On a long contract, when is it ok to ask for a raise?

Question

I started working at my current position nearly 6 months ago, and am paid per-hour, per-project at a flat rate. It was originally going to be a 3-month contract-to-hire, but the company lost a major client and was not at the financial place to make me an offer after the three months had ended.

It has since become a contract-to-hire with an undefined length of time. I have learned a lot of new skills during the last 6 months, and feel my pay rate could potentially increase. At what point in time, or in learned skills, is it considered ok to ask for a pay increase.

Answer 1

"Raise" is a term for full-time employees, whose salary depends on other factors (e.g., years served, position, etc), not actually on amount and quality of work done (don't kill me, there are many exceptions here).

Being a freelancer, you are most likely bound with terms of a certain agreement. Any amendments to that document are subject of a mutual agreement. You haven't specified why are you willing for "raise". As I said, years served is not an argument for freelance job.

Finding the Right Arguments

So, let me theorize and look in what situations you may require for raise review of the contract terms. In any case, you should bring those arguments to a meeting and mutually agree on any contract changes. See below what if your changes are rejected.

• The most common thing that happens very often for Fixed Price projects is changed scope. Your initial agreement should have a section for this matter and any additional work (outside the original scope) should be a subject of an addendum to your main contract. It's hard to do for the first time, but when you manage to do it once you will see how many problems you have solved.
• Also, on Fixed Price projects, the amount of work may change dramatically due to other reasons. It may be lower quality of dependency product (say, a third-party program library is working worse than expected, and you are having hard time fighting with the library's bugs). Gather any evidences, make your new estimate, and bring it to a meeting.
• On a Time-and-Materials project, you are actually selling your time. Its cost may vary. When? For instance, if you realize that you are doing more qualified work than expected before. You may split your invoice into two positions: normal work you have agreed initially to do (at normal rate) and another work based on a different rate. If it's rejected, you may reject to do a qualified part, but remember that doing a more qualified work is your ticket to the future. So try not just to throw it away.
• Yet another situation. You have agreed to do an average of, say, 20 hours a week with an hourly rate of $X. In addition, you are spending a certain amount of time for non-billable things, and they are free just because they are split into small chunks and are simply hard to measure. If you are continuously working for 5 hours a week, you may find yourself underloaded. Those "small things" are small in comparison with expected 20 hours a week, but it may grow if your billable time is 5 hours. Again, raise it to a meeting. It wouldn't look like you are asking for a raise; you just want more workload.

During a Meeting

So you have your arguments and you have scheduled a meeting for changes. What's now?
Don't panic. You, as well as your client, are willing to get the job done with best possible quality and at lowest possible cost. If you are not just asking something for yourself, but instead demonstrate that you two are "on the same boat", struggling with the same problems, your client will be much more compliant to your requests and suggestions.

Possible Outcomes

As a freelancer, you are an independent business entity. You take full responsibility on any consequences happened due to your decisions. As well as your client! If you suggested a contract change and they rejected it, you actually have two ways:

1. Complete what you have signed for, at your cost (and get some reputation);
2. Cancel the contract (and lose cancellation fees).

In any case, remember that reputation is the hardest to earn and easiest to lose.

Answer 2

First I would never ask for a raise if the project has a definite scope. If the project has a definite scope, you give the client notice that after the scope is complete, further work will be at a higher rate.

Secondly "when" is a question that cannot be answered by someone outside. That's a business decision and it has to do with your relationship with your client, to what extent demanding a higher rate risks your contract, etc. These are business decisions you have to make based on your local knowledge of exactly how things are.

Third, a major variable here is how the dynamics are set up. If this is a contract for hire chances are they originally set the rate. If you originally set the rate you are in a better position than if they did. This is also a proxy measurement for whether you are approaching yourself as a service vendor or just a pseudo-employee. At least in theory you are a service vendor and free agent though.

My recommendation would be to try to set up a meeting. In the meeting you want to explain that the project hasn't gone the way either of you planned, that you would be interested in full-time employment still if that is on the table, but otherwise, you would like a pay increase, perhaps effective in a month or two. If it were me because I am comfortable working on my own, I would offer to transition my role into that of a consultant so that they could keep me (on my terms!) for as long as they'd like without tax headaches. Whether you are comfortable with that given your interactions with this employer is another matter so that has to be your call.

Answer 3

Re:

It has since become a contract-to-hire with an undefined length of time. [...]

When you are working as a contractor, it is to your advantage to have a well-defined time limit to your contract. Contract renewal is the perfect time to negotiate a rate increase. (If you have agreed to an "undefined" length of time – did your original contract actually lapse and you kept on working? or is it really of no specific length? – then it isn't as clear-cut.) Give your client some advance notice of your intent to negotiate a rate increase upon renewal.

As to the frequency, I would restrict rate increases to at most once per year. It is reasonable for you to expect an increase once per year as that's typically the frequency for budgeting and employee raises. (But always keep in mind: You are not an employee.)

If you ask for increases more frequently than once per year, you will annoy your client. Trust me on this. (If you live in a country with hyperinflation, then you can cautiously disregard this point.)

So, if you are up for renewal every three months (for instance), you won't be asking for an increase at each of those renewal points – only the one that coincides with a year since your previous rate increase.

However, once per year is a guideline for the minimum. I've been in a situations where the client's business was being adversely affected by economic conditions (e.g. 2008-2009), and I postponed rate increases accordingly. Seek to understand the health and profitability of your client's business. For instance, coming out of a recession, did your client just have a good quarter and issue bonuses to employees? That could be a good time to ask for your increase, if you had been delaying.

BTW, I've had one client tell me before that "we don't give increases to contractors." From what I could tell, this client had a revolving-door of contractors who rarely stayed on for more than nine months. At that point I had been there one year and they wanted to renew me for another six months. When I said I'd prefer to conclude the arrangement to find something with a rate closer to my new value, they changed their mind. The only concession the client asked for (and got) was for me to hold my rate constant for one year from the increase – something I was planning on doing anyway!

And yes, it is reasonable for you to expect your rate to be increased. The cost of living is going up all the time, as should be your skills & value. You should aim to increase your rate both by a percentage representing inflation (to maintain your purchasing power), as well as some amount to reflect added skills, experience, responsibilities, or other special added value you're bringing to your client.

Be prepared to reflect on your accomplishments when you talk about a rate increase. Be awesome and consistently impress your client and they shouldn't have a problem agreeing to reasonable annual rate increases that keep your rate moving ahead of inflation.

Answer 4

It depends how your contract is constructed. I was working how a long time on single contract, but I've never signed any contract for undefined period. There was always a fixed-time agreement (3 to 6 months) which was prolonged on the end of the period. So every such prolongation is de facto occasion for renegotiating the deal. If you have undefined-period contract, it could require to break that contract in order to change it. If such breaking requires mutual agreement with client, you're in the weeker position.

But independently of formal things with contract, each renegotiation must be accepted mutually. And it's much much easier to ask for higher rate when signing new contract with new customer, than to renegotiate the existing. The customer knows you and is used to that, how much your hourly rate is (which usually results in impression, how much your work is worth for them).

I would look for some objective factors for increasing the rate. If you learn new things, it's not enough per se, because it doesn't affect directly the customer, as long as you do the same things as before. But if your responsibilities in the project change, that's the good point. For example, if you were only programming middle tier, and now you're responsible also for writing SQL queries and tuning database, it's a great point to say that your new tasks are requiring higher qualifications and therefore should be also better payed.