Can a Company Require a Weekly Flat Rate Compensation for an IC

[Coast22]

My question involves independent contractors in the state of: CA

Can a company require that compensation be paid based on a weekly flat rate rather than hourly for an independent contractor?

For example, in a prior contract with a company the agreed upon compensation was hourly at a rate of $50/hour. Typically this entailed a 40 hour work week but occasionally, night or weekend work was required that resulted in hours worked in excess of 40/week. Most people involved in the project (both employees and contractors) worked about 15-20 hours extra per month.

Now I'm being considered for a new project and was told that all new contractors will be paid a flat weekly rate based on 40 hours. So the new rate using the above example is $2000/week -no more, no less. Seems somewhat reasonable given a typical 40 hour work week but the nature of the job is that more than 40 hours will be required. It is clear that the company just wants to avoid paying for the additional hours.

This doesn't seem right to me. Can a company require this arrangement for compensation? The non-exempt employees get OT for those hours -although the contractors get a much higher rate. Any input would be appreciated.

[ArmyRetCW3]

Generally speaking, independent contractors retain control over their schedule and number of hours worked, jobs accepted, and performance of their job. This contrasts with the situation for regular employees, who usually work at the schedule required by the employer and whose performance is directly supervised by the employer.

In other words, by U.S. law, an employer cannot classify you as an independent contractor, then dictate when, where and how you work, as though you are an employee. It's all about degree of control and independence.

[SChinFChin]

I was once a "Project Manager" at a large multinational implementing the installation of a new "enterprise software system", and at one point the project ran $40 million, over budget, and was way behind schedule.

All of the people doing the program development were "independent contractors", paid almost $100/hour, and the billings of the main contractor ran $150,000/ month or thereabouts, for a crew that ranged form six people to over 10.

The problem?? Hourly rates were defined, and paid, but no performance targets. All they had to do was show up, and we get billed. So if the crew spent half the morning talking about the last nights baseball game, among six people, we're billed $100/hour for each and every last one of them, discussing the baseball game.

So we refined our project plan and said that it the next two weeks, we expect this "piece of the project done". What does that mean?? Well, if the programmers spent 40 hours that week, and it was only 75% done, they'll have to put in their own time to finish it, even on a Saturday. If they want to stay home, that's fine, we can drop the contractor, and get somebody else that can manage the schedule.

Did we get complaints??

Sure did. We were accused of going from hourly to flat rate. Or did we?? If you think about it for a moment, if you only paid hourly, what is going to prevent the team from goofing off.

One team member said that we worked at another project where it was only hourly billing. How did they manage things?? He was paid $150/hour. The project manager sat in the room watching everyone, and if you picked your nose, he'll tell you to get back to work. This guy had diareah one day, went to the bathroom numerous times, the project manager followed him in, and after 5 minutes, kept telling him he's been there for OVER five minutes, and he'll start deducting the time.

He was telling me this story one Saturday, when he had to put extra time in, and I was there too, not paid OT as project manager. He told me he rather put extra hours in, rather than to be followed into the bathroom, and also told not to pick his nose. It was too stressful to be watched EVERY minute.

I told this guy that if I was paying $150/hour, no performace target, I'll follow him into the men's room with a "stop watch" also. He agreed that at $150/hour, it was a fair thing to do.

Of course, the other way was just to pay hourly, and have the project run millions over budget, and years behind schedule.

[jk]

This doesn't seem right to me. Can a company require this arrangement for compensation? The non-exempt employees get OT for those hours -although the contractors get a much higher rate. Any input would be appreciated.

there is nothing wrong with what they offered. This is contract work and the contract is whatever is negotiated between the IC and their client.

For example, in a prior contract with a company the agreed upon compensation was hourly at a rate of $50/hour. Typically this entailed a 40 hour work week but occasionally, night or weekend work was required that resulted in hours worked in excess of 40/week. Most people involved in the project (both employees and contractors) worked about 15-20 hours extra per month.

the client cannot demand the extra time unless allowed by the contract. It is up to the contractor to control his workforce. If contractor agreed to have such and such done by a given time, it is up to the contractor to do whatever he needs to complete that work by the agreed upon time, whatever it takes.

In many contracts that are more of an hourly type situation than an bid type, a NTE (not to exceed) is predetermined up front. That may or may not cover the entire job. That, again, is something both parties negotiate and put in the contract.

If the client contracts for a specified job for $XXX.XX, then, as the contractor, it is up to you to either accept or refuse such a contract and the gain or loss of a profit it yours.

If client contracts for something such as "5 technicians to work on IT situation such and such with end result to be whatever at $XXX.XX", it is up to the contractor to determine if this is feasible and accept or reject the contract. If the contract is simply for a tech for $XXX.XX/ hour, the contractor is still in charge of that tech and can include limitations on the hours worked for that tech. If the client then wants to have a tech work more hours, that, again, becomes a negotiated item and included in the original contract or as an addendum to the original contract.


Bottom line; the contract is whatever you agree to. Pay, limitations of hours, pay for hours more than agreed upon, whatever; it all should be in the contract. If it isn't, then you get into what does the contract say about the situation and if necessary, negotiate an addendum to the contract.

as to sfchin's situation; if a client birdogged me or one of my employees like that, he would be told to refrain from that. The client does have the right, in most situations, to demand the removal of any particlular employee from his premises, as long as he does not sign away those rights and if the client believed an employee of mine was simply sucking up time, then he needs to address that with ME, NEVER with the employee because it is MY employee and I alone direct my employee (obviously as long as the contract does not change that).

Now, it seems sfchin somehow altered the contract midstream and added performance goals. Some contracts may allow this, others not.


the contract is what controls. Put what you want in the contract and demand all parties follow the contract. It is just that simple. If either party signs a contract that allows them to be injured, then they had better wise up and learn how to read a contract.

[jk]

In other words, by U.S. law, an employer cannot classify you as an independent contractor, then dictate when, where and how you work, as though you are an employee. It's all about degree of control and independence.

I respect army's knowledge so hopefully he will take this a a refinement and not a rebuttal.

a client can determine and dictate many things to a contractor, including hours worked, when, and where IF the contract allows it.

If the work is inside the clients premises, such items will often be controlled by the client. If the work is outside the clients premises, there is often less control of the specific actions of the contractor.

again, it is whatever the contract says it is.

[SChinFChin]

as to sfchin's situation; if a client birdogged me or one of my employees like that, he would be told to refrain from that. The client does have the right, in most situations, to demand the removal of any particlular employee from his premises, as long as he does not sign away those rights and if the client believed an employee of mine was simply sucking up time, then he needs to address that with ME, NEVER with the employee because it is MY employee and I alone direct my employee (obviously as long as the contract does not change that).

Now, it seems sfchin somehow altered the contract midstream and added performance goals. Some contracts may allow this, others not.

I'm not going to say I disagree with everything JK said. However, often, there are unofficial channels to do things, and official ones.

To make things clear, we hired a contractor, who then hired the "system analyst programmers" who themselves are subcontractors of this contractor. Yes, we have a contract with the contractor, where we get billed for work done.

Some programmers, the senior experienced guys, are in the main able to meet targets. Because of the shortage of people available, over half are relatively light in experience, one guy a little as two years, yet we took them on for the project.

On the average, we're billed at $100/hour, with the senior guys gets paid $80/hour from the contractor, and these guys put in the 40 hours, and are done. Then, there are those who are struggling, gets paid a bit less, relatively speaking, maybe $50/hour, and cannot complete the assignments. One example is this guy "Charlie".

There's more than one way to handle this. One way, of course, is to go to the top project manager, and then the CIO, to have Charlie replaced, because of his relative inexperience, he cannot keep pace, Of course, I have to document everything, there'll be meetings and meetings, the "contractor himself gets called in, we scold him to providing such a lightweight for what we're charge, he'll have to scrounge for a replacement, the "whole nine yards".

Then, there's another way to look at it.

I'm thinking to myself, how many jobs are out there where you're under 30, two years experience, you're paid say, $50/hour, (that's $2,000/week @ 40 hours), can't keep pace, and someone is willing to work with you??? The question I asked myself is "is someone making $100,000/year, not up to speed, is going to tell me, TOUGH, I put in my 40 hours, and if I come in Saturdays, I get paid EXTRA". I guess some people would say that, but that'll take some nerve. And working with Charlie on a day to day basis, I know he's single, if he stays home Saturdays, he'll sleep late, play some softball. Is that important enough to throw away an opportunity??

I thought not. I gave Charlie the opportunity through unoffical channels, and of course, he realized he was a lighweight, and put in the extra time.

I have to say unlike other fields of work, many progammers and analysts are subcontractors by choice, as they can pull in $150,000 year. On the payroll, programmers and analyst at the time, make tops, $85,000/year. And company also hesitated to pay programmers $100,000 to $150,000/year on the payroll, as they'll skew the pay scales, making more than some Vice Presidents.

As to the OP's original question. The agency where I now work makes extensive use of subcontractors. If one of them are strictly hourly, rates are getting out of hand, he can't get the work done in 40 hours, we'll put out an RFP for new contractors that can do the work at a fixed price, i.e., a NEW contract, with new terms.

Of course, two things happen. If we don't throw out an RFP, throw new terms at the contractor, the contractor is going to say "I used to work hourly, how can you now do this, make if fixed."?? If we put out an RFP, looking for new contractors, he's going to say "hey, I've done work for you for years, why are you doing this"??

Well, the answer is "things are tough, budgets are cut, and we're looking for a bigger bang for the buck'!!