Clawbacks: why the need?

Clawbacks: why the need?

Accountancy Practice Recruitment Consultant, James Young, offers insight into the issue of clawbacks in training contracts.

Clawbacks: why the need?

I have spent the past 18 months of my career dedicated to sourcing and marketing some of the best public practice candidates the country has to offer. Having placed individuals – who are at varying stages in their careers – in a range of firms – from the Top 10, to firms established only in the past 12 months – I have experienced many scenarios.

Many of the individuals I have worked with in this time have been candidates in the midst of their professional qualifications.

However, it is becoming increasingly common practice for accountancy firms to include a clawback in trainee contracts, and I have often found myself negotiating how best to work around this.

There are many challenges involved when working with individuals with a significant clawback. First of all, the additional cost to a new employer when appointing somebody with a clawback can be substantial. At AJ Chambers, we have placed candidates with clawbacks of up to £10,000!

This is a significant cost to incur when appointing somebody that has not yet qualified, especially when considering the additional costs involved when recruiting.

Not all clawbacks are as significant as this; many are smaller amounts (e.g. £2,000-£4,000). Nonetheless, this is still something to consider when hiring – particularly for some smaller independent firms.

There are usually a lot of questions and concerns as to why an individual might be looking for a career change in the midst of their studies. Surely it makes more sense to stay within a firm until you qualify? The reality isn’t always as simple as this. Many young people go through a period early in their career when they are trying to find out where they want to stay long-term. A lot of people do not find this within their first firm; some may need to relocate for family reasons.  Alternatively, others may realise that practice is not for them and will therefore look for a move into a completely different field.

From an employer’s perspective, I have always thought that there must be positives to taking on somebody with a clawback. It means you are employing a candidate who you know has already passed their exams, and the expense of paying the clawback is just what you would have paid had they already been working for you since the start of their training contract.

Also, when considering this from the point of view of a candidate, is it harsh to force them to pay an extortionate amount of money back because they want to change the firm they work for? Then again, are candidates naïve to think otherwise, given that a significant investment has been made for their benefit?

I was curious to find out from partners from the firms I work with about their experiences when dealing with clawbacks. Do they consider job applicants with clawbacks? What are some of the limitations involved? How essential is it to their business to ensure all trainees have an exit fee written into their contract?

We first discussed whether or not they would consider taking on a prospective employee with a clawback. The general consensus was that, if the person was good enough, and could do the job at hand, they would be happy to employ somebody with a clawback.

One partner from a Kent-based practice explained that one consideration she would have to make would be the salary that she would offer, which could be lower than normal in order to accommodate the clawback. She stated: “Their salary might reflect the fact that there is a clawback, because it adds to the costs of taking them on.”

This is an interesting point, as often trainees are paid a lower basic salary, with the cost of their training taken into account by the employer. It appears a bit of a lose-lose situation for the employee if, on top of this, they take on a clawback upon leaving.

I questioned whether the size of the clawback would ever come in to play, and again, she said that, as long as she believed the person would be a good fit for the firm, she would be willing to pay this. She highlighted that “their previous employer spent money to help get them through college and get them qualified for a reason.”

A partner of a large independent practice believes that it is essential to include a clawback clause in all training contracts to ensure the firm is protected in the event a trainee was to decide to move on. “Clawbacks have become essential to our business, given the number of employees we have on training contracts,” he explained. “If you had three people leave whilst studying, then the costs incurred are significant.”

Several partners that I have spoken with revealed their frustration having members of staff train within the firm, all the way through to becoming qualified, only for them to leave for an opportunity elsewhere shortly after.

These candidates did not have clawbacks in their training contract, and therefore the employee was able to walk away without needing to pay back a penny.

A study package should be mutually beneficial to both the employer and employee. In a Utopian world, it would make sense for people to remain in a firm to study, qualify, and then build their career. A partner from a firm that operates nationally, explained that she wants the best for her employees, and wants to see them succeed by qualifying within the firm. She said: “Ideally, we want to see our employees grow and develop within our firm. It benefits us, and in the long-term it will benefit them.”

Of course, it is important to consider that there are many people that do remain within the firm they train at, who then go on to have long and successful careers. However, there can be many reasons outside of a person’s control that controls their decision to change jobs (or at least somewhat). Whether that be a change in personal circumstances, or possibly relocation – perhaps it is harsh under these circumstances to claw back the money. From a business’ point of view, this is unlikely to be considered, as it is still a cost incurred that needs to be recovered. The employee may, however, have already been getting paid less to accommodate their clawback, as previously mentioned.

Another partner explained: “A lot of people will leave their firm for more money. This can sometimes mean that people are paid more than what they are actually capable of. The wage you are being paid is usually what you deserve.” Some people expect that they should be earning more than what is actually achievable. This is another reason why some feel it is essential to include clawbacks in a contract, with one person saying: “Without a clawback, it is too easy for people to leave midway through their studies when you have invested heavily in them.” Again, it is possible the employee is being paid less than what they would hope, due to the fact that their study costs are being taken into account by the employer.

I informed all of the partners that I have worked with candidates with clawbacks of up to £10,000, when they are on salaries of £20,000, and the general consensus was that it is reasonable for this to be the case.

The partner of the firm based in Kent explained that “the problem is, they sign a contract. They are aware of what the clawback could be and what it means to them. If an employer has spent £10,000 on somebody, then they have every right to claw it back.”

This led us on to talking about the actual costs incurred. One thing to consider is the time out of the office when the employee is studying. The actual cost can be £8,000 per year, plus their salary. One partner told me she had 3 members of staff out of the office in December, within a team usually consisting of 10. This is difficult to cover at such a busy time of year, with limited resources.

One thing that she did say, was that the clawback “needs to be well communicated with them [the member of staff]”. There have been many occasions where I have spoken with a candidate and they have seemingly had no knowledge that this has been in their contract. This could be down to their own lack of diligence; however, the employer does have a responsibility to make this clear to their employees. I am not suggesting that every clause in an employment contract needs to be thoroughly explained, but something as important as this should be made very clear.

I would be curious to open this up to a wider audience and get the views of people on both sides of the fence. If you are an employer, what are your experiences of having dealt with clawbacks? Do you feel that it is now essential to your business? Do you empathise with candidates when they look to change firm, only to find out they have to pay back a lot of money?

Alternatively, if you have changed firm during your training contract, I would be keen to find out what led to this. Were you aware that you had a clawback and, more significantly, were you aware of how much you would be liable to pay back?

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