IT Contracting - what cut should the consulting agencies get?

April 11, 2024 10:30 AM

I'm an IT contractor. The consulting and recruitment agencies who set me up with the contract are billing $150/hr. I get $70/hr. Is this a typical cut?

So there are 2 agencies involved here (one does recruitment/payroll for the second which provides consultants). The cut they are taking ($80/hr) seems excessive. On the other hand, I'm fairly happy with $70/hr. But if this set-up is exploitive then I might want to think about using a different agency, now that my contract is coming to an end.

I'm in Canada so I'm a T4 contractor. In the US this is known as a W2 contractor I believe.

posted by kitcat to Work & Money (11 answers total)

Yeah, it's not unheard of. Margins are basically "whatever they can get away with," and your pay rate is only incidental to that, so long as they're profitable after statutory costs. 100%+ is a big margin, sure, but not unusual.

(20 years as a contingent workforce consulting provider)
posted by GamblingBlues at 10:45 AM on April 11 [3 favorites]

I'm a long-term US-based W-2 contractor and my agency's cut has always been 25%.
posted by mezzanayne at 11:22 AM on April 11 [1 favorite]

100% sounds right if you were at true consulting firm with benefits (my company is 300-400%x, but for W-2 that sounds crazy)
posted by sandmanwv at 11:24 AM on April 11 [1 favorite]

This depends on what benefits you get out of being an employee-equivalent, but I am not Canadian so I don't know how that works. In the US, the increased taxes from being self employed and the very expensive costs of benefits would make this totally reasonable in my opinion. With two agencies involved they're both taking a cut so that total makes sense.

There's no reason to not ask for a reasonable increase ($10-20 an hour maybe?) when you negotiate your next contract. As long as you're not insulting about it, the worst they can do is say no and then you can take that into consideration.
posted by JZig at 11:29 AM on April 11 [1 favorite]

Are you working alone on a client project or with other consultants from your agency? If your agency is providing multiple consultants, the client is also paying for the ability to ramp up and down. If you were to leave, the agency is providing the ability to quickly backfill you. Those aspects aren't necessarily worth 100% overhead, but perhaps 30-50%.

If you're working alone on a client project, a 25% agency cut is more reasonable.
posted by vienna at 11:55 AM on April 11 [1 favorite]

Fellow contractor here, and it has been a while since I happened to see some paperwork that probably shouldn't have been left where it was, but the split was 50/50 at that time, and I can't imagine it's that different years later (9 years on this contract so far.)
posted by emelenjr at 12:00 PM on April 11 [1 favorite]

Just as a reference point, I was a US government IT contractor for a long time, and the scuttlebutt was that our big company charged the gov't 5/2 of our salary, ie they kept $1.50 for every $1 they paid us, with the government paying them $2.50. No idea how true, or if this is still true. And yes we received W-2s for tax time.
posted by Rash at 12:36 PM on April 11

Do you get a cut of what they collect from the client, or do you get $70 regardless? Because even if they bill you out at a given rate, they could end up with discounts, write-offs or sending things to collections.
posted by lookoutbelow at 2:48 PM on April 11

Response by poster: I get $70 regardless, no benefits, vacation, etc.

This is fascinating. Sounds like it depends on a lot of factors. In my case, this agency provides various contractors to the organization, but I am the only one on this particular project.

A fun update is that after I asked this here, my supervisor agreed that we should cut the original agencies out of the deal and put together a new contract. It still has to be with an agency since that's how this pseudo-gov't body works, but it would be one that takes much less of a cut, while I get a raise.
posted by kitcat at 2:53 PM on April 11

we should cut the original agencies out of the deal and put together a new contract. It still has to be with an agency

good idea, but please be aware that your current agency and the client company may have language in their agreement that either prohibits this or makes it prohibitively expensive. if you're caught in the middle of something like that there isn't really much you can do and making a stink with your current agency to try to make this happen isn't always the best plan. hope it works out for you though!
posted by GamblingBlues at 4:46 AM on April 12 [1 favorite]

Yeah, tread carefully on setting up that new arrangement. I did casual contracting through an agency for a number of years after I retired (Australia), and the agency had contractual rights to me for something like 12 months after I finished the latest assignment - that is they got paid if my workplace decided to employ me directly any time over the following year. FWIW, I got no benefits, but the agency got around 25-30% on top of my rate.

You say you will be employed through another agency, that may get around the 12 month thing, but still ...
posted by GeeEmm at 7:10 PM on April 12