Working with Agencies

Transcription

1 Working with Agencies

2 Getting started First, we ll take a look at 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 to 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. 2

3 Contents What is a recruitment agency? 5 Understanding the value of agencies 8 Finding and choosing recruitment agencies 13 Engaging with an agency 17 How rates work and what s a good rate 20 Signing a contract 24 Getting paid and maintaining your contract pipeline 30 Self-billing 34 Getting paid through your limited company 37 Issue management with your agency 40 Final thoughts 47 3

4 What is a recruitment agency?

5 What is a recruitment 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 (or facilitate 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. 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. 5

6 Why you need an agency 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. 6

7 Understanding the value of agencies

8 Understanding the value of 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. 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. Why use an agency? 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 8

9 How agencies work Agencies work on behalf of the hiring clients to fill contractor vacancies. Many larger 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. 9

10 Dealing with agencies and building relationships 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 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. 10

11 Top ten tips for working smart with an agency 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. Don t provide references up front the client doesn t need them and it can be a way of increasing the lead list for the agent Don t name drop 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 Know your worth do your homework on rates. You need to ensure that your expectations are realistic, and have a goal to negotiate to Ensure any contractual terms you sign up to are fair if you want a notice period ensure it reflects the notice you need to provide to the agent Be a great candidate make it easy for the agent to work with you. Be proactive in searching for the roles you want and call them Be a great interviewee nail the interview by being keen, well prepared and then follow it up. Show the agent how much you want the contract Be a great contractor exceed the expectations of the client for the duration of the contract. Let the client down and you let the agent down too Work at building your relationships and knowledge 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 Earn more from your contacts 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 Keep negotiating 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 11

12 Finding and choosing recruitment agencies

13 Finding and choosing recruitment agencies 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. What to look for in your recruitment agent 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 majority of sourcing occurs online, but recruitment agents will often 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 Available contracts 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 clients 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 13

14 Where to find recruitment agents 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 recommendations can 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 agency, it can go a long way to opening the right doors to a solid relationship. 14

15 How to assess if the agency is right for you 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. Gauge their level of understanding of your market and specialism they need to be experts in their field in order to secure you the best contracts Are they professional? if they don t treat you as you d expect, they are less likely to treat their clients in the way you would either Is there an attention to detail do they provide accurate and precise information and is their documentation and payment correct? Are they efficient? administration is the most frustrating element of any business relationship so if they aren t efficient, it can lead to losing time that could be better spent Do they pay on time? 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 Do they offer good rates? if you think the rates are low in 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. 15

16 Engaging with an agency

17 Engaging with an agency Introductions So, you ve identified a handful of agencies you d like to work with. 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: Apply for a contractor position they have advertised 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 Introduce yourself 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. 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. 17

18 Work hard for them 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 Before you approach an agency 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. Have a stock CV 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 Ensure you have a bespoke CV 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 Understand your strengths, what makes you stand out from the crowd you need to be able to articulate this to the recruitment consultant 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 18

19 How rates work and what s a good rate

20 How rates work and what s a good rate 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 of your relationship with your agency. How are rates calculated? There are many factors that influence the rate calculated for a particular role. The market rate it s often used as the baseline when calculating the rate for a new role The role specifics how important the role is to the company; how senior the position is Role profile 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 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. 20

21 Daily vs hourly rates Daily rates tend to be offered for fairly standardised roles, particularly interim roles. They are also common for the higher rates 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 number of hours a contractor can log each week. What is the market rate that applies to you? Market rates are a good indicator of what you can expect from 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. Do different industries pay different rates? 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. 21

22 What is a good rate? 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 and 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 National Insurance. Most contractors base their calculations on working 46 weeks per year. Test your rate and be flexible Once you ve calculated your basic rate, test it. In your discussions with your chosen agencies, they will ask you what rate you are 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. 22

23 Signing a contract

24 Signing a contract Starting out as a contractor, it is worthwhile spending some time in building a good understanding of contract law. That s not to say you need to be an expert; 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. Understanding the basics of contract law enables you to: 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. So, before you get caught up in the heady excitement of securing your first contract, adjust your mind-set 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. The terms you really need to know 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. 24

25 Contract of service vs. Contract for service 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 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. Mutuality of obligation (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 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. You can find more information about IR35 here. 25

26 Restrictive covenants 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 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: Specific services you are to provide as part of the project or deliverable. Time limits, a timing schedule often outlines key milestones for deliverables and time-critical points that need to be met to satisfy delivery Your rate and payment schedule ensure that this is tied to deliverables within the project rather than a regular payment to ensure it cannot be construed as a salary Technical warrants, protection and equipment 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 work on. For more information on standard clauses that may be in your contract, the Association of Independent Professionals and the Self Employed (IPSE) provides advice for contractors. 26

27 How to accept and sign a contract A verbal contract isn t worth the paper it s written on, however verbal contracts can be 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. The interview 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? Information to come out of the interview with: 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 are they are looking to offer the position (so you can chase the agent) 27

28 Consideration and negotiation 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. Reviews by an expert can be 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 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. Making contracts work for you 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. Next, we ll take a look at 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. 28

29 Getting paid and maintaining your contract pipeline

30 Getting paid and maintaining your contract pipeline Why you can t be paid directly The majority of companies will not pay contractors directly. This is because they do not want the contractor to be 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 National Insurance 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 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 the 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 provide greater evidence of your contractor status as a service company rather than an employee, for example. 30

31 Timescales when can you expect to get 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. So, what is the norm when you start contracting? 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 an 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. Typically, 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 earnings. 31

32 Generally, 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 impacts the gap in earnings so you can calculate how long the gap could be for you. Quit permanent role 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 Secure a contract for many contracts, the start is near- immediate, 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 Payment terms 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. 32

33 Self-billing

34 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 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. How does self-billing work? Through a self-billing arrangement, the agency prepares and sends your limited company 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. 34

35 How does self-billing work in accounting terms? 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. Next steps Your agency will explain their self-billing process to you 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 for advice on how to track self-billing invoices in your accounting system to ensure you pay the right amount of tax and VAT if you operate a limited company. For more information about forming a limited company, and a step- bystep guide, download our free ebook or see how we can help you with the setup. 35

36 Getting paid through your limited company

37 Getting paid through your limited company Many contractors set up a limited company to trade under as it offers the most tax-efficient solution in terms of retaining as much of your earnings as possible. Billing methods There are two main ways your limited company (and ultimately you as a director) are paid by the recruitment agent or client direct; self- billing (covered previously) or invoicing. Self-billing When you secure a contract via a recruitment agency, you ll negotiate how you will be paid at the point of contract negotiations. In the majority of cases, the agency will offer self-billing as it is the most efficient way of managing multiple contractors and there is less of a risk of the client (recruiter) raising discrepancies. You ll need to ensure that your timesheets and expenses are accurate and signed-off by the client, plus that you reflect the self-billing invoices in your own accounting software. Invoicing For some contracts, however, you ll be paid by invoicing the agent or the client directly. You raise an invoice in the name of your limited company for the required time period that details the agreed rate and hours, plus any expenses you may wish to bill the client (in accordance with the contract). For the majority of invoices, a 30-day payment period is standard, even if you are invoicing the client or agent on a weekly basis. The client or agent will process the payment and pay your limited company for the services you have provided. The amount due will be paid into your business bank account. 37

38 Getting paid Once your limited company receives payment, it is then up to you to decide how much of the funds you release via salary and how much to retain to pay dividends (after covering any business expenses). We have detailed information about how to set your salary here. Essentially you want to set a salary that ensures you pay enough National Insurance Contributions (NICs) and satisfy any requirements around proof of income you may need for obtaining credit, but minimise your tax exposure. You need to pay your salary via a PAYE scheme to ensure you pay the correct amount of NICs and tax on your earnings. You can pay dividends at any time of year, providing you have enough profits in the company to cover the dividend payment. Next steps You need to ensure that you track and chase payments should the agency or client fail to pay on time. Managing this part of the relationship with agencies is critical to ensuring you remain in control of your business and personal cash flow. 38

39 Issue management with your agency

40 Issue management with your agency As with any business relationship, there are inherent risks associated with doing business with an agency, but dealing direct with clients can be as risky, if not more so. Entering into a business relationship without preparation and an understanding of how things work will leave you open to risk and the potential for serious financial losses. Fake job ads Some agencies will post job advertisements to increase their own CV database; that way they have an increased pool of available contractor s ready to contact for common roles they try to fill. There are many reputable agencies that do not indulge in this practice, but you need to be aware that it happens and how to spot a fake advertisement. Fake advertisements can on the face of it look exactly like genuine advertisements; the profile is well defined, the rate is as expected, the client described in just enough detail to understand the market. Lots of fake advertisements are based on old genuine adverts and this is what makes them so realistic, so how do you spot them? Fake adverts are usually left on the sites for some time so look at the posting dates the majority of clients need the post filled ASAP so why would a post be more than a week old? The post shows a large number of views or applications if the post has had so many applications, then why hasn t the position been filled? When you search for similar advert text, multiple listings come up with the same text or slightly amended. Yes, the agency may fill very similar contracts week in week out, but it could be a potential re-post to capture leads. The advert lacks sufficient detail some genuine adverts can lack in detail but you need to ask yourself if it s really vague, how can you assess if you should even apply for the role? If you re unsure about whether the advert is genuine, contact the agency and ask for more information about the role when they are looking to fill the post by, rate information and other specific details. If there s a hint of hesitation or the recruitment consultant seems uncomfortable in any way, you know something isn t right and can move on. 40

41 Feeling pressurised to take a role or attend an interview Recruitment consultants are targeted on filling contract posts. If they believe you are a good shortlist candidate, or you aced the interview then they are going to want to influence you in any way they can. You need to be prepared to say no, constructively. Saying no to interviews is part and parcel of being a contractor and knowing what you want. If the role isn t a good fit, then be upfront and explain why you don t want to be considered for the contract. It s often more uncomfortable after the interview to decline an offer you naturally feel more obliged to take it given the investment all concerned have put into the process. In either scenario, you need to be able to say no, and give specific reasons for your decision. This takes preparation and a conscious effort to be constructive. The more specific you can be with the recruitment consultant, the better they will understand your decision and they will feel that you ve given it due consideration. Off the cuff remarks can damage the relationship, as do ill-thought out reasons for not taking the opportunity. The worst thing you can do is fail to provide a response in good time. Giving timely feedback and reasons for your decisions goes a long way to proving that you are a reliable and sought-after candidate. 41

42 Late payments and unfavourable payment terms Consultants, contractors and other owner-managed businesses cite late payments and unfavourable payment terms as one or the biggest risks to their business. There are several areas of risk relating to managing payments. Delayed payment built into your terms and conditions Many contractors are caught out through not reading the small print in their agency contracts. It s easy to get caught up in securing your first contract, the added bonus of being able to submit your timesheets weekly and to be paid weekly no more waiting for a monthly salary payment. But then you find out that you ll have to wait a month before the agency starts paying you, and it s in the contract you signed. It s too late to back track; you ve signed it and it s binding. Don t be pressured into signing a contract and agreeing to all the agency s terms and conditions on the spot. Take the time to read the small print and more importantly, if you don t agree with their T&Cs then ask for a revision; you may not get what you want, but if you don t ask you won t get. Many successful contractors negotiate bespoke terms and conditions with their agencies it s often just a couple of clauses that need revision, but it can make all the difference in creating a more equitable relationship. Late payments Owning your own business opens you up to the risk of late payments and as a contractor you ll hear many excuses as to why the payment of your invoice has been delayed. Working for multiple clients through direct relationships increases the risk of late and non-payments. You are a small business with limited resources at your disposal to pursue non-payment. One of the main benefits of using a reputable agency is their payment management and their sheer clout in ensuring payment is made. The agency manages the relationship with the client and then pays you. Reputable agencies will continue to pay you for the work you ve performed even if the client fails to pay. Unfortunately, as with all industries, there will be some agencies that fail to pay on time. The majority of excuses will surround timesheet compliance issues, the client hasn t signed-off the invoice, there s a query, or the client hasn t paid. As a business owner, you need to be prepared to manage late payments effectively. Having your own terms and conditions can go a long way to ensuring you are paid on time, along with clear payment terms on your invoice if you don t have a self-billing agreement with your agency. If the agency continues to pay you late, you need to consider terminating the relationship and finding another agency. You can find out more about managing late payments here. 42

43 Pressure to appoint an expensive accountant Recruitment agencies deal with a lot of new contractors. You need an accountant to manage your limited company s business financials and it is easy to feel pressurised into taking the agent s recommendation. Before you begin building your roster of agencies and opening up a dialogue with them to secure your first contracting role do some research into finding the right accountant for your needs. An accountant that specialises in the contractor market is invaluable to your business and many offer limited company set up as a service for those new to contracting. You don t need to appoint an accountant before you start talking to agencies, but it helps you to make an informed choice to take their recommendation or not. There s no requirement or obligation for you to do so, so make sure you have all the information you need and take control of the decision. The application process is too automated The largest recruitment consultants can receive hundreds of applications for the most popular contract posts so it isn t surprising that filtering to the first cut is an automated process. Key words and phrases being included in your CV are the difference between making it through to the shortlist or not. There are two strands to ensuring you increase your chances of getting through to the next round tailor your CV to the application and ask for feedback when you aren t successful. You need to ensure that any feedback from being unsuccessful is applied to improving your CV. It is also worth noting that contractors are not appointed on their potential, or ability to grow into a role; contracting posts are based on hitting the ground running and getting the job done. You need to ensure that your CV shows that you are qualified and experienced enough to deliver. 43

44 The recruitment consultant doesn t do well enough They don t understand your potential and, therefore, don t sell you hard enough. The role of the consultant is not to further your career, it s to find the best person to get the job done for the client. If there s a contractor that ticks all the boxes and is the surest bet for the position, they will concentrate their efforts on them as it makes the most business sense to do so. If a recruitment consultant doesn t fully understand what you do and what you can offer it s your job to fill in the gaps. Make it as easy as possible to help them understand your strengths provide a killer CV, explain what you can offer. Being easy to work with and joining the dots is the difference between being one of many and standing out from the crowd. Now you are your own boss, you need to take control of marketing yourself. You don t get replies or feedback Nobody likes giving bad news and recruitment consultants are no different. When they ve successfully secured a contractor for a position, their natural focus will be in finalising the details and getting the contract underway. Providing feedback to unsuccessful candidates is lower on their priority list. Be proactive and chase feedback and responses don t dwell on the minutiae, concentrate on the bigger picture and keep your feedback requests short. It is beneficial to see your agency and your main recruitment consultant contact as your client; you d expect to do most of the leg work in managing the relationship with a key client so why manage the relationship with your agency any differently? Finding yourself in an interview for future business In terms of frustration, investing time in an interview to find it s not for an available contract is pretty high on the list of contractor issues. Lining up consecutive contracts retains a healthy cash flow. When discussing the interview, make sure you know what you are going for. Drill into the detail so that you can ascertain what is on offer and if there s any sign of hesitance then you can make an informed judgement call as to whether to accept the interview or not. 44

45 Conclusion Very few contractors (if any) fail to come across some of the issues raised here. It s part of being a contractor and accepting a certain amount of risk by putting yourself forward for the most attractive contracts. By understanding the potential risks and issues, you can plan for them and reduce the effects they have on your business. 45

46 Final thoughts