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Originally published Friday, February 27, 2009 at 12:00 AM

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Microsoft temps take pay hit as staffing firms agree to cut fees

The third-party staffing agencies that provide temporary workers to Microsoft have agreed to a 10 percent reduction in the rate they charge the software giant, and many are passing a similar cut onto their employees.

Seattle Times technology reporter

The third-party staffing agencies that provide temporary workers to Microsoft have agreed to a 10 percent reduction in the rate they charge the software giant, and many are passing a similar cut onto their employees.

It's the latest cost-saving move Microsoft has made to adjust to a recession that is clipping both consumer and business spending.

Staffing-industry analysts say the agencies that absorb more of the reduction themselves — rather than pass it all on to the workers — could gain favor with workers who will remember it when the market recovers and labor again becomes tight.

But these firms, which typically have single-digit profit margins, also have to stay in business until then.

For the workers facing smaller checks, the pay cut was an unwelcome, if not altogether unexpected, development.

Contract positions at Microsoft have been quietly eliminated over the past several months. One woman described earlier cuts in pay rates and benefits her husband has seen.

"If cuts are made on top of these prior reductions, that amounts to a significant loss in income and will make a sizable impact on the local economy," she said in an e-mail.

The woman, like several contractors who contacted The Seattle Times, asked for anonymity for fear that speaking out could jeopardize their jobs.

Some of the contract employees said they were glad to keep their jobs, even at lower pay. Washington's unemployment rate in January was 7.8 percent, higher than the estimated national rate of 7.6 percent.

Microsoft, which announced its first companywide layoff of full-time employees last month, said at the time it was also seeking to reduce its spending on vendor and contingent staff up to 15 percent.

The company does not disclose how many contract employees it uses. Estimates range in the tens of thousands for all contract workers, including temporary workers, who are typically paid on an hourly basis; and vendors, often higher-skilled individuals brought on for specific Microsoft projects.

Vendors, referred to as "v-dash" employees, were not affected by the rate reductions.

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"We held discussions with some of the impacted agencies and settled on the 10 percent reduction based on the economic climate and the need to achieve greater cost reductions," spokesman Lou Gellos said in an e-mailed statement.

That reduction is for existing contracts. New temporary contracts will see bill rates reduced 15 percent.

Donn Harvey, president of the Staffing Association of Washington, said it appears most staffing firms are passing on the reductions directly to their employees.

Harvey is president of Bellevue-based Protingent Staffing, which provides vendors to Microsoft and is not affected by these rate reductions.

The bill rate Microsoft pays the agencies is substantially higher than the hourly pay the contract workers earn. This margin covers the agencies' cost for taxes, overhead, employee benefits and their own profits.

For example, if a staffing firm billed Microsoft $100 an hour for a worker the firm paid $60 an hour, a 10 percent reduction passed to the worker would reduce his or her pay by $10 an hour, or nearly 17 percent.

And indeed, some contract workers reported facing pay cuts of greater than 10 percent.

Surnish Nirula, director of business development at staffing agency Aditi USA in Bellevue, said his firm is trying to limit the cut borne by employees to 10 percent.

Two of the larger staffing agencies, Volt and Excell Data, did not respond to requests for comment.

"We are working hard ... to absorb costs even before this announcement came along," Nirula said. "Obviously, we have to run a viable business. It's a painful decision for us to take as well."

Eric Gregg, managing partner at the Inavero Institute, a Portland firm that provides research on and for the staffing industry, said agencies that protect their bottom line while insulating employees from the full brunt of the cuts could position themselves better in the long run.

A recent study Inavero did with CareerBuilder.com found that job candidates tend to remember staffing firms that looked out for them.

"These are the times that people remember," Gregg said. "It's not when jobs are prevalent and you have the pick of the litter, it's when a company is forced to make some tough decisions."

He said candidates also need to be realistic. Staffing agencies typically don't have the profit margins to absorb significant cuts from Microsoft, likely one of their biggest clients.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2009 The Seattle Times Company

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