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Chapter 9: Negotiating with the AgenciesWhether an agency contacts you, or you call an agency, there are several questions you should ask before you make any decisions. The agency often won't have the answers the first time you speak to them, but they should be able to answer at some point. Before I list the questions, let me just explain how the agencies operate. A company's personnel department has one major purpose: to find suitable people to work for the company. The technical-service agencies have two main jobs: in addition to finding suitable people, they also have to sell their services to client companies. Small agencies usually have the same people doing both things, selling and searching. Large agencies, however, divide these tasks. An agency may have one or two recruiters, searching for potential contractors, and one or two salespeople, looking for potential clients and selling the contractors to them. When a salesperson discovers a company that needs a contractor, the recruiter has to start looking for candidates. (The salesperson and recruiter may be the same person, remember.) The recruiter will check the résumé file (where your résumé is sitting, waiting for just this moment). He also may run a classified advertisement in the local paper, and call the job banks run by local professional associations. The recruiter then starts calling all the potential candidates, and anyone who may know of a potential candidate. That is when you come in, of course. When the recruiter calls you, he may tell you that he has a position open. This is close to the truth-he knows a company that has a position open. But it is important to remember that the agency usually doesn't have a job to offer, however confident the recruiter may sound. It is generally competing against several other agencies, and the client also may be looking for independent contractors. And sometimes the client may not yet have approval to hire anyone. So when you start talking to an agency about a position, don't expect too much, and don't be disappointed if you never hear from some agency again. If the agency doesn't get any further with the position, they probably won't bother to call you back to tell you. (This is very irritating, of course, but it's just the way some agencies do business, and another reason that it is so important to get your résumé out to as many agencies as possible.)
You Need These AnswersAlthough you need answers to all the following questions at some point, the first six are the most important-you should ask them immediately. If the answers are not to your liking, there is no point letting the agency submit your résumé.
1. Is the job a permanent position or contract?Some agencies provide both full-time and contract personnel. When you send out your résumé you will be mailing to agencies that work both ways. You also will find, as your network grows, people are hearing about you from other sources. Perhaps a coworker mentioned you to a headhunter, or a headhunter passed on a lead to a friend in another agency. However it happens, you will start receiving calls from people you've never heard of before. Some of those may be employment rather than contract agencies. So if you don't know for sure that the agency you are talking to is a contract agency, ask if the job is contract or permanent.
2. Is the agency looking for contractors or employees?This is not quite the same as question 1. As I mentioned in Chapter 4, some contract agencies only hire people full-time. Even though the job is a contract (i.e., the client is paying the agency an hourly rate to provide people for a limited time), the agency hires people full-time and pays them a salary. Other agencies will employ both full-time people and contractors. Now, it is important to understand that the Internal Revenue Service regards both types of workers as employees.
The agency will withhold taxes from both types of employee, but regards one type (the contractors) as temporary employees and the other type as permanent employees. The permanent employees get the usual employee benefits (paid vacation, medical insurance, and so on) and receive a salary, whereas the contractors are paid by the hour and sometimes don't get any benefits. Of course the line blurs sometimes-some contractors get vacation pay and medical insurance-but the most important distinguishing characteristic is that the permanent employee receives a salary (or a pseudo-salary) while the contractor gets paid by the hour. (See Chapter 16 for a discussion of pseudo-salaries.)
For reasons already explained, the best deal is contract, so you don't want to work for a contract agency as a full-time employee. You should bear in mind, though, that even agencies that say they never hire contractors may do so if they really need you. And agencies that encourage you to become an employee will still let you work contract if you insist. (The reason they want you to be an employee is that they make more money, money that should be going into your bank account!) Anyway, don't let anyone talk you into becoming an employee of their agency, unless it is your only option.
3. What industry is the job in, and what type of work? You may have preferences about the type of work you are looking for, or may have specialized in a certain type of work. For example, there is a lot of work in the telecommunications industry in the Dallas area, so many writers prefer to specialize in that industry. On the other hand, it may be a good idea to try something different now and again, so you don't become "typecast." You must decide what you would prefer to do, and what will look good on your résumé the next time you are looking for a contract.
4. How long is the contract? The agency may tell you "long term," but who knows what that means? Ask how many months the contract will last. This affects how much your hourly rate should be. If the contract is only a few weeks the rate will usually be-and certainly should be-higher than if they expect the job to last eight months. Incidentally, it seems that clients are more likely to extend contracts than to end them early. Sometimes, of course, contracts do end unexpectedly early, but that is just one of the occupational hazards. It is comforting to know, however, that the opposite is usually the case.
5. How much is the agency paying? Now we get to the nitty-gritty, the most difficult part of the negotiations. When you ask how much the agency is paying, the agent probably will say "Well, how much are you looking for?" Or they may mention a wide range, with the top figure high enough to interest you (later they can say the client wouldn't pay the top rate). Of course they don't want to offer an amount higher than you are willing to work for. I've had agencies tell me $18 an hour, go to $24 an hour when I didn't sound interested, and end up at $40 an hour when I told them I was already on $38 an hour. (Does it sound like I enjoy playing games with the agencies?)
You must find out what the current rates are for someone with your experience. You have to do your homework, and talk to a lot of agencies. Eventually you will get a feel for how much money you can ask for. The first contract you accept may be at a lower rate than you could have got, but if you have done the calculations in Chapter 8 you will know how much to ask for to ensure that you work with a smile on your face. And as you talk to other freelancers and contract agencies, you will get an idea of what rate to ask for the next time you need a contract.
Try not to give too much away when you talk rates with an agency. If the rate sounds a lot, don't get excited. As much as it sounds, it may still be lower than you can get. Don't sound as if you need a job soon-the more urgently you need a job, the lower your rate will be. Try to sound confident, in control. Let the agency know you have other "irons in the fire," that they are not the only agency you are talking to. Even if the contract they offer you sounds great, don't let the agency hear the excitement in your voice. Let them think you will carefully consider the contract, not that you'll jump at it. (Don't overdo it, of course, and sound totally disinterested, or the agency won't call back.)
If you are in a salaried position, don't discuss your present income. If anyone asks, say what I used to say: You are not willing to discuss your present salary, because you know it is less than someone with your skills and experience can earn-which is why you want to work contract. I believe it is unreasonable for agencies to base your rate (or companies to base your salary) on what you used to earn. You should be paid the market rate for someone with your skills and experience. If necessary, come up with an excuse not to tell them, or even make up a salary. When I was first looking for contract work I simply told the truth: that my salary was lower than many people with the same experience because for two years my employer had a pay freeze (I worked in the oil business, when times were bad). Therefore, I went on, I didn't want to discuss my salary because I didn't feel it had any bearing on what my hourly rate should be.
Don't be scared to ask for a high rate. Many contractors feel that if they don't take the first position that comes along, it may be a long wait for the next one, so they don't want to jeopardize the contract by asking too much. This may be true for some people (entry-level writers, for example), and some areas of the country-that is something you will have to determine for yourself. Many writers, however, will find mailing résumés to every agency in town will result in dozens of job offers, so they don't need to grab the first offer that comes along. Don't be panicked into taking the first job that comes around from fear of losing it. (Of course, if you are out of work and need a job in a hurry, the picture changes a little. The more you need a job, the less money you are likely to get-so don't let an agency know how badly you need the work!)
Finally, remember this:
The lower the rate you ask for, the lower the rate you will get.
6. What company is the contract with?Most agencies won't tell you this until they have an interview set up, but some will, so why not ask anyway? It is important information that has a direct bearing on your decision, so why not find out as early as possible who is hiring?
7. Where is the contract? (Which city or area of the city?)Even if the agency won't tell you who the job is with, they should be able to tell you where it is. Remember, a long drive to work each day costs more in gas, wear and tear on your car, and time that could be better spent (working overtime, or playing with your children). For example, you are comparing two potential contracts; one is close to home and pays $25 per hour, the other pays $27 per hour but means an extra hour of travel each day. You would usually pick the lower-paying job. If the first job allows you to work overtime you can work the extra hour and make another $27 a day, as compared with the extra $16 a day you would get from the second job's hourly rate. And you have lower commuting expenses.
8. How much overtime is available? How much overtime will the client expect? Is the overtime paid at the same rate?You may not want to work overtime, so you need to know if the client expects you to do so. Some clients may want a job done in a hurry and expect long hours. One client offered me a job that required eighty hours a week. It's a great way to make a quick buck, though it can be depressing after a while.
If you do want to work overtime, you need to know how much they will allow. Many contracts will specify no more than forty hours of work a week, or may allow overtime only occasionally.
Although most contracts pay the same rate for every hour worked, some contracts may pay time-and-a-half for overtime. This can make overtime very attractive. A high hourly rate, multiplied by 1.5 after the first forty hours, makes it hard to turn down overtime! This used to be rare when I was working with agencies-most agencies didn't pay overtime rates-but it's worth checking. As you will see in Chapter 16, agencies that don't pay time-and-a-half for overtime may be breaking the Fair Labor Standards Act, but few agencies seemed aware of this fact.
9. Does the agency have a medical policy? How much is it, and what does it cover? Most agencies can provide a medical insurance policy. If you need insurance you should ask how much it will cost (remember to tell them if you want to include dependents). You will usually pay the full cost of the policy, although some agencies will share the cost with you. For example, I was paying an agency $260 a month for a comprehensive insurance package. It included an excellent medical policy, vision and dental insurance, a small life insurance policy for myself and my wife, and a long-term disability policy. At the same time, however, a friend was paying her agency only $50 a month for a similar policy. However, remember that any benefits the agency pays for come out of what the agency budgets as your cost. While one agency may pay some of the medical policy, another may give a higher hourly rate. In fact, although my friend paid $210 a month less than I did for insurance, she also earned $3 an hour less.
Ask what the insurance covers. There is no need to go into detail until you get close to a contract offer. But eventually you need to know if it covers visits to a doctor, and vision and dental, and find out what the deductible and out-of-pocket expense is. Even if you don't need a medical policy, you might want to ask about their coverage anyway. If the agency doesn't have an insurance policy, or if it has a particularly bad policy, you can use that as a bargaining chip to get a higher hourly rate.
Incidentally, you may want to find your own medical insurance elsewhere. It's not really good to keep switching insurance companies each time you switch contracts, or eventually you may get caught between contracts and in a position in which your insurance doesn't "work." And if the agency is small, the policy is not too strong, because insurance companies can dump the policy if it gets too expensive for them. One insurance company dumped me from their policy when they discovered that my wife was pregnant, for instance. Totally illegal, of course, but the medical-insurance laws are set up so that there is essentially no punishment for doing this, and getting restitution is next to impossible. (I called the Department of Labor and was told that they would investigate; I was also told that they would never inform me of the results of this investigation!) This whole medical-insurance system in the U.S.A. is a mess, and a real problem for freelancers. Readers living in the industrialized world, but outside the U.S.A., are lucky in this respect, as they don't need to worry about medical coverage. If you are working in the States, see Chapter 14 for more information on medical policies.
10. Does the agency have a long-term disability policy? The agency's medical policy often includes a disability policy. You must make sure, though, as it is very important. Many people forget about long-term disability coverage, but being out of work for an extended period can have serious consequences. If the agency doesn't have coverage, you can buy a policy from an insurance agent, but you should use the lack of coverage as a bargaining chip to get a higher hourly rate. (See Chapter 14 for more information on long-term disability policies.)
11. Does the agency pay for vacations or sick leave? Ask this question and a lot of agencies will sound offended and tell you that this is a contract job, not a full-time job, and that any vacation pay would come out of your hourly rate anyway. They are quite right, but some agencies do pay for these benefits. And yes, it does come out of money that could be on your hourly rate. If I was working for such an agency I would calculate the value of the benefits and ask for the agency to increase my hourly rate correspondingly: "A bird in the hand is worth two in the bush." I would rather have the money now than wait for it, for several reasons. First, I would prefer to have the money earning interest for me, rather than the agency. And if for some reason the contract ends early, I would rather walk away having already received my vacation money than have to argue with the agency about whether I'm owed vacation or not. Anyway, it's always good to see an extra dollar or two on your hourly rate-at the very least it means you can tell the next agency that calls that you are on a high hourly rate, and you don't have to lie!
Vacation and sick leave are linked to the number of hours you work, so ask what the ratio is. For example, the agency may pay for forty hours' vacation for every 490 hours you work. In other words, for every 490 hours you work, the agency pays you for 530. Multiply your hourly rate times 530 hours (the time worked plus the vacation time). Now divide the total by 490, the hours worked. For example:
$30 per hour x 530 hours = $15,900 Then $32.45 is the true hourly rate (assuming that you work enough to get the vacation pay). Also, ask when vacation pay becomes "vested." For example, an agency tells you that you must work six months to get six days' vacation pay. Once you have worked your first six months and received the first six days' pay, do you have to work a full six months again to get more vacation pay? If the contract ends five months later, will you get five days' pay or will you get nothing?
$15,900 � 490 hours = $32.45
In the above example I would ask the agency to pay me $32.45 an hour, instead of giving me vacation pay. However, this negotiation is like buying a car and trading in your old one. Make the best deal you can on your hourly rate before you say you want a higher hourly rate instead of vacation time. The increase in your hourly rate should come from the vacation money, not from the dollar or two "negotiating room" they may have left for themselves.
12. Does the agency pay a mileage allowance? Some agencies will pay you driving expenses between your home and the contract. It may not be much per mile, but it all helps. Most contractors and agencies think this mileage allowance is tax free, but it usually isn't (see Chapter 20 for an explanation of why commuting is not tax deductible.)
13. Does the agency have a 401(k) plan? If the agency has a 401(k) pension plan, you will be able to save a larger portion of your income than an IRA allows. However, many 401(k) plans are set up to allow only people who have worked with the company for a year or two to take part.
14. Personal considerations You may have other considerations. For example, dress code: Do you want to work at a company that will let you wear jeans? Do you want to work in an office that has banned smoking-or would you prefer to work in a company that still allows smoking? Would you prefer to work in a company with a cafeteria? You should ask these questions later in the process, and you should remember that the more job offers you have, the choosier you can be-yet another reason to work with as many agencies as possible.
Road-Shopping: A Few Questions to Ask When Working Out of Town
In addition to all these questions, if you are taking an out-of-town contract you should ask a few more:
1. Is the job paying a Per Diem? Per diem is Latin for "per day," and most dictionaries say that the term means "a payment or allowance for each day." In the contract business in the U.S., however, per diem means an extra payment for expenses, usually expressed in dollars per week. If the job they are offering is out of town, you should ask if the agency will pay a per diem. If they will, and they tell you how much, make sure you know what they mean. If they say they'll pay a $70 per diem, ask if that is per week or per day (probably per week).
The agency will usually pay the per diem without withholding any tax. Don't think it is not taxable, however. You must keep records of your expenses while you are away from home. If the per diem ends up more than your expenses, Uncle Sam will want a share of the excess. And the per diem may be taxable-probably will be taxable-even if you can prove your expenses. (See Chapter 20 for more information.)
2. What are the tax rates in the area you are going to? If you are going to work in an area that has a state income tax (most states do), you need to know how much that tax will be. It may be lower than you pay in your home state, of course, but it may be considerably more. For example, if a contractor from Texas (which has no income tax) goes to work in a state with an income tax, he is going to find a sizable chunk of his income disappearing-perhaps 7 percent or more. Forty dollars an hour in Texas is worth much more than $40 an hour in New York.
3. How much are the state and local sales taxes? Living Costs? This is an indication of how much more prices will be. The higher the sales tax, the more you will pay for living expenses while you are away. Ask about general living costs in that area. You also may want to go to a library or book store and look at Rand McNally's Places Rated Almanac. It will give you a good idea of relative costs throughout the United States; it also lists state income tax rates. These questions about living costs and taxes are essential if you are road-shopping. Don't leave home until you know the answers! If you live in Gulfport, Mississippi, and think that the agency's offer of $28 an hour is excellent, just wait till you get to San Jose, California, and see what the money buys!
By the way, here's a nice little toy you can use if you have World Wide Web access (see Chapter 26): the Center for Mobility Resource's Relocation Salary CalculatorTM. Point your Web browser to http://www.homefair.com/homefair/cmr/salcalc.html. You'll find a form into which you can enter your current income, a special code indicating your current location, and a code representing the area to which you are moving. Click on the Calculate button and the form calculates how much you must earn to match your current income.
4. How much is accommodation? Ask how much accommodation costs in the area you'll be moving to. A contractor from Dallas (where you can rent a nice one-bedroom apartment for $300 or $400 a month) would be shocked by California's accommodations costs. You may want to add a dollar or two to your hourly rate to pay the higher rent. Some people who "road-shop" buy recreational vehicles, and live in them while they're "on the road." A great way to maximize the income from your road trips.
5. Will The Agency Pay Moving Expenses? Some agencies will pay part of the expense of traveling to the contract, so ask how much they will pay.
Get the Answers StraightNow that you've asked these questions, you should have a good idea of the contract the agency is offering. If you get past this stage, and interview with the client, you should remember to ask some of these questions again. Sometimes the client will not interview you-you may be offered the contract before you ever see or speak to the company. But before you sign the contract, you should try to talk to the person you will be working for. Ask the agency for the person's name and phone number and call. You should ask the client how long they expect the contract to last, exactly what sort of work you will be doing, and if the client expects or allows any overtime. And if you have any special concerns, as discussed in number 14 above, ask about those too.
You must ask these questions for several reasons. First, the agent you are working with may not understand your business. The client probably gave the agency a list of requirements, but the agent may have misinterpreted the type of work you will be doing, and accidentally given you the wrong impression. Second, the agent may make a mistake. They work with dozens of clients simultaneously, and an agent may simply get two mixed up and tell you a contract is a year when it is actually three months. And, finally, some agents are simply unethical. They may lie, or just exaggerate-if a client said a contract probably will be three months but may last six, the unethical agent might tell you the contract will last for at least six months.
When you discuss a job with an agency, don't expect to get the contract-you have a job lead, not a job. When an agency tells you that you probably have the job, or even that you have the job, don't believe it until you have signed the contract! You should continue talking to other agencies. You can tell the other agencies that you probably have another job lined up, but you are still willing to consider other positions until you have signed the contract. This will put you in a strong bargaining position with those agencies.
If you have been in any type of sales work you will understand this. Until the client has signed the contract (and, in some types of sales, until the commission check arrives), most experienced salespeople do not assume they have a sale, regardless of what the client says. Too much can go wrong between the client saying yes and the signing of the contract. The client's boss may say no, the purchase order may get bogged down in red tape, the client could even resign, get laid off, or die-(I've had it happen!) Worse, when the agency tells you that you have the job, they may be lying.
Most agencies want you to think they have the contract, and that all they need to do is find the right person. More commonly, though, an agency is competing against several other agencies, or even against the client. In other words, if the agency can find a good person at the right price, the client may buy; but if the client finds someone he prefers from another agency, or even working as an independent contractor, he'll go with that person. Whatever the situation, it is rare for a company to "buy" contractors from just one agency, so when an agency tells you that the local IBM office or Boeing plant only deals with them, you can usually discount it as nonsense. If you do run into this type of misrepresentation, I wouldn't recommend that you refuse to do business with the agency. Just keep quiet and humor them. Unfortunately, so many of the agencies exaggerate their abilities that if you refuse to do business with the ones you catch in a lie, you'll be left with a small number of agencies-agencies that you haven't yet caught lying! No, your best defense is simple: Know your market, know how to deal with the agencies, and don't believe anything until you see it on paper (or better still, until your new client shows you where your desk is.)
I'm going to finish this chapter with a reprint from an article originally published in PD News (now Technical Employment Weekly), titled What Is a Fair Rate? You will hear contractors complaining about the agencies, claiming they got "ripped off," or that the agency doesn't pay enough. Certainly many agencies will try to get you as cheap as possible and sell you for as much as they can, but it's up to you to market yourself properly.
What Is a "Fair" Rate?Is there any such thing, in a free market economy, as a "fair" rate? After all, isn't "what the market will bear" the closest we can get to a definition of "fair"?
Of course I'm talking about job-shop hourly rates here, and there appears to be two basic positions on the subject. On one side, many people believe there is such a thing, that job shops should not offer less than the "fair" rate for a job, although no one seems to be able to tell me what that rate is. Most job-shoppers seem to fall into this category. They don't know how to describe a fair rate, but they know it when they see it, and they are quick to complain if they are not getting it.
Many on the other side of the fence, the people running the agencies, have a different view: if a job-shopper is willing to take a job at the stated rate, it must be fair. They've got a point, too. After all, no one is forcing you to take the job.
There's another party in this relationship, though: the client. I would bet that most clients assume the bulk of the money they pay an agency goes to the contractor. Perhaps that is a good rule of thumb: "The agency gets a cut of what the contractor makes, not the other way around."
Of course that doesn't always happen. Let me tell you about a situation I observed in Dallas recently. This took place in the offices of a well-known telecommunications company. I can't tell you who, but you would recognize the name if you heard it. One agency had managed to place three or four technical writers in a documentation department on long contracts.
The rates were good for writers in Dallas-one contractor was earning the agency $43 per hour. But all the "contractors" were pseudo-salaried. The agency had found writers inexperienced in the world of contracting and persuaded them to take the kind of hybrid salary/hourly rate I described in an earlier article [see Chapter 4]. The result was that the agency was getting quite a deal. The writer they billed for $43 an hour actually cost them about $18, including benefits-quite a nice spread.
Now, as we all know, contractors like to gossip, and this particular department had several writers making a lot more than $18 an hour. It also had trouble keeping information confidential, so it wasn't long before the lowest-paid contractors knew not only what they could make on a good contract, but how much the agency was billing for them. Not a healthy situation.
To make a long story short, people started looking elsewhere for work, for higher rates. Before long the client learned what was going on and, not surprisingly, was angry to learn that the bulk of what the agency was charging was paying for the agency's overhead and the salesman's Corvette.
Most clients are not unreasonable people. They know everyone has to make a profit, that agencies are not charities, but they also assume that most of the contract money is going to pay for experienced, skilled people; after all, if they can get people at less than half the price, why the hell pay $43 an hour?
Perhaps it would be poetic justice if the agency had been hurt by what it did, but I'm not sure it was. The client forced the agency to pay the contractors more, but it had been making over $20 an hour per contractor for almost a year already.
Sometimes agencies do get hurt, though. A few weeks ago a friend of mine came to the end of her contract. "No problem," said her agency, "we've got a contract for you," and promptly set her up with a job scheduled to begin the day after the old one ended. Just one problem: a rate so low that she would be better off taking permanent employment. Now, the agency may have miscalculated and bid too low, very low. However, I learned from other sources that the client company was willing to pay quite a high hourly rate, enough for the agency to pay my friend $7 or $8 an hour more, and still make $7 an hour themselves (yes, after payroll taxes).
The client offered my friend the job and she accepted it. But she found a better contract, and jumped ship the day before the new one started. The agency scrambled around for a substitute, but before they could find one the job went to another agency (paying considerably more money, by the way). The second agency may be making a small cut, but a small cut of a lot is a lot more than a large cut of nothing.
I don't much like the agencies making such large markups, but sometimes I think the "free market" theorists are right. I've seen contractors accept bad rates not because they had to, not because there was no food on the table and they had a sick child at home, but because they were not prepared to make the effort to find a good rate. Many contractors don't know what rate their skills and experience can bring-a situation they can easily remedy by talking to other contractors in their field. Often contractors know how much a good rate is, though, but still settle for less. Why?
The problem is they don't market themselves well enough. Too few job-shoppers realize they have to sell themselves to not one but two groups of people: the client and the agency. Too many job-shoppers believe that marketing is what the agencies are for, so they can just sit back and wait while the agencies deliver contracts to them. Yes, you can work like that, but if you work with just one agency, you had better have an excellent relationship with a very good one, or just resign yourself to paying a lot of money for their services.
If you want to do well as a contractor, you have to be a salesman. You might believe that only independent contractors need sales skills, but if you are getting an "unfair" rate, maybe you had better examine your own ability to sell yourself before you complain about the ethics of your agency...