Reply to: Agency withholding percentage of money.

[jmo21]

A friend had an agency ring him up about a role; he was told there had been a high turnover of contractors at the client, mostly leaving early therefore the agency would withhold 10% of invoiced money which would then be paid upon completion of the contract.

Regardless of the ethics of the 10% withholding (I don't agree it's unethical btw), that is enough of a red flag in and of itself

[LondonManc]

I think this all depends on your perspective.

If you would normally expect to earn £500 a day for a gig like this and they offer £500 with a 10% withholding (ie you get £450 a day with the remainder held till end of contract) then it's a BAD deal commercially for you.

If they offer to pay you 700 per day with £70 withholding (ie you are taking home £630/day guaranteed) then it looks like a good deal that rewards you for taking something that sounds like hard work and gives you an incentive to stay and finish the deliverable.

As a previous poster mentioned it is the way things are shifting at the 'professional' end of the market. I've been at places where the client has driven such a 'terminal bonus' when they were scared of people leaving before a major deliverable. It is also very common for bigger (and not so big) consultancies to have some kind of 'gain share' or risk/reward commercial agreement.

The one thing I would insist on in such a situation is that the end client is the one driving this and that their contract with the agency includes either a withholding or a clawback arrangement. That way you have assurance its not an agency scam. (Not sure what that does to IR35 status).

I do suspect this kind of arrangement is where higher end contractors (ie with very specific skills and experience) will need to go in the future so that clients feel they have some shared risk. I can, however, see a lot of things that could go wrong with such arrangements and, as they are not currently common, there will be a lot of horror stories posted here over the next 10 years.

The one thing I would add is that, based on what the OP stated, I don't see anything unethical about the proposed arrangement. But the devil will be in the details (ie, rate, detailed description of services to be provided, termination conditions, length of time before you get the terminal payment, etc.). Do your homework and negotiate hard and you could be on to a winner.

With people jumping ship for better rates, it can be client-led.

It may also be agency-led, with the client having a poor interview process or poor working environment, leading to either bad contractors being found out a few months in or good contractors walking because they're, say, getting pushed into IR35 despite what the contract claims.

Either way, I'd up my base rate, credit-check the agency and client and go in with a small dose of paranoia.

[Anonimouse]

The Olympic project was like this, they wanted everybody to stay till end date, problem was due to the clause they struggled to get anyone to start.

[TheGreenBastard]

Me neither and it's really poor but it's hardly unethical which was my point really.

Unless the agency is selling a dud, which happens routinely and is unethical.

[handyandy]

I think this all depends on your perspective.

If you would normally expect to earn £500 a day for a gig like this and they offer £500 with a 10% withholding (ie you get £450 a day with the remainder held till end of contract) then it's a BAD deal commercially for you.

If they offer to pay you 700 per day with £70 withholding (ie you are taking home £630/day guaranteed) then it looks like a good deal that rewards you for taking something that sounds like hard work and gives you an incentive to stay and finish the deliverable.

As a previous poster mentioned it is the way things are shifting at the 'professional' end of the market. I've been at places where the client has driven such a 'terminal bonus' when they were scared of people leaving before a major deliverable. It is also very common for bigger (and not so big) consultancies to have some kind of 'gain share' or risk/reward commercial agreement.

The one thing I would insist on in such a situation is that the end client is the one driving this and that their contract with the agency includes either a withholding or a clawback arrangement. That way you have assurance its not an agency scam. (Not sure what that does to IR35 status).

I do suspect this kind of arrangement is where higher end contractors (ie with very specific skills and experience) will need to go in the future so that clients feel they have some shared risk. I can, however, see a lot of things that could go wrong with such arrangements and, as they are not currently common, there will be a lot of horror stories posted here over the next 10 years.

The one thing I would add is that, based on what the OP stated, I don't see anything unethical about the proposed arrangement. But the devil will be in the details (ie, rate, detailed description of services to be provided, termination conditions, length of time before you get the terminal payment, etc.). Do your homework and negotiate hard and you could be on to a winner.

[BlackCountryContractor]

One thing I found why agencies hold back percentages is also due to finances, contractors who do their homework (through sites such as company house, endole etc) checking to see if agencies are in the black financially can be mislead if agencies are trying to cover up bad accounting (which we have seen in the past of contractors not been paid due to scams or agencies going bust).

[WordIsBond]

There's nothing unethical about it.

But it does shift risk to the contractor so I'd want to be paid something for that risk. If they are going to hold back 10% I'm going to want that final payment to be more than 10% to compensate for lost interest as well as the risk that I never get it.

One risk is that the agency is in trouble and they are doing this to cover their own financial messes, and that you'll never get that final payment. I'd certainly want to have IPSE+, I think they cover things like that, don't they?

[northernladuk]

adding some genuine financial risk to the contractor if they fail to deliver. Isn't that a nice fat juicy outside IR35 tick?

Not fat enough to make it worth losing a big chuck of income should have to rely on your notice period.

[Lance]

adding some genuine financial risk to the contractor if they fail to deliver. Isn't that a nice fat juicy outside IR35 tick?

[northernladuk]

I've genuinely never seen it before tbh.

If the agency were any good, they'd work with the end client to a) discover why contractors were leaving early and b) come up with an approach to make client more contractor friendly. Win-win for both long term.

Me neither and it's really poor but it's hardly unethical which was my point really.

[perplexed]

It's business and happens in other areas, not just business. It's shaping the future from the past learnings. I think we call it CSI

Still crap though.

I've genuinely never seen it before tbh.

If the agency were any good, they'd work with the end client to a) discover why contractors were leaving early and b) come up with an approach to make client more contractor friendly. Win-win for both long term.

[northernladuk]

I've never seen or encountered this scenario personally. Potentially penalising a contractor for the actions of previous contractors certainly strikes me as a tad unethical.

It's business and happens in other areas, not just business. It's shaping the future from the past learnings. I think we call it CSI

Still crap though.

[perplexed]

Make sure you tell him to add 15% to his rate to cover the extra risk of the client being difficult in case he leaves early.

Cheeky 10% bounes on completion.

Like the thinking but I'd have suggested 25%.

[perplexed]

Why do you think it is unethical?

There are many valid reasons for contractors to leave. Two instant examples would be family circumstances meaning contractor unable to fulfill contract with potential substitutes unavailable; also, contractor can easily find what was billed for the role isn't exactly what the gig really is.

Now, if a significant number of contractors have left then that indicates to me that there are possibly negatives with the client - how contractors are handled, maybe permies hostile, etc. Holding 10% of invoicable income for say 6 months is a fair bit of cash to wait for - cynical me would say it gathers the agency interest in the meantime.

I've never seen or encountered this scenario personally. Potentially penalising a contractor for the actions of previous contractors certainly strikes me as a tad unethical.

[BlueSharp]

Make sure you tell him to add 15% to his rate to cover the extra risk of the client being difficult in case he leaves early.

Cheeky 10% bounes on completion.