July 25, 2011

Understand contractor compensation before accepting the role

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Congratulations! You've received an offer from a Microsoft vendor. Before you accept, consider two important decisions. First, be careful before signing a non-compete agreement, and second, don't take the first compensation offer.

In my last column, I described the basic differences between Microsoft's agency temp (referred to as A-- and pronounced "ay-dash") and vendor positions, which are called V-- or "vee-dash." Other companies such as Expedia have implemented very similar practices, although the mandatory break in employment for an A-- contractor at Expedia is only 60 days compared to Microsoft's 100 days.

Many Microsoft vendors, such as Volt, try to get their new hires to sign a non-compete agreement to restrict you from working with another Microsoft vendor within a typical range of six to 18 months. Most candidates, excited about their new offer, don't read the fine print and sign such contracts. While it's questionable whether such non-competes are enforceable in Washington state, they make you a less desirable applicant when you try to find new contract opportunities at other Microsoft vendors.

As with any contract, you don't have to accept the default agreement. Vendors will play the "it's part of everyone's agreement and we can't change it" card, but you can negotiate this. I always counsel my clients to tell vendors they won't accept the agreement unless the non-compete clause is removed. In each instance, vendors have removed those clauses. The key takeaway is that you have to ask for it to be removed, or it will haunt you later.

As for the salary, this is where it gets shocking. Most vendors try to offer the lowest possible hourly rate they can get away with, and most desperate job seekers accept the offer for fear of losing out on the opportunity. A typical vendor, for example, would bill a program-manager position at $80 and try to pay you $40 or less. The lower the vendor pays you, the more they get to keep.

One of my former Microsoft colleagues, who had a master's degree from a top computer-engineering university, was being paid $19 an hour, while other technicians with lesser qualifications were being billed for $33, simply because my colleague had failed to negotiate his salary.

Microsoft vendors typically have three compensation packages:

Package A: Lowest hourly rate, but full benefits (medical and dental, with vision in some cases), holiday pay, vacation and a retirement plan. Since many vendors require you to work a full year before qualifying for holiday or vacation pay, shorter three- or six-month contracts would exclude you from such benefits, so don't pick this package in those instances.

Package B: Medium hourly rate, but with some benefits (medical and dental, with vision in some cases.) Holiday, sick pay and vacation pay aren't included in this package. If you want a higher hourly rate with some benefits, this could be a good choice.

Package C: Highest hourly rate with no benefits. This is a good choice if you have insurance coverage through a working partner.

For example, the rate could be $35 an hour with full benefits, $40 an hour with some benefits or and $45 with no benefits. That $10 per hour difference could translate to more than $20K annually, more if you work overtime.

Microsoft vendors typically have a 30-percent to 150-percent margin on rates, meaning that they can generally pay you more than they initially offer you. When a typical candidate asks for more money, vendors may say that they would have to go back to the Microsoft hiring manager to ask for more money, which won't look good for you. This is a scare tactic to discourage you from asking for more money.

In one instance, a client of mine was offered $50 an hour. We asked for a rate near $75 an hour, and they said the highest they could pay would be $62 hour. One email resulted in a $12 an hour increase in pay. Not everyone will be successful negotiating rates that high; however, everyone should be able to get between $3 and $6 an hour extra without having any negotiation training. Annually, that would translate to $6,000 to $12,000 extra, a significant amount for most professionals.

Talk to current or recently departed contractors in similar roles about their rates to use as a base to start your salary negotiation. Remember, they'll likely use scare tactics to retain as much profit as possible.

Paul Anderson of ProLango helps professionals in transition find their desired employment.

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contract work, Microsoft, negotiating, salary, technology

8 Comments

jenne4 on July 26, 2011 4:41 PM | Reply

Thank you! Very informative!

Duane Damen on August 1, 2011 2:19 PM | Reply

Pardon my ignorance, but what exactly is a Microsoft vendor. Your article takes it for granted that everyone knows what this job is. Inever heard of it. Are they an outside indeopendent company that sells thigjs like MIcrosoft Windows 7?

Paul Anderson on August 2, 2011 1:57 PM | Reply

Duane,

Great question. A Microsoft vendor (in this context) is a company that's authorized and approved to do business with Microsoft - especially from a staffing perspective.

Many times Microsoft needs to hire a temporary employee or needs help with a specific project and in those cases it goes to it's vendors for help. Those vendors in return recruit professionals from the job market for specific projects.

Best,
Paul

Betty on August 3, 2011 1:19 PM | Reply

Thanks for sharing Paul.... When I was offered a contract at Microsoft, I was searching high and low for an article like this. Only to learn some lessons later... especially on the salary part.

Bill K on August 3, 2011 3:21 PM | Reply

Thanks for the timely article. I had to grin as I got a call regarding a contract position at Microsoft as I was reading this.

I've had similar experiences recently with calls about positions at T-Mobil too. I've found they are more willing to negotiate when the positions are harder to fill, (ie, more specialized), when the positions are open to multiple recruiters, when the contract period is longer, and as the position closing date approaches.

Of course, it's easier to negociate when the you're working with someone who speaks good English. I've had a few folks with such thick India accents that I had to do it by email or simply say 'no'.

Sure am glad to see these opportunities increasing however...so thankful that we have some strong tech companies locally in this economy.

Kevin on August 4, 2011 9:38 AM | Reply

Good information. Thanks.

On my last contract, Volt tried to bully me into signing 120-day non-compete. I refused but agreed to a 30-day period. I was told Microsoft requires an A-- to take a 30-day break so they can't jump from vendor to vendor for the same position.

Luke on August 14, 2011 11:38 AM | Reply

great info Paul.

I'm going back to Microsoft after 100 day break. I was through volt and did signed a 120 days non-compete agreement. Program manager at Microsoft told me that I can go through any of their approved vendor. Can I go through any vendor, will volt take any action?

Also what are some of the good approved vendors for Microsoft?

Thanks,
Luke

Mitch on November 9, 2012 10:34 AM | Reply

If I accept a job through a vendor at Microsoft, so I need a business license? I would be considered an independent contractor.

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