Independent TPRs: Do you have a policy on paying candidate referral fees?

I checked in with a person I placed recently to see how he was doing. In his reply, he mentioned a candidate he had referred to me on an unsolicited basis. He asked me, if I were able to place her, would he receive a referral fee?

I told him that I had spoken with her, appreciated the referral, but that she was not in my primary area of focus (frankly she was not even close). I sidestepped the question about the referral fee because it seemed moot.

He then replied and asked again, if he referred a candidate who WAS relevant and was placed by me, would he receive a referral fee?

So I put it to the RBC community of independent TPRs-- do you have formal policies on this or do you handle it on a case-by-case basis? This person's question was a first for me and I'll be interested in your thoughts. --Chris

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Permalink Reply by Amber on May 15, 2012 at 10:50am

We don't pay referral fees. I don't want to have to track such a thing, I don't want to mess with reporting income/taxes, I don't want to receive a barrage of un-needed candidates, etc. I have many candidates, clients, friends, colleagues, etc. refer me potential candidates or prospective clients. In return, I generally try to offer them assistance when they need it. On occasion, I do sometimes send someone a token of appreciation as thanks. I have had only one person ever ask about referral fees, and I still received referrals from them even after telling them we did not pay fees.

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Permalink Reply by Jerry Albright on May 15, 2012 at 10:56am

I work in both contract and direct. As the owner and decision maker for my company - I'm always open to doing whatever it takes to make things happen.

Every contractor we have working for clients right now knows I will pay them $5/hr for any contractor they refer to me (on the hours they work.)

I am more than happy to pay referral fees. Heck - I'm quite content to do splits with other recruiters. That's 50/50. Why in the world would I not be open to sending some dude a check for $1000?.....or $5000 for that matter?

No "in stone" policy though. Case by case.

Open up the checkbook people. :)

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Permalink Reply by Sandra McCartt on May 15, 2012 at 11:31am

Jerry, do you increase the referring contractor's hourly rate or do you send them a separate 1099 for their 5$ an hour on referred contractors?

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Permalink Reply by Jerry Albright on May 15, 2012 at 11:38am

It's paid as a separate line item. There would be no reason to issue a separate 1099. Most of our contractors are employees - so in actuality there are no 1099s for the most part.

I'm flexible. It's no big deal to pay someone. I look at each placement in a case by case situation - but in 25 years I've never met a placement that didn't turn out OK in my book. ;)

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Permalink Reply by bill josephson on May 16, 2012 at 7:44am

Great question. I've thought about this many times before. If offering a referral fee--what should it be to motivate one's assistance? Companies offer between 3-5K for an employee referral, last I heard.

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Permalink Reply by Christopher Perez on May 16, 2012 at 8:38am

Thanks for the input so far. My instinct is to handle it on a case-by-case basis and I'm still very interested in hearing the group's suggestions and experiences.

I'll be honest, I was a little put off by this person's approach which seemed a little too mercenary for my taste. I mean, the temerity of this guy. After all, *I* am the recruiter. *I'm* the only one who should be brazenly asking for a fee! ;) I also got the sense that he was throwing spaghetti against to wall to see what might stick. As mentioned, his referral was not even close to my focus and he should have known that after working with me.

OTOH, what he did wasn't that different than a recruiter looking for a split partner after stumbling upon a candidate who doesn't fit his/her usual niche. (Although in that case I'd do my homework and make double-sure I wasn't wasting a colleague's time.) So under the right circumstances I'd be willing to reward someone for a good referral, especially if they really greased the skids and affirmatively helped the process along. I'm not sure about the amount, but I think it would be in the $500 - $1000 range. Jerry, I admire your share-and-share-alike philosophy.

That said, I am with Amber in not wanting to attract extra paperwork, tracking, or candidate chaff. I feel good about the pro bono time and effort (i.e., value) I share when I coach referrals who I know I'll never be able to place. I do this because I enjoy it and in order to maintain good will with that person and the one who sent her my way. Maybe that's why I've only been asked about referral fees once so far.

Thanks again for the comments.

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Permalink Reply by Megan Lisiecki on May 16, 2012 at 11:42am

This is a really interesting discussion that I have personally thought about quite a bit. On one side, when someone asks for a referral fee I find it to feel a little awkward. In this economic environment to not just "pay it forward" and help your network is a little concerning. I know for me personally if I partner with a business that I am impressed with regardless of the industry, I am willing to refer them to as many people as I can, with no expectation in return. I would rather partner with people who are grateful for receiving something without asking for it versus expecting it. I think candidates have expectations because many firms are advertising this as part of their business model. I have to wonder how many irrelevant referrals they receive?!? On the other side, I can understand why candidates are looking for something. They know how recruiters are compensated and how large the fees can be and it is very common place for organizations across multiple industries to offer "customer referrals" in helping them grow their business. I see this sort of thing all the time from lawn services :) I guess what it comes down to is that I am more of fan of under promise, over deliver and to surprise someone with a referral than to have that be part of the business strategy.

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Permalink Reply by Amber on May 16, 2012 at 12:14pm

Just as general info: When we thought about doing this on a "formal" basis, there were recruiting firms stating referral fees (on contract and permanent placements) ranging from $25.00 to $1000.00. Some based it on the placement fee, some just had a set amount. The $25.00 was for contract employees.

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Permalink Reply by Megan Lisiecki on May 16, 2012 at 1:27pm

I have recruiters in my space that offer up to and advertise up to $3000.00

Amber said:

Just as general info: When we thought about doing this on a "formal" basis, there were recruiting firms stating referral fees (on contract and permanent placements) ranging from $25.00 to $1000.00. Some based it on the placement fee, some just had a set amount. The $25.00 was for contract employees.

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Permalink Reply by Jerry Albright on May 16, 2012 at 1:32pm

With all due respect - a $25 referral fee? That would seem more like a slap in the face to me.

Regarding all the paperwork - ? What paperwork? It's not like all the sudden you're going to have your phone ringing off the hook with people wanting to cash in. Heck - I'd LOVE to have that. Are you kidding me? This kind of reminds me of that thread here a few weeks ago about some recruiters being bugged by candidates that don't fit your client/market calling in to see if you can help them.

How can any of that be a problem?

Sorry to seem a bit off the deep end here - but let's be real. Let's say you went to a store and they sold contractor placements. They were $5000 each. Each of them was worth an average of $25,000. How many would you buy? Would you find a way to keep track of the paperwork?

And to be clear - you can advertise your giant referral fees on every billboard, web page, phone book, metro bus and Facebook page in the world. Chances are - your phone still isn't going to ring.

Would I pay someone a bunch of money to make 3 or 4 bunches? You bet. All day. Every day.

Lastly - there is no formal policy here. I tell contractors on board "Hey - if you ever connect me with someone I can put on another project - perhaps even the team you're working on now - I'll pay you $5/hr for every hour they work" I can tell you they will never forget that. To them - an extra 5K - 10K is something they'll always keep in mind. I think we get use to throwing numbers around all the time. We're in sales. It's what we do. But to them? It's a rare chance at some sort of windfall. $25 is not a windfall.

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Permalink Reply by Megan Lisiecki on May 16, 2012 at 2:00pm

Jerry- Having spent time myself on the contract side, I would agree with you. The speed at which a contract placement is made requires a constant flow of referrals to meet the demands of the clients. Personally, I only work on the permanent side of the business, which I think is a little different when it comes to referrals. My opinion only- you have to make time for relevant referrals for sure, but you cannot spend your entire day talking to proactive candidates who are not fits for your engaged searches sitting on the desk. If you receive a highly relevant referral and you place that referral, you should do something nice and genuine for the person who referred them. What that "something nice" is each person's call.

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Permalink Reply by Amber on May 16, 2012 at 3:09pm

I thought the $25.00 was funny, but it was right there on the companies site. I will clarify that we do not have a formal referral fee policy, for the reasons I originally stated.

This kind of reminds me of that thread here a few weeks ago about some recruiters being bugged by candidates that don't fit your client/market calling in to see if you can help them. - @Jerry: I always talk to people who call in here, even if they're not what I am currently looking for. For lots of reason, but mainly because I like to think I am a decent human being before business rules my every move. But you're point about never having enough candidates is true in the general sense, although as recruiters we then get bashed pretty often for not responding properly to everybody whether we solicited them or not.

General question for everyone/anyone: As far as paperwork, if you do pay someone $600.00 or more, don't you have to report it?