Is It Legal to Offer or Accept a Finder’s Fee in Singapore?
If you have ever considered roping in a friend to join your company, you may be wondering if you are allowed to receive a “reward” (or a finder’s fee) for doing so. It has been reported that in the healthcare industry, at least one private hospital group is offering a finder’s fee for staff who recruit new nurses to the hospital.
Companies may offer finder’s fees to persons (i.e. finders) who can help them recruit employees or get connected with buyers, investors or clients. In that light, this article will focus on whether it is legal to offer or accept such fees in Singapore. It will discuss:
- What is a finder’s fee
- Whether it is legal to offer or accept a finder’s fee in Singapore
- The role of a finder
- The importance of a finder’s fee agreement
- The terms to include in a finder’s fee agreement
What is a Finder’s Fee?
Finder’s fees broadly refer to incentives given to an intermediary (i.e. the finder) who helps companies find new employees, buyers, investors or clients. Finder’s fees are also known as referral fees, which are fees given to referrers (i.e. the introducer) by business operators (i.e. individuals, companies, etc.) for introducing potential customers or clients to such operators.
Finder’s fees need not be in the form of monetary compensation and can also be in the form of an informal gift. On the other hand, referral fees are usually monetary.
Is It Legal to Offer or Accept a Finder’s Fee in Singapore?
Generally, it is legal to offer or accept a finder’s fee in Singapore.
Despite this, some professions may have rules prohibiting certain finder’s fees arrangements. For instance, lawyers in Singapore are prohibited from offering gifts or monetary compensation to finders for procuring clients for them. Lawyers who contravene such a prohibition would be liable to be disciplined.
Relatedly, if you are employed as a real estate agent, you cannot pay buyers commissions that you have received from developers to increase your sale prospects. Some real estate agents hide such commissions as referral fees or finder’s fees to avoid detection by the Council for Estate Agencies (CEA). This is because payments of commissions to buyers are in breach of CEA guidelines. If you are caught doing so, you may be punished with warnings, fines or suspension or revocation of your real estate agent registration.
Lastly, other than profession-specific rules and laws, a finder’s fee arrangement can be illegal if it constitutes corruption under the Prevention of Corruption Act (PCA). It is corruption when one offers a bribe in return for a favour. A bribe includes any employment, money, reward, or commission, and thus may include the giving of a finder’s fee.
Furthermore, in the case of Public Prosecutor v Ng Boon Gay, the court stated that any gratification given to a public official by a person who intends to deal with the public official would be deemed as a bribe. As a result, the accused in that case, namely the former Director of the Central Narcotics Bureau (CNB), was charged by the CPIB for receiving a reward from an IT contractor to help the contractor win government IT contracts.
What is the Role of a Finder?
A finder would be tasked with identifying, introducing or assisting with finding a potential employee, investor, or client. In doing so, the finder’s job is to ensure that the person being introduced as a potential employee, investor or client successfully joins, invests or transacts with the company as relevant. The finder may then be paid once this has been completed.
Using the healthcare example from earlier, finders would identify new nurses and assist in helping them join the hospital. The hospital would then pay these finders after successfully employing the new hire.
In comparison, a referrer’s job may end at recommending or bringing a potential employee to the company. Referrers may get paid even if the referral does not work out, depending on the terms of the referral arrangement.
A finder can help businesses save time by bringing in potential customers or employees into the business, rather than the businesses themselves sourcing for such individuals through advertisements or other efforts.
Entering Into a Finder’s Fee Agreement
Whether you are a finder or a business that is engaging a finder, it is advisable for you to enter into a finder’s fee agreement. This is because such an agreement will set out, and make clear, your and the other party’s rights and obligations towards each other. Having an agreement also means you would be able to demand enforcement of the obligations under the contract.
For example, as the finder, you may be anticipating payment for successfully recruiting a new employee. If the other party (i.e. the company) does not pay you, you can then insist on enforcing the terms of the agreement to obtain your payment.
The finder’s fee agreement may also contain other clauses such as what to do to terminate the contract, which will be discussed in more detail below.
However, for the fee arrangement to be recognised by law, it must conform to the requirements of a legally binding contract. If it is not clear that parties had intended a finder’s fee arrangement, then the court cannot enforce the arrangement.
What are the Terms that Should be Included in a Finder’s Fee Agreement?
(1) Finder’s fee amount
Importantly, the fee arrangement should state the fees that the finder is entitled to for rendering his services and for successfully procuring a new hire, client or investor. This ensures that as a finder, you can expect to be paid the amount set out in the agreement and nothing less.
The terms of a finder’s fees varies and can, as a general guide, be 5% to 35% of the total value of the deal. There is no legal requirement for there to be a minimum value or a fixed mode of compensation. The terms of a finder’s fees are up to the finder and the company. Thus, the fees can even be paid in shares.
There may also be a detailed fee schedule setting out:
- The method of calculating finder’s fees (whether it is a fixed fee or a percentage of the transaction entered into as a result of a successful procurement, or otherwise);
- The mode of payment of finder’s fees (whether by cheque, or some other form of compensation);
- The deadline for payment of referral fees;
- The penalties (if any) for late payment of referral fees (e.g. by charging late payment interest);
- Any other conditions that need to be met relating to the payment of finder’s fees (e.g. that the finder is rewarded only if the new hire, client or investor enters into the transaction with the company as relevant, or whether the fees include Goods and Services Tax).
(2) Obligations of both parties and consequences of breach
There may be a clause stating the finder’s duties, such as what the finder can and cannot do while carrying out his responsibilities. For instance, the company may want to limit the finder’s actions to not distribute sales material or confidential information or discuss any details involving the company’s business.
Alternatively, the company may want to include a term that it will pay the finder only upon completion of certain duties. Therefore, in this case, until the finder has completed certain duties, the company would not be obliged to pay the finder. The finder’s fee agreement may also contain a clause stating that if any obligations of the parties have been breached, then a specified sum is payable and that the contract is to be terminated.
There may also be a dispute resolution clause to specify how parties intend to resolve any disputes that may arise out of the finder’s fee agreement.
(3) Termination clause
The finder’s fee agreement may include a termination clause stating who will be able to terminate the agreement. It may also set out whether such termination may be done at a party’s sole discretion, when a party can terminate the agreement, and whether prior notice should be given to the other party.
(4) Confidentiality clause
If you are the company seeking new hires, you may want to include a confidentiality clause. This clause can, for example, require the finder to keep information obtained in the course of his work strictly confidential and to use such information only for the intended purposes stated in the agreement. Including such a confidentiality clause is especially important in the event that the finder gains confidential information about the company that it does not want disclosed.
A finder’s fee can speed up the recruitment process and save the company time in seeking new employees, buyers, investors or clients. As seen from the healthcare sector example, finder’s fees may become more relevant in industries where there is a shortage of workers.
Finder’s fees are generally not illegal in Singapore so long as such arrangements are not expressly prohibited by the law. If you are a finder, or a business looking to engage a finder, it is advisable to enter into a finder’s fee arrangement so that the rights and obligations of both parties are made clear, and can be enforced if necessary.
Since a finder’s fee arrangement involves entering into a legal agreement, you may wish to engage a corporate lawyer to assist with the drafting of the agreement, and ensure your rights and obligations under it are reflected. A lawyer can also advise you on any legal risks that may arise from entering into such an agreement.
You may get in touch with experienced corporate lawyers here.
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