Independent contractor - quandary re: asking for/demanding higher fee
February 11, 2013 9:24 AM   Subscribe

I'm technically an independent contractor but essentially an employee without benefits for a small company. How do I renegotiate a higher fee when I've gone over hours on projects these past 6 months ? I am underpaid for the services I provide - my fault for not being more savvy at the start.

I've been doing work for a small distributed company as an independent contractor for 2.5 years now. I'm basically an employee without benefits. Always had a steady stream of assignments and am considered part of the inner circle.

In the beginning I provided just a couple of services but now provide more. I know this company is happy to have me and my skills. According to my research, freelancers providing these services on average charge 40 USD/hr to start, whereas right now I get 30 USD (which I got raised from 25 USD a year into the 'job'). Some of the 'external' contractors may be earning more than me doing some of the same work I do.

I'd like to request 40$/hour but after doing the math on some of my recent projects, I realize I've gone over hours (it was a hectic period). This doesn't appear to be a problem because my 'boss' has never said anything to me and I get kudos on my work from the team. I also wonder if even though *I've* gone over hours, if my thorough work has not saved $ further down the line. Still, I'm not pleased with myself and now have no argument to defend raising my rates except this is 'what professionals who do what I do earn'.

Is that good enough?

At this point I am thinking of renegotiating my fee to just 35$/hr and finding myself another, better-paying client or two.

MeFi, do you think my plan is good? Or should I be crazy and ask for 40$, which would be a low yet fair rate for the breadth of professional services I provide?

Any other tips for the independent contractor who's really an employee without benefits?

Thanks in advance for your wisdom. And I've already read this thread.
posted by faraasha to Work & Money (11 answers total) 7 users marked this as a favorite
I think the combination of "this is what people in my business get in the marketplace" plus "also, I know your business really well so I have content knowledge that is relevant to your interests" is plenty of justification to ask for an increase. I'd ask for the $40, and encourage you to do the same.

Don't bring up your having gone over hours, and if it does come up on their side, point out that you've been working hard and getting things in on time (assuming that's true).

It's also a reasonable time to ask for a raise, since you haven't had an increase in -- if I'm understanding you right -- about 18 months.

Good luck!
posted by spindrifter at 9:32 AM on February 11, 2013

Getting paid market rate is a completely reasonable argument to getting paid what the market will bear. In fact, it's generally the argument for negotiating a contracted rate.

If you want $40/hour, and have done the research to show that $40/hr is the going rate for someone with your skills in your profession, go for $40/hr not $35. A company, no matter what the size, has significant savings by not giving you benefits and treating you like a salaried employee (and if you've been working full-time for them for a long time as "technically an independent contracter", it's possible they are breaking employment law by not giving you benefits).
posted by mcstayinskool at 9:33 AM on February 11, 2013

Since you're responsible for the full payroll tax contribution, you can also say that the end of the payroll tax holiday has increased your costs. If they want to get the tax benefit of treating you like a contractor, then they get everything that comes with that: you set the rate, you set your hours, you set your working location, you set the parameters for how you complete the job. If you lose the client due to asking for a market rate, there's always Form SS-8, if you believe you should have been classified as an employee.
posted by melissasaurus at 9:51 AM on February 11, 2013 [2 favorites]

Best answer: OK, here goes.

The first rule is: be prepared to walk away. If you aren't, your leverage basically comes down to zero. You are relying on goodwill.

The second rule is: be clear that you can, in fact, get more money doing work elsewhere, or doing more work for other people. The market rate is relevant, but not by itself. Unless you have or can get other clients your "market" is only your client.

If you can get past those two rules, the third rule is to position everything in terms of the benefit/loss to your client. You are selling a service. That service may have an external cost (i.e. what your type of services cost) and an internal value (i.e. what your specific services are valued at in/to the business, including the cost of replacing you). The decision to pay you more is most likely to be a business decision based on the cost of buying your skills and the value you bring.

What is relevant is the gap between your cost and the value you bring. You know your cost. Spend some time working out, in business terms, your value. You being a nice guy or working hard are fringe benefits to your employer but not what they will discuss when they pay you more. They will, in simple terms, discuss whether you are worth it, i.e. whether they can afford to or need to pay you more based on the perceived value you bring.

I emphasise perceive. Your audience is the decision maker, who may or may not be the person you deal with. If it is not the person you deal with, you either need to make the case directly to the decision maker or give your contact the wherewithal to argue on your behalf. Your actual value is not relevant and may not be obvious unless you make it clear. Perception, and ideally evidence of value, is everything. Often people who are not decision makers claim undue influence on decision making. Be aware.

As a rule the further one is away from the pain of dealing with a new supplier or employee, the lower one puts a value on continuity. So if you are dealing direct with the decision maker you can just make your business case and tailor the message. If you are not dealing with the decisionmaker, it helps to both put something down on paper and make an ally of your advocate.

Your ally advocate may be good or bad at negotiating for budget and may have a good or bad relationship with the decision maker. If they are bad you need to do the heavy lifting so they don't argue by emotion (e.g. I'll be screwed if faraasha goes) or cock it up. If they are good, then it's easier but you should still make it easy for them to take your position and personalise it to their decision maker. Above all, the implied or overt threat to walk has to be believed because the question will likely to come down to some version of "do we actually need to pay more?"

So: be credible; position the higher pay as a business case; don't get emotional; do your homework; tailor your message for the actual decisionmaker.

Finally, a way to think about "selling" services, even if you don't lay it out so obviously: outline the problem>outline the solution>position yourself as the solution. So, in the generic laundry powder ad: "the kids always get mud on their clothes. What I need is a powder that can remove stains at low temperatures. Oh look! Whizzo washing powder uses science magic to remove all stains at 10 below freezing."
posted by MuffinMan at 10:01 AM on February 11, 2013 [12 favorites]

Keep in mind that the way to get the most money is to sell your time to the client / employer that is willing to pay the most for it, which may not be the company you currently work for. "Market rate" does not mean the price that everyone who'd like you to work for them is willing to pay. You don't need to "defend" your fees; you need to illustrate that you're still their best option even at the higher rate, and you need a plan B in case they decline to continue working with you.
posted by jon1270 at 10:02 AM on February 11, 2013 [1 favorite]

Where are you located, if you don't mind my asking. In some states it's actually illegal for them to do what they're doing--if they're requiring you to be on-site, but refusing to make you an actual employee. I'm not saying you should blackmail them or anything, just that you can frame it as a trade off for all your time spent on-site.

(I was in your position for a number of years and then my state radically overhauled its policies on ICs, which made negotiating my new contracts far far easier on my end.)
posted by like_a_friend at 10:13 AM on February 11, 2013

Best answer: Ditto the walking away. How long would it take you to find another place that will offer the same volume of work? I'm a long term freelancer, and I'll discount my day rate for a client that can offer months of employment, because time spend looking for work is tine without money earned. You can announce that you're raising your rates, but because this place is an existing client with plenty of hours, you'll discount their rate from $45 an hour to $40. I know that once I raised my rate, I got much better clients.

But if you're in their offices, working their hours, using their equipment, etc.., you might want consider working at home or staggering your time at their office, so that you can do other work and get other clients.
posted by Ideefixe at 10:14 AM on February 11, 2013 [3 favorites]

In some states it's actually illegal

Actually, the distinction is at the federal level. The guidelines are set by the IRS. She and the employer are committing a type of tax fraud and both risk an audit. This is assuming that the poster is in the US (which I'm not sure is correct).

I wouldn't walk away. I'd run away. Even with the increase, you aren't making enough to deal with the fines, taxes, stress, and CPA required during and after an audit.
posted by Houstonian at 10:21 AM on February 11, 2013 [1 favorite]

I recommend you do some reading on negotiation techniques. Your time/skills/work are valuable, and you need to learn how to express that confidently so you can be sure you are getting the best results. One book I like is Women Don't Ask: The High Cost of Avoiding Negotiation--and Positive Strategies for Change by Linda Babcock. It has lots of practical advice on how to enter a negotiation conversation. Also, Slate had a series of podcasts awhile back on negotiation (there's one specifically about salary, but all of them have good tips I think).

On the "essentially an employee without benefits" front, here's the relevant guidance from the IRS.
posted by msbubbaclees at 11:47 AM on February 11, 2013 [2 favorites]

If they are the only company that you work for, and you want to continue working for them, then the conversation you really should be having is about then making you a legitimate full time employee. What you're doing now is not sustainable for the long term, and in all likelihood, you're way past the point of it being legal. Sit down with them and work out a deal for salary, benefits, etc.

On the other hand, if you are a true independent contractor, and you provide the same service to a number of different clients, then you don't really have to say anything other than, "I need to let you know that I'm going to have to raise my rates this year. Starting April 1st, my new rate will be $40/hr." Finish current projects at your current rate, and give them plenty of advance notice so that you don't cause unnecessary budgeting problems. But other than that, there's really no need to explain anything at all. Your rate is what you've decided your time is worth, and the reasons for that decision aren't important to anyone but you. They can choose to hire you or not hire you based on what they've decided your time is worth to them.
posted by spilon at 12:08 PM on February 11, 2013 [4 favorites]

Response by poster: Thank you everyone for your comments and advice, especially MuffinMan for your detailed reply. There is much to think about. Sorry, I'm trying to keep this vague because I don't want to be too identifiable but I work outside of the US, everyone in the company is spread out although it's a US-based company. It makes sense given the nature of our product actually. Also, I work part-time for them from home.

Ideefixe - I'm not sure how it easy it would be for me to find the same volume of work elsewhere. It's complicated because I'm not authorized to work in the country in which I currently live so my search is limited to my network back home and telework sites. But you propose an interesting strategy. Thanks.

Msbubbaclees - thanks for the book recommendations, I'll investigate. Long ago I did a workshop on negotiation for women but clearly I need to practice more.

Once again, thanks so much for taking the time to reply everyone, I appreciate this so much. This is very helpful.
posted by faraasha at 2:46 PM on February 11, 2013

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