Why Rebate Policy Matters in Recruitment

A poorly written rebate clause costs UK and US agencies an average of 2-4% of permanent placement revenue annually in disputed refunds. For a mid-size agency turning over £2 million in perm fees, that is £40,000 to £80,000 walking out the door in credits and cash refunds, often on placements that failed for reasons entirely outside the agency's control. Rebate policy is the contract mechanism that defines exactly when a client is entitled to a full or partial refund of a placement fee, and it is one of the most frequently contested clauses in a recruitment terms of business.

Clients treat rebate windows as implicit quality guarantees. Agencies treat them as risk management tools. When the policy is vague, both sides fill in the gaps with their own assumptions, and those assumptions rarely align. The most damaging version of this scenario is not the disputed £6,000 refund on a single placement: it is the client who expects a cash rebate while the agency's terms specify a free replacement search, and the resulting argument that poisons a two-year client relationship.

How Rebate Policy Works

A standard rebate policy sets out a sliding scale of refunds tied to the length of time the placed candidate remains in employment. A typical structure might offer 100% refund if the candidate leaves within four weeks, 50% between four and eight weeks, and 25% between eight and twelve weeks, with no rebate after three months. The policy should also specify whether the rebate takes the form of a cash refund or a free replacement search, since agencies strongly prefer the latter and clients often expect the former. Both formats are commercially acceptable; the problem arises when neither party discusses this before the placement is made.

The policy must define what triggers a rebate and what excludes one. Most agencies exclude redundancy, role elimination, changes in business circumstances, and mutual termination by agreement from rebate eligibility. If the client makes the placed candidate redundant three weeks after start, that is not a failed placement; it is a business decision. Without that exclusion in writing, the agency is exposed to a full rebate claim for a departure that had nothing to do with the quality of the match. Similarly, the policy should specify that the rebate period starts from the candidate's first working day, not the offer date, to close a common ambiguity when start dates are delayed by notice periods or background checks.

For contract placements, rebate policy works differently. Most agencies do not offer rebates on temporary or contract supply at all, since the client can simply end the assignment without financial penalty. The rebate concept applies primarily to permanent and fixed-term direct placements where a fee has been paid for a specific individual.

Rebate Policy in Practice

A sales recruiter places a regional account manager at a SaaS company for a £12,000 fee. Six weeks later the candidate resigns, citing a poor fit with the management style. Under a standard sliding scale policy, the client is entitled to a 50% rebate: £6,000. The agency's terms specify that the rebate is issued as credit against a future search, not cash. The client pushes back, claiming they were not aware of the credit-only terms. Because the terms were signed before the search began and include a clear clause on rebate form, the agency holds its position. The credit is applied to a replacement search that completes successfully four months later. That outcome, a retained client and a completed replacement, is exactly what a well-drafted rebate policy is designed to produce rather than a cash dispute that loses the relationship entirely.