Retention of contractors - advice needed!

[MrsF]

Hi there,

I'm after a little bit of advice. I'm a recruiter of limited company contractors and am currently working with one of my key clients who needs a high volume of resource for a long term project. His biggest concern is contractor retention as the project is likely to last 12-18 mths. He's just made an offer to one of my candidates with the inclusion of a 'retention clause' - how he envisages it working is that instead of paying my contractor £1000 a day he will only pay £800 and withhold the other £200 to be paid once the 12 month contract is completed.

I've not come across this before - retention bonus yes but a non-retention penalty? - and my contractor is obviously a little bemused about how this benefits him at all and I must admit that I'm struggling to try to put any positive spin on this for him as it purely seems to benefit the client - that's one issue I'm trying to resolve! The other issue I have, and this is the one I'm really looking for advice on, is how we would word this in a contract? Surely we would need to account for possible scenarios whereby the contractor had to terminate the contract early through no fault of his own and would therefore still be eligible for the retention payment to be made?

Just to reassure you, my concerns do not stem from an revenue driven agency perspective, my concerns are around ensuring that my contractor completely understand the implications of this offer and is fully covered in the event that he does decide to terminate the contract early.

Thanks in advance!

[Brussels Slumdog]

Don't like the word retention

Hi there,

I'm after a little bit of advice. I'm a recruiter of limited company contractors and am currently working with one of my key clients who needs a high volume of resource for a long term project. His biggest concern is contractor retention as the project is likely to last 12-18 mths. He's just made an offer to one of my candidates with the inclusion of a 'retention clause' - how he envisages it working is that instead of paying my contractor £1000 a day he will only pay £800 and withhold the other £200 to be paid once the 12 month contract is completed.

I've not come across this before - retention bonus yes but a non-retention penalty? - and my contractor is obviously a little bemused about how this benefits him at all and I must admit that I'm struggling to try to put any positive spin on this for him as it purely seems to benefit the client - that's one issue I'm trying to resolve! The other issue I have, and this is the one I'm really looking for advice on, is how we would word this in a contract? Surely we would need to account for possible scenarios whereby the contractor had to terminate the contract early through no fault of his own and would therefore still be eligible for the retention payment to be made?

Just to reassure you, my concerns do not stem from an revenue driven agency perspective, my concerns are around ensuring that my contractor completely understand the implications of this offer and is fully covered in the event that he does decide to terminate the contract early.

Thanks in advance!

I would accept £800 a day and lump sum completion of contract amount
If I quit I get nothing. If the client dumps the project I get a proportional amount after 6 months

[northernladuk]

I would also be happy to take retention type clauses but they would have to meet two important criteria for me.

1) They are a reasonable length of time. IMO a year is too long for a contractor. Our industry just does not work like this. Remember if they then gets an extention for another year it puts them over 24 months which is really bad news. Retention period yes but do not make it so long it puts the contractors in a situation where IR35 and other HMRC issues start to appear. Maybe 3 or 6 month chunks

2) The overall rate for a role with this clause for me would have to be higher than one without it. I am accepting a risk that I cannot complete the contract for a totally innocent reason and would get very heavily penalised for this. For this risk and commitment I would expect a better rate than a like for like rolling 3 monther in which I have plenty of flexibility.

The idea is you are rewarding commitment not blackmailing them to stay. It is a very fine line.

The market is not good for contractors at the moment but I don't think it is that bad we need to make do and take contracts very heavily weighed against us. Making this contract look bad means you will get bad people and if you don't play fair they won't play fair and it will come back and bite you. An example that comes to mind is a certain bank in the north putting out some pretty ridiculous rates and many contractors see it as a stop gap and make no bones about the fact they will walk the second a decent rate comes up. The bank thinks it is being clever saving money but infact is losing twice as much having to re-fill roles and losing the skill base.

[BolshieBastard]

Hi there,

I'm after a little bit of advice. I'm a recruiter of limited company contractors and am currently working with one of my key clients who needs a high volume of resource for a long term project. His biggest concern is contractor retention as the project is likely to last 12-18 mths. He's just made an offer to one of my candidates with the inclusion of a 'retention clause' - how he envisages it working is that instead of paying my contractor £1000 a day he will only pay £800 and withhold the other £200 to be paid once the 12 month contract is completed.

I've not come across this before - retention bonus yes but a non-retention penalty? - and my contractor is obviously a little bemused about how this benefits him at all and I must admit that I'm struggling to try to put any positive spin on this for him as it purely seems to benefit the client - that's one issue I'm trying to resolve! The other issue I have, and this is the one I'm really looking for advice on, is how we would word this in a contract? Surely we would need to account for possible scenarios whereby the contractor had to terminate the contract early through no fault of his own and would therefore still be eligible for the retention payment to be made?

Just to reassure you, my concerns do not stem from an revenue driven agency perspective, my concerns are around ensuring that my contractor completely understand the implications of this offer and is fully covered in the event that he does decide to terminate the contract early.

Thanks in advance!

Nothing new! I worked on a contract in 2001 where a bit of the rate was witheld. Has to be an exceptional rate for this to work mind.

If people are happy with it, dont see a problem.

[Olly]

Remember if they then gets an extention for another year it puts them over 24 months which is really bad news. Retention period yes but do not make it so long it puts the contractors in a situation where IR35 and other HMRC issues start to appear.

Duff advice.... first the OP said it was an 18 monther. Second, on a grand a day, expenses may not be a big proportion of turnover. Third, contract length has NO, NOTHING, NONE relevance w.r.t. IR35, no idea what other 'issues' you might be thinking.

OP, a completion bonus, rather than retention of a proportion of day rate, even though they're essentially the same thing, sounds like a good idea. What's in it for the contractor? A contract, because if they won't go for the term then there may well be someone who will.

P.S. Is it really a grand a day? I'll do it for 800 and the client can keep the change

[northernladuk]

Duff advice.... first the OP said it was an 18 monther. Second, on a grand a day, expenses may not be a big proportion of turnover. Third, contract length has NO, NOTHING, NONE relevance w.r.t. IR35, no idea what other 'issues' you might be thinking.

Not duff advice..

The OP mentions 12 TO 18 months and then says 'paid once the 12 month contract is complete'. The OP does not mention that there is no extenstion or further work here. It is a factor to consider.

Expenses MAY not but a factor but they MAY ALSO be. You cannot call it duff advice on an assumption when it is a valid factor to consider.

'Issues' was still on the thought of the 24 month rule and others I may not be aware of. To be fair I will hold my hand up as I have never been in the situation so just trying to cover all bases to make the point that IMO a 12 month retention seems a very long one and will have to be worthwhile to the contractor above just witholding pay.

[Sysman]

Nothing new! I worked on a contract in 2001 where a bit of the rate was witheld. Has to be an exceptional rate for this to work mind.

If people are happy with it, dont see a problem.

I did this in the 1980s, and yes, it was an exceptionally high rate. I had no problem at all with it, although it was called a completion bonus.

The job was in such a boring location (middle of nowhere) that the completion bonus was a real incentive to stick the contract out to the end.

[lje]

I think there needs to be a bit of give and take here. If the rate is normally £1000 a day then the client could pay £900 a day but give a bonus of £200 a day if the contractor completes their 12 months. That way both parties are taking a risk and there is benefit to the contractor of staying longer.

Some people have said that the retention bonus should be for a shorter length of time but I disagree. If the client wants 12 months then that is what should be incentivised. The contractor is getting a bonus for not excercising their flexibility.

It is important though that if the client asks the contractor to leave then they should pay the proportionate bonus. Otherwise there would be great benefit in the client asking the contractor to leave just before the 12 months are completed.

[thunderlizard]

instead of paying my contractor £1000 a day he will only pay £800 and withhold the other £200 to be paid once the 12 month contract is completed.

I've not come across this before - retention bonus yes but a non-retention penalty?

I think that situation actually is a retention bonus of £200/h, since the customer will keep it unless the conditions are met, in which case it's paid. A penalty would be if the contractor was paid up front and had to refund the customer. But you can call it either, depending on how you look at it.

my contractor is obviously a little bemused about how this benefits him at all and I must admit that I'm struggling to try to put any positive spin on this for him

He benefits by getting £1000/day or £800/day. That's all. He is a supplier making a sale to you. You are not making a sale to him. You do not have to spin anything to him.

how we would word this in a contract?

That is for your legal people to decide. It is a slightly odd scenario because usually contracts carry a penalty for completing the job behind schedule, but you want a penalty if they complete it ahead of schedule. But they should be able to deal with it.

Surely we would need to account for possible scenarios whereby the contractor had to terminate the contract early through no fault of his own and would therefore still be eligible for the retention payment to be made?

I don't think so. What would those scenarios be? Contractor companies are businesses, and can be expected to have appropriate contingencies in place. It looks like you're introducing some kind of moral dimension, where breach of contract is to be treated either with a penalty or a pat on the head depending on personal motivation. e.g. my phone contract with BT says I get compensation for every day the line is down, and there's no exclusion for if the engineer's dog died.

[Wanderer]

I've not come across this before - retention bonus yes but a non-retention penalty?

You need to spin it the right way:

The rate is 800 a day with a 200 day bonus at the end of the contract. -> Boomed! A bonus at the end of the contract!
The rate is 1000 a day with 200 a day withheld until the end of the contract. -> Doomed! They are holding back some of my money!