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Working Through Agencies

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Independence or Indentured Servitude?

By Tom White

Many contractors get their starts through job shops or employment agencies. But are agencies on the path to independence or just trading one employer for another?

Working through agencies has its pros and cons. Whether an agency contract or two might suit you and fit well with your business plans depends as much on your temperament and your expectations and goals as it does on the agencies you work through and the kinds of assignments you take on.

Pros and cons of working through agencies

On the plus side, agencies have what contractors need-access to clients. Agencies also seem to have a continuously changing variety of interesting and challenging work. Not to be outdone by the companies they serve, some agencies even offer benefits traditionally associated with career employment jobs such as paid vacation, tuition assistance, and 401(k) plans. If you’re short of work, and you’d like to sample different work environments, develop new skills, take on short-term assignments, or you simply prefer working without the hassle of administrative overhead or marketing yourself, then agencies can be a godsend.

On the down side, agencies are, when you look at their basic function, just middlemen. Depending on the agency and your relationship with the agency’s recruiter, your job experience can range from wonderful to discouraging. Although agencies have a lot in common in the way they do business, they differ greatly in their familiarity with the industries and businesses they serve and their understanding of how your skills and experience might fit a job. There is a large turnover in recruiters, and agencies tend to be very hesitant to disclose their business practices. After all, if you knew what clients they were developing and the rates they were paying, why would you use an agency in the first place?

Ultimately, you are a temporary employee working through an agency, a far cry from being a self-employed, independent businessperson. You get paid less than if you contract without an intermediary, and you have to act like an employee, bound by the agency’s policies and protocols. Finally, when your assignment is done, if you haven’t been proactive in motivating your recruiter to be on the lookout to send more work your way, you could find yourself with an unplanned “vacation.”

Access to clients

When you need work, you need work, and sometimes the most direct way to get it is through an agency. Some contractors take the “shotgun” approach. Whenever their contracts wind down, they tune up the ol’ résumé and do an email broadcast to all the agencies in town. This unfocussed and somewhat haphazard tactic can net some good results-especially if you preface your attached résumé with a convincing cover letter and email it directly to a recruiter by name-but it’s not an effective career management maneuver.

Agencies spend a lot of time identifying clients and cultivating working relationships. They position themselves as talent providers, so they have to get to know what their clients do and what kinds of job skills are important to companies. This kind of marketing groundwork is time-consuming. It’s an oversimplification to say that all agencies do is match up clients with staff resources. An agency’s reputation with its clients depends critically on how well it serves client needs by delivering the right people for the job. So, agencies take a big risk when they place a new employee with an established client company. It’s also a juggling act to coordinate staffing needs with staff availability.

If truth be told, though, there is no magic to identifying which companies are likely to be hiring. Agencies often follow up on the same kinds of job leads as the ones pursued by the shrewder contractors. They read the business pages of the newspaper to find out which companies and industries are expanding, and they peruse the want ads to see who’s hiring, what skills are in demand, and what labor needs aren’t being met. They then approach prospective clients to secure a recruiting deal.

If you’re enterprising, you can use this same strategy to find prospective clients and bypass the services of an agency for securing clients. Keep this in mind, though: it takes time and a concerted effort to develop clients. The big value of agencies is they take care of all this marketing work for you.

Variety and challenging work, managing your own career

Let’s face it, if you work for the same clients month-in and month-out, no matter how innovative you might try to be, you’re still going to be working with the same technologies on the same kinds of projects. You have to work really hard not to get pigeonholed.

But working through an agency can be a real résumé builder. You get a veritable smorgasbord of job possibilities to choose from. You can take on assignments that stretch your knowledge about new technologies and introduce you to the latest tools. Being exposed to such varied and challenging opportunities is one of the most compelling reasons for using agencies to help find you work.

Once an agency has inventoried your skill set and gotten to know your work style and preferences, you may be offered assignment after assignment that suits you personally. Once convinced you have the talent and experience their clients need, recruiters will move heaven and earth to get you placed. But getting to this point is sometimes a hit or miss process. It depends on how you and your recruiter work together. If your agency doesn’t return your phone calls and the recruiter is evasive or unresponsive, it’s a sure bet getting good work is going to be a struggle. On the other hand, if you and your recruiter really hit it off and there is a strong mutual regard, the sky is the limit.

Your agency recruiter is not your mother or father or best friend. You cannot be complacent, expecting an agency to direct your career. Recruiters will not look out for you unless you take an active role in directing their focus toward projects that interest you. Despite all the talk about you being the “star” and the recruiter being your “agent,” a recruiter’s most immediate concern is not your career development; it’s getting bodies-hopefully warm, capable ones-to fill the staffing requisitions piling up in the agency’s in-box.

As a free agent, the last thing you want is to be dependent on one agency and one recruiter for your future. So you must be proactive in developing a supportive relationship with many recruiters and different agencies. Work with the ones that work for you and get results.

Negotiating yourself a good deal

One sore point for many contractors is money. It is generally accepted you can make a premium wage working through agencies, but contractors working without an agency intermediary tend to make considerably more.

Agencies typically take anywhere from 10% to 50%, and sometimes more, of the wage rate paid by their clients for your labor. For example, an agency might bill you out at $75 per hour, but you get only $50. The agency is taking a full one-third off the top for the value added of providing you, the labor resource, to their client. For some, these margins seem outlandish. But for every hefty $25 per hour fee the agency sees, there are many $5 or $10 per hour narrower margins to make up for it. Agencies have to cover the costs of administration, recruiting, marketing to clients, developing client relationships, and the risks and backlash of placing employees who don’t work out. Being a middleman might seem lucrative, but it doesn’t always pay.

During negotiations you might find yourself squeezed, pressured by the agency to take a lower rate so you can be “competitive.” This position is only partly true. Chances are the agency already has determined an hourly rate with the client or has one in mind; the lower rate you accept, the higher the margin the agency receives.

When you interview with the client, and it’s clear the client really wants you, this puts you in an enviable bargaining position. At this point you have plenty of leverage because you’re the one the client wants. So, never agree to a rate before going to a client interview if you can help it. Always stave off discussion of what rate you’ll accept until you’ve had a chance to see what the job requires. If pressed, you can always say: “I’m not comfortable bidding in advance until I know what the work entails.” Or say, “My usual rate is in the range of $40 to $60 per hour. It depends on a lot of factors which I don’t know about yet.” These factors could include how much you think you’ll like the work or the company, whether the assignment will lead to better opportunities, whether there are any other tangible or intangible professional or personal benefits, the working hours, the amount of commuting, or if the job allows for telecommuting.

The other problem with money is getting stuck at a low rate. One tech writer, who worked at a chip manufacturing company through an agency, was still making the same rate after 18 months as when he started. Although he complained of being undervalued, he would not insist on a rate increase for fear of being let go. The agency he worked through was clearly taking advantage or him. All of their recruiting and placement costs had long since been recovered. After 18 months he had become an invaluable “cash cow.” If the client likes your work, don’t hesitate to ask for a raise.

Six-month intervals are not too frequent to be considered for more money when working through an agency, particularly in the early years of your career. Working through an agency, you have to be your own advocate. Your relationship is not with the client but with the agency. Given the transitory nature of the work relationships, it is very unlikely you’ll find a benevolent recruiter who will make your best interests a priority.

Hard realities of agency work-non-compete clauses and W-2 status

Typically, when you work through an agency, you are bound by a “non-compete” agreement. Such agreements say that once you discontinue working for a client on the agency’s behalf, you are prohibited from soliciting work from the same client for a period of time, usually six months to two years. This clause, which is legal and enforceable, prevents you from “stealing” an agency’s clients. Without such a clause, nothing would prevent an unscrupulous contractor from telling the client, “I can work for you for a slightly higher rate on my own, without the agency, and it would cost you less if we cut out the middleman.”

If you’re serious about developing business on your own, you can use your stint working for an agency’s client to your advantage. Although you cannot ask the client to hire you back, which would be unethical as well as illegal, you can always ask your client to refer you to colleagues in the same business or industry. You can also get invited to attend functions of professional organizations the client participates in. The idea is to use the time spent with an agency’s client to network and build a foundation for your own independence.

There is a trend, particularly among larger companies, to avoid hiring contractors directly. Corporations want to distance themselves from an employer-employee relationship so they don’t have to worry about payroll taxes. Corporations use agencies to hire and manage temporary labor. They work out “preferred provider” deals with the agencies to pay predetermined margins and funnel all temporary labor through these agencies. This eliminates any arguments about whether you are an employee or independent contractor: you’re an employee of an agency.

When you work through an agency, even if your business is incorporated and you’re an employee of your own corporation, very few agencies will subcontract with your company. Instead, most agencies pay you as an agency employee, on a W-2 status. If you’re a sole proprietor (filing a Schedule C with your taxes), some agencies will allow you to keep your business name and identity and pay you as an independent contractor, or 1099 status. But this arrangement is getting increasingly rare, especially when the agency’s client is one of the larger corporations.

Employee or independent?

To work through an agency or not work through an agency-that is the question. If your motivation in cutting loose from your last job is to be your own boss, then finding work through agencies would seem to defeat the purpose of becoming independent. When you think about it, you can substitute “client” for “boss” and it wouldn’t matter much how you work or for whom. As Bob Dylan says, “you’re gonna have to serve somebody.” Independence can be a state of mind and maybe just a matter of degree. So, semantics aside, the question really comes down to what you expect or need from an agency.

If you’re well of clients has dried up, you don’t mind working in a W-2 temporary employment status, you’re determined to work continuously without employment gaps, and you want challenge and variety in the work you do, look for reputable agencies and get their recruiters to go to bat for you. Use agencies for what they’re good at-finding you work, but don’t expect them to manage your career for you. If you want all the advantages of working through agencies, and the independent contractor route offers more uncertainty than you’re comfortable with, consider using agencies to get experience and sample companies with an eye toward finding a suitable permanent employment position.

But if you want to be independent, resent paying a middleman, and prefer to develop your own clients, then agencies will not get you where you want to go. In a pinch, you can work through an agency, finish the assignment, and part company the best of friends. But the ubiquitous non-compete clause will always come between you. At the end of the assignment, you can walk away with your wages but the agency holds all the profits.

Thomas J. White, president of Metamorphix Consulting, Inc., has worked as a project engineer and technical communicator for 23 years. Since 1989, he has worked as a technical writer and communications consultant for Portland-area high-tech companies, electric utilities, and nonprofit and government agencies. Tom is a senior member of the STC and has served the Willamette Valley Chapter, volunteering as the employment information manager, salary survey analyst, and presenter at the chapter’s frequent “Getting Started in Technical Communications” seminars.

Reprinted with permission from The Independent Beacon. Copyright Š 2001 by Metamorphix Consulting, Inc. All rights reserved. The Independent Beacon is a monthly newsletter for independents who work in technical and business communications. For more information about this newsletter check out the Web site at http://ww.independentbeacon.com/ or contact Tom at tom@independentbeacon.com.