Time for renewing IT contractors to raise their rates

With predictions of pay rate hikes for IT contractors and the latest Recruitment & Employment Confederation report showing demand for temporary IT skills to be at its highest level for more than two years – the IT contracting space is certainly thriving.

And having seen a period of IT contractor pay dips during the economic downturn, it’s perhaps fair to say that many contractors are now at a stage where rate rises upon renewal are on the cards, writes Michael Bennett, director of ReThink Recruitment.

But as an IT contractor, how do you successfully negotiate a better rate while maintaining a positive relationship with the end-user? Even if clients are “beginning to invest” in talent using cash they’ve built up in the downturn, as the REC report found, why should some of it be apportioned to you, in this still-nascent recovery?

Timing is everything

Perhaps the most important thing to consider is when to broach the subject. Pushing for an IT contract rate rise – even just discussing it - a few days before your current contract comes to an end is pointless. It’s not only highly unlikely that you will be rewarded a rise so close to renewal, but by providing the client with a short time to either make a decision or find an alternative, there’s the potential to damage a good relationship.

Instead, renewal terms and rates should be discussed four to six weeks in advance. This allows for considerations to be made, budgets to be adjusted, possible negotiations and provides you with adequate time to line up your next opportunity if necessary.

It’s also important to consider how long you have been working in the current contract when you are taking this step. If, for example, you have worked for 12 months, you’ll be in a stronger position to discuss higher fees in line with inflation. A shorter assignment will be much more difficult to negotiate and will require greater thought to justify an increase.

Use your agency

Negotiating a pay rate rise as an IT contractor is a strictly professional discussion that requires emotional detachment - something that can be difficult when you have developed a working relationship with the decision maker(s). As such, it can be highly valuable to use your agency to work out an increase with the client. This serves as a barrier between yourself and the end-user in terms of any potential negative feelings. The client will expect a recruiter to negotiate a higher rate for their contractors when they reach renewal time and although they are acting in your name, the perception is that the agency is the one after the raise, not you.

If, however, you are a direct-to-client contractor or use an umbrella company, I would advise that a similar approach is expected of the agency at IT contract renewal. Always maintain a professional air and ensure there are no personal or emotional factors raised. Treat it as you would an initial meeting where you are pitching your skills and seeking to add value to the organisation.

Build the case

Negotiating a rate rise yourself or through an agency is very much like a sales pitch; you have to be able to support any investment you’re asking the client to make. It’s therefore important that you build the case for a possible increase.

Do your research into current rates and compare them with your existing contract. Use your network to gauge a clear idea on the current market and where it’s going. If you’re rate is lower than the average in you specialist arena you will obviously be in a good position to negotiate. If, however, this is not the case, consider the other factors that could play in your favour. The latest REC figures highlighting the increase in demand for IT contractors, for example, will provide you with third-party statistics that justify why the client should pay competitive prices for specialist talent.

Look at your development over the last year as well; what IT training or courses have you undertaken? If you have advanced your skills for the benefit of the client during the contract this could stand you in good stead. For example, undertaking a PRINCE 2 project management training course fully funded by you would be a great demonstration of the added skills now available to the organisation.

Consider as well how your role has changed during your IT contract. Are there greater responsibilities you are now in charge of or, are there other areas in the business where your input could be valuable? If the answer is yes, work this into your negotiations. After all, a different role will require a different rate.

Know your options

Finally, any good contractor will always have their ear to the ground for other opportunities. And as you reach the end of an assignment it’s important to really know what else is available for you. Be clear as to your options and consider these in your decision. If there are other opportunities that could further improve your portfolio or that provide a higher rate, factor these into your negotiations.

It’s never easy to negotiate a rate rise, but as the market continues to pick up and the demand for IT contractors grows, you shouldn’t be afraid to ask for more money. The economy has been tough in recent years, but it is clearly picking up for this specialist group, so now is the time to start clawing back the rates that have previously dropped. By following the advice above, individuals will be in a good position to negotiate the right rate for their niche skills.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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