WorkingwithAgencies. inniaccountsltd

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2 WorkingwithAgencies inniaccountsltd

3 WorkingwithAgencies 1. Foreword 2. Part one 3. What is a recruitment agency? 4. Understanding the value of agencies 5. Finding and choosing recruitment agencies 6. Engaging with an agency 7. How rates work and what s a good rate 8. Signing a contract 9. Part two 10. Getting paid and maintaining your contract pipeline 11. Self-billing 12. Getting paid through an umbrella company 13. Getting paid through your limited company 14. Issue management with your agency 15. Final thoughts

4 Foreword Welcome to the inniaccounts guide to Working with Agencies. As a contractor or consultant, finding work is a top priority and, for most, using a specialist recruitment agent is a must. In my experience, finding the right agency for you is one of the most efficient ways to secure the most lucrative and satisfying contracts. This is echoed time and time again by our clients too. We know that agencies get a lot of bad press and we ve heard our fair share of horror stories, but hopefully after reading this guide you ll have a better understanding of how agencies work in the contracting world and how you can maximise the benefits they can offer you. For the purposes of this guide we provide more information specific to contractors operating their own limited company rather than to contractors under an umbrella company. This is because the majority of new contractors opt to operate as a limited company as it is the most tax efficient option and more of the money you earn ends up in your pocket. Operating through an umbrella company is essentially an employee contract and therefore the administrative requirements are reduced. The umbrella company is your employer, they administer the payments and deduct tax, NI and their services margin before paying you through a PAYE scheme. As with any business relationship, you need to do your homework, go in with your eyes open and play an active part in getting the best out of the deal. Nothing s permanent in this world and if things don t work out, you can always learn from your mistakes and be better prepared for next time. Hopefully you ll apply the advice and tips we provide in this guide and have a long and fruitful relationship with a small roster of agents that suit your needs.

5 Partone Gettingstarted In this section of the guide we ll explain what an agency is and how to get the most out of your relationship with them. It s important to choose the right agency for you and then nurture the business relationship; understanding how rates work and what your role is in managing the relationship will ensure you are in the top set of go-to candidates for your preferred recruitment agencies.

6 Whatisarecruitment agency? As a permanent employee, you probably came into contact with your fair share of recruitment agencies when securing your permanent roles. As a contractor, securing a solid pipeline of contracts to ensure you minimise unwanted breaks between contracts (or facilitating planned breaks with a contract lined up when you want to start working again) will mean you need a solid relationship with at least one recruitment agent. A recruitment agent is essentially a specialist that matches the right candidates to available contract roles on behalf of their client. Let s be clear from the outset: their client is the company that is looking to fill the role. You as the candidate are the resource they are trying to sell. This is a core point to understand and will enable you to get the most out of the relationship. Good recruitment agents: Source quality candidates Source clients and contract roles Negotiate rates for the role Understand the market, the market rates and can forecast market conditions Provide contractual support Act as middlemen and gatekeepers for their client Recruitment agents exist because clients (the hiring companies) don t have the time or internal resource to promote roles, sift through the applications and deal with contractor admin. Having a reputable recruitment consultant to do this limits their exposure to risk as they vet applicants and administer a lot of the payment process.

7 N.B. Anyone can set themselves up as a recruitment consultant. All you need is a PC and a phone, so it s your responsibility to do your homework and select the best recruitment consultant for you. Whyyouneedanagency Some contractors and consultants don t ever use agencies to find work as they have an existing network of contacts that they pull from to secure roles, or they may be so niche that they gain work from word of mouth. This is rare, and in the majority of cases, contractors will need to work with a recruitment agency to secure contracts. The larger recruitment agents tend to control the roles available in larger companies as the largest companies usually operate a preferred supplier list. We ll look at this in more detail in the next chapter - Understanding the value of agencies.

8 Understandingthevalueof agencies Using agencies can give you greater access to the contract marketplace as well as freeing you up to work and therefore earn more. There is one crucial point to remember when utilising agencies to find work they work for the hirer not the contractor and it s your job to woo them as the gatekeeper of the contracts you want to win. Many of the good agencies have dedicated contractor support teams, but essentially the hirer is the client; they pay the bills and you are the commodity. Whyuseanagency? Agencies are on the Preferred Supplier List of the larger companies you want to work for. They have almost limitless contacts and resources to keep the contacts fresh. They are professionals when selling your skill set and negotiating contracts. Going direct is resource heavy with a low success rate if you approach a company cold. You should have a dedicated team to ensure you are paid correctly and on time. Good agents know when you are coming to the end of a contract and will look to place you again somewhere else so you have little earning down-time.

9 Howagencieswork Agencies work on behalf of the hiring clients to fill contractor vacancies. Many lager clients hire through fixed margin agreements through agencies to ensure that there is parity against similar contractor roles within their business (as you d expect with your permanent peers if you were an employee). This means that direct contractors don t usually get paid more than agency sourced contractors. In the main, agency rates are pretty stable and can range from about 12-20% dependent on the role, sector and client. Additional fees can come into play if the role is particularly specialist or senior, and the rates agencies charge to their clients isn t a discussion point with contractors and consultants. A lot of agencies will be held on Preferred Supplier Lists (PSLs). Large organisations will only engage with companies on their PSL as they meet financial and business criteria. It s worth noting here that most companies with a PSL will not hire a contractor direct if they have an agency on the PSL. Your contact at the agency will want to ensure that they submit the contractor or consultant with the best fit for the client i.e. the one that will perform best at interview. That way they secure as many contracts as possible to meet targets. A contractor liaison team will ensure you are paid correctly and on time and can deal with resolution support. It is your job to ensure that you are the most attractive candidate for the roles you want. Building a good solid relationship with the agency is critical to getting the most out of it. AnoteonAgencyWorkerRegulations(AWR) There is some confusion around the scope of the Agency Worker Regulations that came into force in October Here s a snapshot of what you need to know:

10 The regulations were designed to protect the rights of agency workers across Europe to halt the exploitation of more vulnerable agency workers. As a contractor or consultant in the UK you are unlikely to require protection given under AWR as you ll more than likely command higher rates than your employee counterparts. The regulations are designed to give agency workers the same rights as employees after 12 weeks in the same contract. If you chose to work via an umbrella company you d more than likely fall within the scope of the regulations, but as a limited company owner that provides a service as a business undertaking you fall outside the scope of the regulations. The line is blurred but a great rule of thumb to use is if you want to provide a service as a business undertaking falling outside IR35 regulations, then you ll almost certainly fall outside the scope of AWR. Dealingwithagenciesandbuildingrelationships Agents and their recruitment consultants want to close as many contracts as possible that s what they are targeted on. Speed and security are the things they look for in reliable candidates. The best way to ensure you are top of the pile is to ensure you appear keen and committed to the role they are trying to fill. Being in demand isn t always a bonus don t say you have lots of interviews lined up; it just means you re less of a sure bet if the client likes you. It s good to show you are in demand but you have to ensure that the client and agent sees you as really wanting the role they are trying to fill. Show real enthusiasm for the role and the client to the agent. When interview skills trump technical skills you may have all the technical prerequisites (agents weed this out in the first cut) but interview skills are king. A candidate that comes

11 across well in the interview and is consistently snapped up is preferred over the most qualified. Polish up your interview skills, present as if your financial health depends on it and sell yourself to the best of your ability. Negotiate with understanding and good grace you ll need to set your rate with agents you work with. The goal is to set a rate that is attractive to you, the agent and prospective clients. Don t rush in with a figure; this can flex for the right contract and you don t want to paint yourself into a corner. Check out market rates then look to set a range for yourself. When pressed for a best rate (lowest) be vague as this can quickly turn into your standard rate. Look for a healthy range and negotiate based on the roles offered. Don t accept reduced rates after the interview stage as clients rarely reduce their offers; it tends to be the agent increasing their margins. A collaborative approach goes a long way to securing a long-term and mutually beneficial relationship with your agency. If you are reliable, professional and take a pragmatic approach to working towards securing roles, you ll find you become one of their go-to suppliers for their clients. Toptentipsforworkingsmartwithanagency When you are working for yourself as a contractor or consultant, it s important to ensure you have mutually beneficial relationships with clients, and their agents. Quid pro quo something for something is a great saying to live by. Here are our tips to ensuring your relationship is strong from the start. 1. Don tprovidereferencesupfront. The client doesn t need them and it can be a way of increasing the lead list for the agent.

12 2. Don tnamedrop. Again, any agent worth their salt is looking to increase their client list with named contacts in hiring firms unless they are securing interviews for you, keep your best assets (your contacts) under wraps. 3. Knowyourworth do your homework on rates. You need to ensure that your expectations are realistic, and have a goal to negotiate to. 4. Ensureanycontractualtermsyousignuptoarefair if you want a notice period ensure it reflects the notice you need to provide to the agent. 5. Beagreatcandidate make it easy for the agent to work with you. Be proactive in searching for the roles you want and call them. 6. Beagreatinterviewee nail the interview by being keen, well prepared and then follow it up. Show the agent how much you want the contract. 7. Beagreatcontractor exceed the expectations of the client for the duration of the contract. Let the client down and you let the agent down too. 8. Workatbuildingyourrelationshipandknowledge regularly ask for feedback and how the business and market are performing. You will gain invaluable market information that allows you to plan ahead for future assignments and personal development goals as well as showing a real interest in the agent and their business. 9. Earnmorefromyourcontacts many agencies offer finder s fees, but you need to ensure you are paid the fee. When your contact is placed, chase for the reward! 10. Keepnegotiating if a client loves you at the interview, you can negotiate your rate up but ensure you don t push it too far to affect your relationship with the agent. Keep tabs on the market rates and renegotiate your fees every 12 months as a rule.

13 Working with an agency can take the pressure off finding the right contracts and ensure that you have a steady pipeline of business, providing you understand how they work and you make the most of the relationship. A little effort wisely applied goes a long way to securing choice contracts for the longer-term. The first step in building strong agency relationships is finding the right agency for you. One size doesn t fit all and we ll cover how to find the right agent in the next chapter.

14 Findingandchoosing recruitmentagencies There s no doubt that there are hundreds of agencies out there that you could approach to secure a contract, but how do you find and choose the one that s right for you? It s not a simple process, as there are several factors that you need to consider in assessing which agency is the best fit for you. Ultimately, you should look to build a roster of four or five agencies. This provides a good spread of opportunities whilst enabling you to actively manage the relationship with each. It is worth noting that you need to drive the relationship as the recruitment consultant is looking to fill their bank of contracts for their clients, not find you the perfect role. Whattolookforinyourrecruitmentagent Specialism it is best to work with agencies that are specialists in the area that you want to work in. It may sound obvious, but it can be tempting to throw your limited resources at a general agency. A specialist will have a greater understanding of your niche market, of what their clients really want, and the nuances of the contract roles available. Size big companies use big agencies. You may get great one-to-one service from a boutique agent, but they ll have limited resources and a limited database. If you re looking to work for blue chip companies, then large specialist recruiters have the biggest reach in terms of the size and sheer number of clients they work with. Location in addition to size, look for agencies that are located where you want to work. Yes it is true that the

15 majority of sourcing occurs online, but recruitment agents worth their salt have personal and direct relationships with their largest clients. They ll be based where they can have this direct relationship, so look for an agency that has a base that covers the location you want to work in. Another way of looking at the location of your agency is if they have multiple office locations; a great way of expanding your reach if you are looking to move around. Availablecontracts look at the type of contracts the agency offers on the main job boards and their website. This gives you a good idea of the type of client they work with and the contracts that they have available. If the client base and role specifics look interesting, then they should be able to provide good opportunities for you to pursue. Wheretofindrecruitmentagents You can find lists of recruitment agents online but that doesn t really provide you with a targeted list. The majority of contractors will start with specialist publications and forums that are specific to their market or technical specialty. Looking through the available contracts and job posts within a specialist publication can help narrow the field to specialist recruiters closely aligned with the roles you want. This doesn t, however, address the benefits of recommendation. Drawing on the personal experience of successful contractors you work with is a great way to understand how good an agency is. Their recommendation and thoughts on how easy it is to work with the agency, plus the detail of how well they perform on the administrative side, go a long way to providing the due diligence you need to ensure the shortlist of agencies fits your needs. The added bonus of identifying agencies via other contractors is that it can also offer a direct introduction. Direct introductions can cut through the wall between you and a specialist consultant. If the contractor that provides the introduction is well respected within the

16 agency, it can go a long way to opening the right doors to build a relationship. Howtoassessiftheagencyisrightforyou If you fail to do your homework upfront, you ll end up knocking on a lot of doors and investing a lot of time and effort in selecting agencies through trial and error. Understanding what you want from an agency, selecting the right ones for you on paper, and then pursuing them in a managed way, will reduce the selection process admin. Once you ve identified the agencies that tick the majority of the boxes in terms of the list above, it s important to assess the way they treat you as a contractor. Before engaging in discussions with agencies, take the time to really understand what you want out of the relationship and be realistic about how you can achieve an equitable relationship with an agency. Gaugetheirlevelofunderstandingofyourmarketand specialism they need to be experts in their field in order to secure you the best contracts. Aretheyprofessional? if they don t treat you as you d expect, they are less likely to treat their clients in the way you would either. Isthereanattentiontodetail do they provide accurate and precise information and is their documentation and payment correct? Aretheyefficient? administration is the most frustrating element of any business relationship so if they aren t efficient, it can lead to losing your free time that could be better spent. Dotheypayontime? There is little excuse for late payment: yes errors can sometimes occur, but if late payments become a habit it s time to find another agency. Dotheyoffergoodrates? If you think the rates are low in

17 comparison to other contractors or your own research, query this. It may be that they are taking too large a cut or that they fail to negotiate effectively with the client. Either way, if there are better rates available and this is important to you in relation to the other benefits the agency offers, then it may be time to move. Working with an agency should help you find more contracts faster, more easily and ensure you have a steady flow of work. Some recruitment agencies are better than others at doing this. If you aren t happy with the relationship then you can address the issues, and if this does not work, find new agencies that offer you more. It can be a case of trial and error, as one contractor s ideal agency can be less than a perfect fit for you. Remember that you are in control and that you can change the agencies you work with at any time. When you have found the agencies and recruitment consultants that are a good fit for the way you like to work, it s important to build a strong relationship. You are the resource they are trying to sell to their clients, so make it easy for them. The next chapter provides information on what a recruitment agent looks for in their top candidates and how to work with them effectively.

18 Engagingwithanagency To get the most out of your relationship with a recruitment agency, it is important to understand that the agency works for their client to fill their contract positions, not for you as a contractor. With this in mind, think of your recruitment agent as a client. You need to nurture the relationship and give them what they need; a reliable performer who s easy to place and work with. Introductions You ve identified a handful of agencies you d like to work with to secure contracts. The next step is to introduce yourself and begin to build a mutually beneficial relationship. There are two ways to approach a new agency contact: Applyforacontractorpositiontheyhaveadvertised a common route, one where you submit your CV and follow a fairly traditional yet accelerated application process. This offers a structured introduction to the agency, based on a contract you d like to pursue. The process is standardised and there is a risk that your application may be sifted out in the selection process before you even speak to a recruitment consultant. Introduceyourself a bespoke conversation that you can drive. This route offers you the opportunity to speak to a recruitment agent, but it takes preparation and the right level of tenacity to get through the door. With stiff competition, you need to be confident in your skills and marketability; you need to be proactive and drive the introductions and relationship forward. By making it as easy for the agent as possible, you maximise your attractiveness as a candidate.

19 Call and introduce yourself to the agent, ask to speak to a recruitment consultant specialising in your area of expertise or the industry you d like to secure a contract in. Ask for a meeting or a telephone discussion for their advice and potential opportunities. It s important to ensure that the agency understands your specialism and availability, and that they come away with the understanding that you will work with them to secure roles. Workhardforthem Recruitment agents are heavily targeted on filling the contracts so it is your job to be an easy candidate to place. Ensure you are: Proactive look at their available contracts and apply for them as they become available. Contact your recruitment consultant in good time before your current contract expires. Professional perform well in interviews, perform well within the contract, portray yourself as the consummate professional at all times. Bespoke - see each new opportunity as a completely new start; tailor your CV, do your homework and flex your personal style and approach to fit with the client. Responsive there s no need to be a pushover but everyone appreciates being listened to and receiving a considered response. Don t rush into saying no, act with integrity and provide constructive responses in good time. Visible don t wait for the phone to ring. Ensure you take control of the relationship and maintain regular contact with your recruitment consultant. Beforeyouapproachanagency It s important to ensure that you are prepared before you engage with an agency. This ensures that they see you as a candidate that is easy to place and easy to work with.

20 HaveastockCV that shows your core skills and achievements; contractors are sold on their skill set and what they can provide to an employer. Unlike permanent employees, length of service and a long list of previous roles are less important; what you achieved in these roles is key to showing prospective clients what you can do. EnsureyouhaveabespokeCV for the contract you are applying for research the buzzwords and ensure they are present in the CV you submit. A tailored CV is the difference between making it through the first cut to the shortlist and not. Understandyourstrengths, what makes you stand out from the crowd you need to be able to articulate this to the recruitment consultant. Knowyourbaserate see the next chapter for more information on how rates work and how to set your rate. Brush up on your negotiation skills; knowledge is power so don t give it away for free. Ensure that your enthusiasm doesn t lead you into providing lots of contacts for previous employers and give yourself time to answer questions. A big part of securing your relationship with the agency surrounds your understanding of your own worth. Before you leap into a contract, you need to understand how rates work in order to negotiate the best deal with your agency. Your first contract goes a long way to setting the bar in terms of what roles and rates you ll be offered in the future. We cover how rates work in the following chapter.

21 Howratesworkandwhat sa goodrate Hourly or daily rates are often the most debated element of a contractor s contract. How are rates calculated? What s the market rate for the role you are pursuing? Do different industries pay different rates for the same skills and experience? There are so many elements involved in calculating a rate, how do you know what s a good rate and what s not? You need to have a basic understanding of how rates work to enable you to get the most out for your relationship with your agency. Howareratescalculated? There are many factors that influence the rate calculated for a particular role. Themarketrate it s often used as the baseline when calculating the rate for a new role. Therolespecifics how important the role is to the company, how senior the position is. Roleprofile level of experience required, skill set, knowledge and relative scarcity. Location central London positions will offer more than the average due to the cost of living. Industry certain industries are known to offer higher rates of pay than others; financial services companies pay considerably more than publishing companies. N.B. If you work via an umbrella, you need to factor in the

22 employer NI contributions in addition to other factors as this will effectively be deducted from your rate before you are paid. These factors relate to both permanent salaries and contractor rates. Contractor rates often fluctuate based on supply and demand but the average market rate tends to remain the same. If you are sourcing your contract through an agency, the negotiation of the rate is handled by the recruitment consultant. The employer has a ceiling rate and the contractor a floor; the recruitment consultant negotiates in between to agree the rate. The rate the client is charged is not the same as the rate the consultant is paid. The agency takes a cut of between 10 and 20%, but some agencies can take even more. Whilst it is not compulsory for the agency to tell you their rates, you can ask and they may divulge this information to you. It s important to understand that agencies need to make a profit, they need to cover their costs and anything less than 10% would not be worthwhile. Dailyvshourlyrates Daily rates tend to be offered for fairly standardised roles, particularly interim roles. They are also common for the higher rates (more than 40 per hour) and for roles that require fluctuating hours. This can offer the client consistency for billing and the contractor usually recoups any extra hours worked over the period of the contract. Care should be taken when entering into daily rate contracts to ensure your working hours are capped at a reasonable level. Hourly rates are more manageable as they offer complete transparency for the client and flexibility for the contractor. Clients will often cap the amount of hours a contractor can log each week. Whatisthemarketratethatappliestoyou? Market rates are a good indicator of what you can expect from

23 standard roles but what if you are a specialist filling a niche requirement? Market rates have their place in understanding your worth; they are a guide and a benchmark that you can pitch yourself against, but it is important to understand how you stack up against your peers in terms of experience, skills, niche knowledge and marketability. You can find market rates through professional bodies as well as specialist publications for the industry you work in. You can also verify your assumptions through researching rates included in contract advertisements on the main and specialist job sites. Dodifferentindustriespaydifferentrates? Rates do differ from industry to industry, with the top payers being financial services, oil & gas, IT and software development. All are established industries and utilise highly skilled contractors to bring in specialist expertise. The industries paying the least are education, healthcare, publishing and hospitality. The larger and more complex the industry, the more they will pay to bring in expertise. Whatisagoodrate? As a contractor, you are in control of setting your hourly or daily rate. Discerning the best rate needs careful consideration as you need to ensure that it is in line with comparable contractors. Set your rate too high you are in danger of pricing yourself out of the market; too low and your value may be queried. Your rate needs to cover your income, benefits you d usually attract from being a permanent employee, downtime such as holidays and gaps between contracts, plus the deductions for tax and NI. Most contractors base their calculations on working 46 weeks per year. Testyourrateandbeflexible Once you ve calculated your basic rate, test it. In your discussions with your chosen agencies, they will ask you what rate you are

24 looking to achieve for particular roles. This is the time to test your rate. If there s no resistance to the rate you provide, then you can increase the rate in discussions with subsequent agencies, negotiating a rate down is always easier than negotiating an increase. Remember that contracting offers flexibility and if you aren t comfortable with the rate you achieve for a particular contract, you can address this in your next contract or in negotiations for the extension if there is one. This is another reason to ensure you have a roster of agencies you are in regular contact with as this gives greater flexibility to alter your rates through increased opportunities being available to you. If you are new to contracting, it is best to take short contracts initially to gauge what you are worth. That way you can adjust your rate regularly until you are comfortable with the level you are achieving. Short contracts also allow you to hone your contract knowledge and if you find out that the conditions you re expected to work under aren t beneficial, you ll have less time locked into them. You need to have a good understanding of how contracts for services work to ensure that you get the best deal and you re not unwittingly locked into anything you don t agree with. We explain all the main areas of a contract in the next chapter so that you understand what to look out for in the small print when signing up with your agency and signing on the dotted line for each contract term.

25 Signingacontract Starting out as a contractor, it is well worthwhile spending some time in building a good understanding of contract law. That s not to say you need to be an expert in it; you just need to have a good basic understanding of what constitutes a favourable contract and when you need to employ the services of a contract law expert. So before you get caught up in the heady excitement of securing your first contract, adjust your mindset from employee to contractor and service provider. This will go a long way to ensuring you get the most from your relationship with your recruitment agency, as a lot of issues with payment and terms can be addressed by ensuring you understand the contract you are signing and negotiate any clauses you are uncomfortable with. Thetermsyoureallyneedtoknow Contracts are the keystone of contracting. They set out what you are offering the end-client (via the agency) and ensure that you are paid what you agree for the work you agree to. There are a few terms that are important to have a good working knowledge of to ensure you get the best possible deal. Some ensure you don t fall within IR35, mentioned earlier, others are standard elements of a contract. Contractofservicevs.Contractforservice This is the difference between being an employee (contract of service) or a service provider (contract for service). Your contract with an umbrella company is a contract of service where you are paid to work for the client on an ongoing basis for what is essentially a salary. The umbrella company then has a contract for service with the recruitment agency. For contractors operating

26 using their own limited company as a service provider you have a contract for service between your limited company and the recruitment agency, you provide specific services as defined in the contract for a fee. Mutualityofobligation(MOO) Employees and employers have mutuality of obligation the employee has to turn up to the office, and work within the parameters of their job description, for specified hours. The employer in return provides an agreed salary, work for them to do, holiday and other employee benefits. In contrast, as a contractor, the client pays the agreed fee for a specific project or deliverable, so if the project is delivered early or is cancelled, the client is under no obligation to find the contractor something else to do. The flip side is that the contractor doesn t have to sit in the office 9-5, provide services outside of the contracted terms, and can substitute another contractor should there be a substitution clause in the contract they sign. Control For contractors operating under their own limited company, the contract you sign shouldn t detail what could be seen as and supervision, direction or control (SDC) over the contractor by the client; this could include reporting to specific managers, having work checked, detailing how and when work is done. The contract should focus on what needs to be delivered, as how it is delivered is ultimately under the contractor s control. This ensures you are not seen as an employee and remain outside IR35. Restrictivecovenants Restrictive covenants are sections within a contract that protect agencies from contractors sourcing ongoing work from the client direct. Agencies invest a lot in cultivating their clients and sourcing

27 contractors for them; the majority of contractors see this as fairly reflected in the cut they take from the contract fee charged to the client. The majority of restrictive covenants restrict contracting direct with a client (and sometimes subsidiaries) for a specific time after the initial contract ends. It is worth noting that restrictive covenants are a two way street should the agency try to drive down your rate for subsequent contracts or alter the terms of your agreement it can effectively render the restrictions void. Don t assume this as an absolute as the covenants are enforceable and you should always take legal advice before challenging them. Schedules The schedules within your contract should outline what the client expects you to do. It usually includes: Specificservices you are to provide as part of the project or deliverable. Timelimits a timings schedule often outlines key milestones for deliverables and time-critical points that need to be met to satisfy delivery. Yourrateandpaymentschedule ensure that this is tied to deliverables within the project rather than a regular payment to ensure it cannot be construed as a salary. Technicalwarrants,protectionandequipment warrants outline technical skills you (or substitutes) possess that are critical to the effective delivery of the project; protection includes the insurance and liabilities you are expected to cover; equipment includes any hardware, software and specialist equipment you are expected to provide when you provide your services to the client. Understanding the basics of contract law is the best way to ensure that the contracts you accept are fair and reflect the project you

28 work on. For more information on standard clauses that may be in your contract, visit The Association of Independent Professionals and the Self Employed (IPSE) provides advice for contractors and is a member of HMRC s working group on IR35 application. Howtoacceptandsignacontract A verbal contract isn t worth the paper it s written on holds true, but verbal contracts are enforceable. One of the golden rules of being a successful contractor is to give due consideration to any contract offered. The most successful contractors know their way around a contract and have new contracts reviewed by a professional where appropriate; this enables them to negotiate any terms or clauses that are unfavourable. There are some crucial milestones in agreeing and signing the contract that s right for you. Theinterview The interview is the chance for the client to see if you are a good fit for the project and for you to ensure that the project is right for you. Even if it is the dream contract, never jump in and accept a contract at the interview. You can certainly express an interest and offer assurances but without the full terms and conditions you should in effect be saying That sounds like the perfect fit, when can I expect the contract to review and agree? Informationtocomeoutoftheinterviewwith: How does the client feel about your rate? Do they have any reservations about hiring you? (You need to combat these reservations before leaving the interview.) When they are looking to offer the position (so you can chase the agent). Considerationandnegotiation

29 The agency will usually call first to discuss your rate and it s important to ensure you are comfortable with the agreed rate. The next step is to review the contract itself the terms and conditions of your service agreement to the client. You need to ensure that all of the terms and conditions are commensurate with what you are going to provide to the client and what you expect in return. This is your opportunity to negotiate if any of the terms within the contract are unfavourable. Negotiation skills are crucial to ensuring the contract meets your needs as a contractor. If you don t agree with certain terms you ll need to have them removed or amended. If you don t understand any of the terms or why they are in the contract find out. This is where review by an expert is invaluable. Don t expect an agency to work in your best interests they ultimately work for the client so it s your job to ensure that the contract you enter into satisfies your needs. When reviewing and negotiating the contract, ensure you provide feedback in good time but do not let the agency pressurise you into signing the contract without reviewing it fully. Signing ifyouoperateviaalimitedcompany The contract needs to be signed by both parties you as the contracted company and the client/agency on their behalf. Note that you are signing the contract as a company not as an employee. The contract should be in the name of your limited company as it provides additional protection and is more likely to be a Contract for Service. You need to ensure that you retain original signed copies of each and every contract. In addition, retain any correspondence related to the terms of service. This provides a solid audit trail should HMRC require information to support any contract s status in relation to IR35. Signing ifyouoperatethroughanumbrella

30 Your umbrella company signs the contract with the recruitment agency. It is important that you are involved in reviewing the contract before the umbrella company signs it on your behalf. The recruitment agency is entering into an agreement with the umbrella, which employs you and ultimately pays you. Makingcontractsworkforyou As a contractor it s your job to ensure that the contracts you enter into fit with the services you expect to provide to the client, under the desired terms. Understandingthebasicsofcontractlawenablesyouto: Critically review the contract on offer and negotiate elements that don t fit with your business model or requirements as a service provider; Work outside of IR35 for the majority if not all of your contracts; Enlist the professional services of a contract law expert to review contracts when required; Know what to do should problems arise when the terms of the contract are broken. If you are looking to make the leap into contracting, consider a relatively short contract for your first foray. That way, the first set of terms you work to are for a short duration and any learning points can be applied to longer-term assignments in the future. We ve come to the end of part one and you should have a firm understanding of how agencies work, how they can benefit you and how to get the most out of your relationship with them. In the second part of this guide we ll run through the day-to-day admin of getting paid.

31 Parttwo In this section of the guide we ll explain the main points you need to know to enable you to get paid on time, pay the right amount of tax and manage any issues you may have with your agency. This is the day-to-day management of your contract pipeline. If you ve built strong foundations, as detailed in the first section of this guide, the maintenance around getting paid and securing future opportunities should become second nature and a fulfilling part of what you do.

32 Gettingpaidandmaintaining yourcontractpipeline Whyyoucan tbepaiddirectly The majority of companies will not pay contractors directly. This is because they do not want the contractor seen as either an employee or operating under the intermediaries legislation. Both of which would result in them paying the contractor via a PAYE scheme and being accountable for the correct tax and NI payments being made. This is why the vast majority of contractors operate via their own limited company or an umbrella. If you operate a limited company, you are in direct control of how you manage the recruitment agency and you have the most tax efficient operating model if the majority of your contracts fall outside of IR35. If you operate through an umbrella, the umbrella company essentially owns the relationship with the recruitment agency as they sign the contract and pay you as an employee. Either way, the end client has greater confidence that they are not employing an individual and therefore avoids the costly and resource-heavy responsibilities of having you as a direct employee. As a contractor, although you ll be working for your end client, you are contracted via the agency. The agency contract will stipulate that all remuneration is subject to their terms and as such the agency pays you, not the client direct. The agency negotiates the terms of contract with the client on your behalf, they enter into a contract with the end client and you enter a contract with the agency. This may seem to be a protracted route but it gives you added protection in terms of contract negotiations and dealings with HMRC. Dealing via an agency rather than being paid directly can

33 provide greater evidence of your contractor status as a service company rather than an employee, for example. This, however, does not apply if you operate under an umbrella. You are an employee of the umbrella and will be taxed and paid accordingly. Timescales whencanyouexpecttoget paid? One of the most common issues we hear about is the time lag between starting a contract and getting paid. Some contractors assume that they ll be paid much earlier than the industry norm (as they were in their permanent roles) and this can cause friction. Sowhatisthenormwhenyoustartcontracting? If you work direct with a client, you ll often negotiate the payment terms as part of the contract negotiations. It is prudent to have a standard set of terms and conditions that sets out your standard working practices for all contracts. Within the T&Cs you should have a clause that details your payment terms. This forms the basis for the contract covering the work within the contract term with the client. Some consultants and contractors stipulate when and how they are paid based on stages within a project, but the majority will look to ensure they are paid regularly (weekly or monthly). When you secure a contract through an agency, the recruitment consultant will look to negotiate payment terms to reach agreement between the client and you as the contractor. They often use standard terms as set out in your contract with them as the recruitment agent, so ensure you understand their terms before entering into any negotiations. In the main, there is usually a month s lying time between the month s accrued pay and payment of this. It s worth factoring this into your calculations when you first start contracting to ensure that you have enough money saved to fund the potential gap in

34 earnings. Typically the gap between your last permanent pay cheque and your first contractor earnings is a couple of months (if you ve lined up a contract before you hand your notice in). We ve outlined a timeline to illustrate what affects the gap in earnings so you can calculate how long the gap could be for you. Quitpermanentrole Factor in your notice period. For some contractors, a short notice period means they need to secure a contract before they hand their notice in. For the majority, the notice period can be prohibitive to securing a role first as contracts often require a near-immediate start. Secureacontract For many contracts, the start is nearimmediate, but for others there may be a lag in securing the contract and the start date. If this is the case for your first role, you need to factor this in as a delayed start pushes your first payment back. Paymentterms Most payment terms have a lag of a month before paying for the time period worked. This means that although you may be paid weekly, you could wait up to a month before your first weekly pay comes through. We d advise you to retain savings (either personal or within your limited company) to cover what you want to pay yourself each month for at least 3 months. This will ensure you have a cash cushion between contracts. This is important irrespective of the billing and payment method you adopt with your agency and clients. We ll provide more information on the various billing and payment options in the following chapters.

35 Self-billing Self-billing is common practice for recruitment agencies to enable the payment of contractors. When working via a recruitment agency, it is the most common method of payment. It is a legal arrangement between the contractor s limited company (or umbrella) and the agency. In short, your limited company doesn t need to bill the agency. Instead, you submit your timesheets and expenses (which have been authorised by a manager at your contracted workplace) and the agency then produces an invoice for you for them to pay. Howdoesself-billingwork? Through a self-billing arrangement, the agency prepares and sends your limited company or umbrella a copy of the invoice and this usually coincides with payment for the time period for which you submitted your timesheet and expenses. For many contractors, this is easier than issuing invoices for payment as the invoices are accurate and essentially pre-authorised as they are based on preapproved timesheets and generated by the agency that is paying you. Recruitment agencies adopt this payment structure as it standardises their processes and can eliminate a lot of the inaccuracies from contractors issuing their own invoices. They can rely on the timesheets and expense data as it is pre-approved by the client, and they are in control of the process that generates the invoice for the contractor and the resulting payment. Contractors sign up to self-billing as it often speeds up the payment process with the recruitment agency as the information they provide is pre-approved and the payment is generated at the same time as the self-billing invoice.

36 Howdoesself-billingworkinaccountingterms? Limitedcompanies It is important to track self-billing invoices through your own accounting system. You need to ensure that you mirror the invoice in your own invoicing system to track the agency billings. This will ensure that all the figures are captured and that the correct rates and figures for VAT, tax and expenses have been applied. All you need to do is raise an invoice as normal for the work, but don t send it to the agency; instead simply link the invoice to the self-billing invoice that the agency issues and log the payment. This will ensure that all the figures on the self-billing invoice are entered into your accounting system to enable you to pay the right amount of tax and VAT for the period. Umbrellacompanies When you submit your timesheets to the end-client for approval, you ll also need to enter all the information into the umbrella company s timesheet and expenses system as a direct duplicate. The agency will send the self-billing invoice to the umbrella along with payment. The umbrella company will then deduct the employer s NI contribution, your personal income tax and NI contributions as well as their service fee. They will then pay you via the PAYE system and issue you with a payslip. Nextsteps Your agency will explain their self-billing process to you (or your umbrella company) when you sign up to their terms and conditions. Ensure that you understand their process and the terms under which they will pay you. It is important to review these terms to ensure you follow their process to the letter in order to get paid on time. Ask your accountant (or umbrella company) for advice on how to track self-billing invoices in your accounting system to ensure you

37 pay the right amount of tax and VAT if you operate a limited company. If you work through an umbrella company, they should take care of this for you.

38 Gettingpaidthroughan umbrellacompany For many people new to contracting, the thought of setting up as a limited company is too much of a leap to make. There is the perception that owning and managing a limited company is complicated and prevents them from making a full transition from permanent employment to self-employment. In this case, it can be beneficial to use an umbrella company to start contracting. Whatisanumbrellacompany? An umbrella company is a company that acts as an employer to contractors working under fixed term (temporary) contract assignments. The contracts are usually sourced through a recruitment agency. Thebenefits The main benefit of using an umbrella company is that you don t need to set up your own limited company; it is an alternative to managing your own company. The umbrella company takes care of a lot of the administration for you such as invoices and the accounting. They liaise with the agency to arrange payment, deduct the tax, NI and their fees and then pay you. Working through an umbrella company is similar to being employed; you are paid via PAYE and get payslips. The umbrella company holds the contract with the recruitment agency and therefore handles all the contractual and payment side of the relationship for you.