire leaving isn't a placement failure.
- Dismissal for reasons unrelated to performance or conduct. Budget cuts, a reorganization, a new manager who wants to bring their own people.
- Late notice. The client must tell you in writing within a set number of days of the resignation or departure (example: 7 days).
- Rehire. If you replace, refund or credit and the client later employs the candidate again, in any role, the full fee becomes due.
Example clause wording
This is example wording to adapt, not legal advice. Contract rules differ by country and state, so have a lawyer check your terms before you use them.
Guarantee. If the Candidate leaves the Client, or is dismissed for reasons of performance or conduct, within 90 days of the start date, the Agency will run one replacement search for the same role at no additional fee. If the Agency has not presented a suitable replacement within 60 days of the Client's written notice, the Client may instead request a credit against future fees equal to the fee multiplied by the number of unused guarantee days, divided by 90.
The guarantee applies only if: (a) the fee was paid in full by its due date; (b) the Client notifies the Agency in writing within 7 days of the Candidate giving notice or leaving, whichever is earlier; and (c) the role, salary and location are substantially those agreed in the offer.
The guarantee does not apply if the role is made redundant, if the Candidate is dismissed for reasons unrelated to performance or conduct, or if the Client materially changes the role. If the Client employs the Candidate again within 12 months of a replacement, refund or credit, the full fee becomes payable.
Two details to settle in your own terms. First, when the clock starts: make it the first day of work, and say so. Second, whether the replacement hire gets a guarantee of its own. One free replacement per fee is a reasonable line, and it's much easier to hold if it was in the terms from the start.
The guarantee is one of several terms that protect the fee; the rest are covered in how to price a search. If a hire has already resigned, here's what to do in the first 48 hours.
Know when each guarantee ends
A guarantee you can't date is one you'll argue about. Record the start date, the guarantee length and the end date the day the candidate starts, and plan a call with both sides before it runs out. In Recruiting ATS, each client and job carries its guarantee period, each placement shows its guarantee expiry date, and you get an alert when a guarantee is about to end, which is the right moment to check in with the hire.