How IT workers get conned out of an honest wage through secrecy
A friend recently asked me to pass along information about a job opening for a project manager position at a local tech company. It’s a vendor position, meaning that an agency would hire you full time, then loan you out to a tech company, such as Microsoft, Amazon, and Google, to work for them on-site. You’d be a full-time W-2 employee of the vendor agency rather than an employee of the tech company itself.
The tech company pays the agency an hourly rate, called the client bill rate. You, the worker, have your own hourly rate with the agency. Here’s the tricky part: the vendor agency is under no obligation to tell you how much their client bill rate is. If you’ve signed a nondisclosure agreement with your agency and the on-site company, you will have no idea what your time is actually worth.
In general, tech client bill rates are at least $70 an hour. A contractor on a 1099 would receive this full amount, and then pay their own employment taxes—perhaps 40% of the total—leaving them with $60/hour if their bill rate was $100 (which is a common amount for a web developer or designer of medium skills and 5 years’ experience). However, when contractor operates through a vendor agency, she becomes a vendor, and is instead paid a W-2 paycheck based not on her client bill rate, but on her hourly pay rate with the agency.
Think of it this way: a fair bill rate for a senior developer with specialized skills and experience might be $250/hour. Taking $75 an hour of that is a 30% charge and results in $175/hour for this highly-skilled worker who is now thrilled and happy with the agency. What actually happens most of the time is something like this: the agency tells the dev that they can only get $80 an hour for their skills and then they pocket the remaining $170 as a 68% charge. And individual recruiters are incentivized to maximize the difference between the client bill rate and the vendor hourly rate—because that’s where their commissions come in. Add to that the nondisclosure, and you should be realizing now in a way you never did before: if you are working for a vendor agency that does not disclose their client bill rate, you are not your recruiter’s client or partner. You’re their product.
Tech contracting is how the tech industry gets around labor laws. Now, because tech workers are paid so much, there is little public outrage on their behalf when labor laws are skirted, ignored, or outright violated. This is a problem. Tech contracting means that the tech company can work contractors for 80 hours a week or more with total impunity, so long as they pay the agency for the vendors’ time. Then the vendor agency merely pays whatever hourly wage they have settled on with the vendor. This system, which is manipulative in its own right, also sees many common abuses, such as having a limited amount of hours that you can work your contractors each week but asking them to do work off the books or off site to “make sure this contract stays open at renewal time,” or asking them to double their hours one week and work nothing the next, while being paid as if they were working a regular amount on a weekly basis.
To make matters worse, many major companies with brand-name recognition work with only a few “preferred vendor agencies,” meaning that to take a contract position at a major company and get a feather in your cap, you must agree to work for a preferred agency, and risk being in the dark about your true value to the company. My first position at a major brand-name tech company (and let’s put it this way: I live on the Eastside in the Seattle area) was as a lead web developer. This company had a great deal of money after laying off many full-time staff to replace them with contractors who do not have to be paid benefits. Many of the contractors had previously been full-time employees of the company in question. I cannot reveal my exact rate, but let us assume that I was paid between $40-$45/hour. I found out later that my time was being billed to the company at between $110-$140. It’s very common for people with no expertise in negotiation to take the first rate offered to them, leading to an even lower rate for women and minorities than they would have had—and this difference is exacerbated by the conspiracy of secrecy around their actual value. When told that they’re not worth a higher rate, the women and minorities tend to believe it and accept the amount offered—and while in full-time employment you could never tell someone that they’re not worth the amount they ask for, a vendor agency can do so with total impunity because they’re negotiating on behalf of two parties.
That is correct: your eyes do not deceive you. The company doing nothing more than signing my paperwork as a preferred vendor agency and passing along my employment taxes to the state (about $15 an hour, at my bill rate) was making two and a half times what I was. I received no benefits, no health care, no paid time off, and no overtime extra pay—only the money I was paid hourly.
Let’s add to this the fact that tech is actually a very small world, and the existence of blacklists for tech workers who have caused problems in their contracts is real. If you’re put on ‘the list’ at a major tech company, you can expect that other tech companies will refuse to consider you for employment. Similar to pursuing a discrimination suit at a major law firm—you can absolutely expect that you will never be hired to work for a large firm again. To stand up for yourself means to have only one option: to start your own firm and declare victory. There’s a good reason that top-level minority and female contractors leave high-paying contract gigs to build their own startups and companies. When you work on-site at a tech company but do not work FOR that tech company, any discrimination or harassment issues you may face are your tough luck. You don’t actually work FOR that company, so you can only sue your vendor agency if you have issues—and why would you do that? You weren’t harassed or discriminated against by your direct superior, so how do you prove a hostile work environment in a company you don’t technically work for?
Here’s the punchline: I never negotiated with the large tech company I worked for. In that first position, I was treated well, by people who themselves had no idea what my bill rate and hourly wage were. I had to negotiate with the vendor agency for my wages. As a result, the vendor agency was incentivized to lie to me with every breath (in fact, I signed paperwork saying that the vendor agency wasn’t obligated to be open with me about my bill rate, without necessarily understanding that this meant they could and would lie outright to me about my worth). I was told: “this is the way it is if you want that position at XXX Co.” I had no reason to doubt that, because I didn’t yet know of the existence of full disclosure vendor agencies.
Let’s be clear: vendor agencies serve a great purpose. In tech, investing in an employee is time-consuming and resource-intensive. If you become an employee at a tech company, it’s likely that they see a future for you there with multiple roles and an upward trajectory. However, there are a lot of positions in major tech companies that are by their nature temporary. If you have a project that must be executed in Python to work with one of your company’s client’s interfaces, and your company only has a bench full of C++ programmers, you have a short-term job that means you should hire a contractor. Think of it this way: you don’t invite the people who remodel your kitchen to stick around in case you need them again in a few years. They possess a specialized skill that you need on a temporary basis, and you pay them well to come in, do their job, and leave when they’re done, without any feeling of long-term obligation to them.
To extend the analogy, however, imagine that you have hired a construction firm that sends a three-person crew to your house, and you discover that though you are paying the company for the hours spent by that crew in your home at the rate of $60/hour per person, each of the workers themselves only make $11/hour—the minimum wage in the state of Washington. Worse, they have no idea how much you are paying for their time, can be fired for asking, and cannot share their information with any of their colleagues.
All of a sudden, your conscience starts to twinge. Why is it that the best construction business in town won’t share its rates with its own employees? Why not be honest about what you are paying for these services? It doesn’t change the amount itself. All it does is empower the worker to choose an agency that treats them with respect and transparency.
This is why I do not pass along information on jobs from vendor and contracting agencies that will not disclose their client bill rate. If you’re a vendor agency, it is understandable and appropriate to charge anywhere between 15-40% of the client bill rate for your services. After all, you’re handling employment taxes, W-2s, accounting, paperwork, direct deposit, and possibly benefits as desired. You should be making a good profit on your service to both parties. Taking 85% of the client bill rate and leaving scraps for the actual worker, all the while hiding behind a non-disclosure agreement, is simply morally indefensible.
You should refuse to work for agencies that do not disclose, and I pledge now that if I am in a position to engage a contract or vendor agency to fill open positions for my company, I will not work with one that does not disclose my rate to their developers.
Look, it’s easy to lack sympathy for people who make sixty bucks an hour sitting in a chair. Realize, however, that these folks work hard, many have student loans that they took out to get their specialized training, and even more have families they support. Just because the amount of money they make is more than a construction worker does not mean they’re not facing the same kind, if not degree, of injustice.
If this article makes you angry (and I hope it does), please use the comments section to make your own pledge about refusing to hire vendor or contract agencies who use NDAs.