Should Contractors use an Agency?
Let us compare the merits of using an agency or working direct.
A growing number of contractors prefer to work directly with clients. This is especially so if the contractor is experienced and enjoys a network of referrals or has repeated contracts with the same business client.
However, other contractors prefer the comfort of working via an agency. Individuals who are new to contracting may need an agency to help them find initial placements and use the ancillary services on offer such as agreeing contract terms and rates of pay.
If you work directly with a client, you will be entirely accountable for the relationship. This should mean increased work, increased responsibility, and increased income – plus you and your clients will be free from the obligation to pay agency fees.
Agency fees can be harsh – an annual fee payable by the contractor and a commission of the rates paid by the client. Both parties feel the benefit of the absence of these charges.
Some facts: agency or direct?
In 2018 IPSE revealed that just over 52% of contractors used an agency, with the remainder being direct or though some other introduction (including their own umbrella companies).
Often, agencies have a large client portfolio providing contacts and immediate starts. This no doubt goes to explain why over half of the contractors use them.
IPSE does advise though that social media and the introduction of increased communication between clients and contractors has seen the number of contractors preferring a direct relationship increase.
Contractors who are just starting out tend to prefer the organisation of an agency as it seems to be easier to get work and especially helps those unsure of procedure. The agency will help in the admin and collection of fees. The direct contractor may have to suffer delays in payments which is rarely seen where an agency is involved.
However, the experienced contractor is more confident in selling their services directly and is likely to have built up a portfolio of contacts which is easy to deal with.
It is fair to say that a lot of contractors will make the best of both worlds in that they will be on an agents’ books but also deal with some clients directly.
However – does the agency really look after the contractor?
An agency charges both parties. The contractor pays an annual fee to be on the books and for the CV to be circulated to clients, for a placement to be found with terms and rates agreed.
The agency then marks up the contractor’s pay rates charged to the client by up to 20/25%. This mark-up represents the agency’s commission.
If one party expresses dissatisfaction with the other, it cannot take sides. If there is a dispute, who is the agency really working for?
Furthermore, an agency may well tie the contractor using ‘handcuff’ clauses. Such a clause prevents the contractor and client doing business together in the agency’s absence for a period after the contract has expired.
These periods are often up to 12 months following the contract end and are wholly designed to maintain the ongoing payment of commission. In reality of course, any extension or fresh contract will be by reason of the contractor and client impressing each other – should the agency be rewarded for this?
Interestingly – on the 29th May 2019 - Qdos revealed that 92% of contractors in the UK had not been contacted by either their client or their agency to discuss the forthcoming IR35.
So why use an agency?
As previously mentioned, just over half of all contractors use agencies. It is a huge industry and it will take a huge number of deserting contractors to make the industry sit up and think about its own model.
The reason why contractors use agencies is one of simplicity. Your CV will be rewritten by a professional who will circulate it and find you a placement.
It may take time to gain the relevant experience, secure your own portfolio, and collect the register of contacts in order to go ‘solo’ but if you can – it is without doubt that your income will be higher. The absence of commission paid to the agency can and will be reflected in higher contractor rates received by the individual.
11th May 2020
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