When IT contractors push for a rate rise

As it is the elephant in the room at contract renewal, it seems only fitting that CUK has left the thorny issue of requesting a rate increase until last; having already dealt with the agency pleasantries and formalities of extending your contract, and the motivations to extend.

When it comes to renewal, the agency is starkly reminded of its margin – which it will want to protect – at odds with the contractor who typically wants to erode it, says Jeff Brooks, of IT jobs agency Prime Sourcing.

He said an IT contractor might think, and even say to his agent ‘I’ve been here for more than 15 months now and you’re still making 20%, it’s high time that I had some of yours.”

Expectations

Good agencies head off this potential war of words by managing the daily or hourly pay expectations from the outset of the contract. Done properly, this gives the contractor a firm indication of when a higher rate will be considered from the very first day of their contract.

“You’re on a six month contract;” an agent might tell the contractor on his first day. “It’s unlikely you’ll secure a raise at the end of the six months because the client tends to review rates annually.”

However if during the course of the contract, the contractor is handed a lot of extra duties, or more responsibility, then the contractor’s pay expectations should evolve. At this stage, it is down to the agency to represent the contractor’s argument for a rate rise to the end-user.

Brooks recalled how agents communicate this to the client: ‘Excuse me, I think you actually ought to be paying this contractor more; you’re getting more out of them than their basic contract specification states or implies. You’ve effectively promoted them, and for that you should be paying them more money.”

Yet almost regardless of why a contractor feels they deserve a rate increase, they should ask themselves if, as a small business, it is financially viable or advantageous for them to stay in the contract assuming their request will be turned down.

“It’s a business decision that needs to be taken by the contractor as a small business owner, as that’s what he or she is,” said Mr Brooks, chairman of the IT sector group at the Recruitment and Employment Confederation (REC).

“Ask yourself, ‘Am I happy here for another three or six months, or can I get more money on a different contract? I am right to ask this, as this client organisation has fallen behind the basic rates the market is paying.”

Even if their answer is not entirely positive, contractors should refrain from trying to bypass the recommended process and channels if they want to extend on condition of a higher rate, says IT staffing firm Outsource UK.

The firm's managing director Paul Jameson said: “If there is a strict process with regards to renewals and rate negotiations - as there now is in a lot of large organisations – then trying to go outside the process will usually slow things down.”

Peter paid more than Paul

But he said contractors should speak-up, to their agent, if they discover that a contractor at the same end-client, using the same agency, is on a much higher rate for an almost identical role.

The agent is obliged to respond by raising the issue with the client, to prompt a further discussion or negotiation, which the lower-paid contractor can request they be involved in or at least privy to.

Adrian Treacy, managing director of IT staffing firm Arrows Group, agreed that the agent in question should be notified if two similarly skilled contractors, placed by a single agency, on similar roles are on markedly different rates.

However contractors comparing their rates with those of other contractors in their IT department can lead to difficulty; so much so that he urged contractors to pose themselves three questions before broaching the issue to their agent.

“Do you know when they were hired? Budgets could have been different when you were both taken on. Do you know about all their skills and responsibilities? They may receive a premium for those. And are they employed by another agency or consultancy? If so, this outfit may take a higher fee.”

Peter claiming he’s paid less than Paul for what appears to be the same IT contract or role is a notoriously tricky equation for agents to solve, confirmed Brooks. But he cautioned that some less reputable recruiters actually initiate such a disparity themselves.

“If the role demands and is worth a certain rate, then the contractor should be expected to be paid that rate,” he explained. "Yet there are some agents who accept the contractor’s lowest pay request.

“This will be a lower fee than the agent expected to pay, but the agent agrees to pay the low, asked-for rate, thereby pocketing a bigger margin for themselves.”

In the event that a contractor suspects he has such an agent, Brooks recommends that they should remonstrate with the agent and express their concerns in as professional manner as possible.

Contractors might say something like: “Excuse me, I think you’ve undercut me here; I don’t think you’ve paid me the right rate for the role, simply because I didn’t know what the rate was and you took advantage of me; what are you going to do about it in terms of compensating me?”

However, keeping relations on a healthy footing is advised because the contractor might later ask the agent to put a testimonial to the client on the contractor’s behalf for a higher rate, in the light of, say, knowledge transfer to permanent staff.

“The agent should represent the contractor on knowledge transfer, but it should also be self-evident to the client, who has the power to move the rate. After all, it is the hiring/line manager and other client staff who will know if the contractor truly stands out for the right reasons because it is them, not the agent, who sees the contractor most often.

“Still, the agent should absolutely be shoulder to shoulder with the contractor at renewal - if they're not, the contractor should expect them to be or think about moving agency.”

How to get the money

According to Outsource UK, the best way for IT contractors to secure a rate increase is to be able to justify the value of the service that the contractor is supplying
to the client.

As well as executing your basic contact, this means 'adding value' or making the client feel they are getting something extra from using you. Other tips, provided by the REC, to maximise a contractor's chance of securing a higher rate include:

- Get to the workplace/site/workstation on time
- Be willing to work beyond the 5.30 deadline for employees, without clock-watching
- Show dedication, staying power or commitment to the IT team and projects
- Be prepared to transfer your know-how to permanent staff
- Put yourself forward to learn new skills and technologies
- And most controversially, resist the need to round up your bill to the nearest hour.

Editor's Note: Further Reading -

Time for renewing IT contractors to raise their rates

Getting a good rise at renewal time

Contractors' Questions: Am I entitled to a rate rise?