Negotiating a Contract Renewal and Getting a Pay Increase
International contractors will always want to negotiate the best contract terms possible, as you will be working independently in a foreign jurisdiction. It is advisable to accomplish that initially, but all contract terms are subject to renegotiation, including your pay rate. If your contract has a fixed term, negotiating a contract renewal are unavoidable unless you are ready to make a change in clients.
Toward the end of a contract, a client might want to negotiate a renewal or an extension, sometimes with different terms. Negotiating a contract renewal has several different elements however compared to the first contract. You’ll now have a relationship with the client, which often puts you in a better position to negotiate more favourable terms. However, don’t rely on the idea that simply doing a good job will guarantee a better contract.
Knowing how to renegotiate a contract is just as important as knowing how to negotiate an initial contract, so read on to learn what you should be doing to get the most out of your renewal.
- How to Negotiate Your Contract Renewal for a Pay Increase
- Common Mistakes When Negotiating A Contract Renewal
- Tips for Contract Negotiation
- FAQs for negotiating a contract renewal
- How to Negotiate Your Contract Renewal
- Details That are Often Missed When Negotiating a Contract Renewal
- Your Expectations of a Contract Extension
- What is the difference between a contract renewal and contract extension?
- Why is my contract being renewed if I didn’t ask for it?
- My contract will end in two months, so how do I tell my client politely that I will not renew it?
- Should I expect a pay increase with a contract extension or renewal?
- Can I use a contract renewal/negotiation email template to convey my expectations?
- How Contractor Taxation can help you on your contracting journey
How to Negotiate Your Contract Renewal for a Pay Increase
1. Look for other client contracts
You have every right to look for new clients while you are working under your current contract. This is fairly common for contractors who don’t enjoy the same position security as employees.
Looking for new clients accomplishes two things during renewal negotiations:
- It gives you a better idea of your value and the going market rate, and
- Puts you in a better bargaining position if you line up alternative jobs.
This is simply a business strategy as clients will be more amenable to negotiation if they think they might lose you to another client at a higher rate.
2. Be prepared to justify a higher rate
When you’re negotiating a contract renewal, there are several justifications for a higher rate:
- You’re doing more work than you agreed to in your initial contract. Whether the scope of your project has widened, or your client has asked you to pick up additional tasks, this is a strong position to be in during renewal negotiations.
- You’re being paid under the market rate. The market may have surged since you signed your original contract, or maybe you agreed to a lower rate because of your own circumstances. A reasonable client won’t be surprised when you ask for a standardised rate, which is similar to the justification for renewal of an employment contract.
- You’ve developed skills that make you more valuable. In many cases, this will be apparent to your client who knows your current work. You will have a better chance if you’ve picked up skills and experience that is specific to your client.
Common Mistakes When Negotiating A Contract Renewal
3. Being unrealistic about your bargaining power
This goes back to knowing the market and being honest about your personal situation. You should have a good grasp on your value, as well as your relationship with the client. If your skills are widely available then it may be difficult to justify a much higher rate.
4. Don’t appear overly eager to renew
Contract renewals can be advantageous but be cautious about looking like you want it too much. There’s a line between appearing like you want to stay, and appearing like you need to stay. Keep your options open by letting them know you’re open to renewal, but that you have other choices in the marketplace for your services.
5. Be wary of early contract renewals
If you renew early on, it could inhibit your ability to look elsewhere; few clients will be interested in a contract when you can’t start working for months. For the current client, asking for an early renewal may appear opportunistic.
If you’re not happy with the contract terms and have a strong justification for a better rate, avoid agreeing to anything too early. As the end of your contract nears, the client might start readjusting some of the terms in an effort to get you to renew.
Tips for Contract Negotiation
6. Negotiate with the client directly or through your umbrella company
It may be tempting to engage someone who already knows how to renew a contract such as an attorney, but you are better off negotiating directly. This shows that you value the relationship and take the renewal seriously. You can also enlist the help of your umbrella company who will have a more detached approach as a third party familiar with both you and the client.
7. Sell your skills and your experience
Without being too self-aggrandizing, remind the client of what you’ve accomplished during your contract with them. Persuade them that keeping you on, even at a higher rate, is still a better and more efficient solution than finding someone new who is unfamiliar with the work environment or requirements.
8. Have a healthy cash reserve
When negotiating a contract renewal, you don’t want to be in a desperate financial situation. After all, you are living and working in a foreign country. About six months’ worth of savings will tide you over while you look for a contract that better reflects your value. If you do end up between contracts, you will have to assess your immigration compliance as well, if your work permit is tied to your last client.
9. Avoid using urgency for your skills as a point of leverage
If a project depends on you or there’s a critical deadline approaching, you’re certainly in a better bargaining position during renewal negotiations. However, absent any other justification, demanding a higher rate in these contexts can look like exploitation.
10. Don’t burn bridges
Contract renewals show future clients that you’ve got staying power, so keep that in mind (especially if you’re just starting out). And you will also want to have a sound reference from your current client.
Similarly, a contractor’s reputation is key to future contracts and renewals. If negotiations fall through, do what you reasonably can to keep the client happy. You can negotiate a brief six-week contract extension while they look for a replacement, or even work one week for free if it’s not to your detriment.
FAQs for negotiating a contract renewal
How to Negotiate Your Contract Renewal
What does contract renewal mean?
A contract renewal occurs when an existing contract with your client expires. This happens because many contractor agreements have a fixed term, such as six months or one year. When the contract expires it must be renewed for the contractor to continue working under mutually agreed terms.
How do I ask a client for a renewal contract?
Contract renewals are not automatic, and must be agreed to by both the client and the contractor. If you want to continue working with the client, you can approach them prior to contract expiration and request a renewal. Most international contractors will be working on site for their client, so the renewal request is best done in person with your supervisor.
How do I prepare for negotiating a contract renewal?
Preparing for contract renewal negotiations will entail several steps:
- Research market rates for your skills/position in the host country
- Decide if you want a pay increase or if you are content with the current contract terms
- Prepare a list of your accomplishments and projects with the client
- Detail any cost of living justifications for a pay increase if desired
How many times can a contract be renewed?
Because freelancer contracts are business agreements, they can be renewed an indefinite number of times if both parties agree. This differs from employment contracts, which often have a limit on renewals before a company has to offer an open ended contract.
Can a work contract be renewed without consent?
As a practical matter, your client can just renew your current contract and terms without consulting you. However, you would still need to sign the new contract before it becomes binding, so legal consent is technically required by both parties.
Details That are Often Missed When Negotiating a Contract Renewal
What terms should I include in contract renewal negotiations?
One of the most important tips for contract negotiation is to review the current terms of your contract and decide what you want to change. You should include terms that you realised you missed in the first contract negotiation. These might include reimbursement for certain expenses, working overtime, paying for additional training and any desired pay increase.
Are there certain benefits that I can ask for in a contract renegotiation?
As a contractor you want to be careful about asking for benefits such as health care or equipment, as you could risk being reclassified as an employee of your client. One way to handle this is to propose a pay increase that would be equal to the value of employee benefits. You could then purchase what you needed, and deduct it as a business expense.
Does the contract have to be governed by the host country laws?
You and the client can agree to use any country as jurisdiction for the contract, but it is most practical to use the country where you are actually working with your client. You can always have your contract reviewed by a local attorney or umbrella company to make sure that your rights are protected in the foreign country.
Can the client terminate my contract prior to expiration?
Some contracts will have a provision that allows either the contractor or client to terminate the contract prior to expiration of the term. There will usually be a reasonable notice period such as 30 days to give each of you time to adapt and find a replacement. As a contractor you are not entitled to employee severance, but you can put a clause in the contract that provides some payment for early termination.
Your Expectations of a Contract Extension
What is the difference between a contract renewal and contract extension?
They are similar and often used interchangeably depending on the business culture of the country. An extension implies that the current contract will just have a longer term added, while a renewal suggests that all terms can be altered for a new contract.
Why is my contract being renewed if I didn’t ask for it?
Your client may assume that you want to continue working and simply send you a notice of renewal. You are free to decline or renegotiate the terms depending on your plans or preferences, but you are not obligated to renew or continue working.
My contract will end in two months, so how do I tell my client politely that I will not renew it?
You can let your client know now that you will not be renewing for either personal or professional reasons, which gives them time to fill your position. Even if you are not planning on continuing, its a good practice to have a conversation and express your gratitude or any misgivings. Remember that your client could end up being the best reference for your next gig.
Should I expect a pay increase with a contract extension or renewal?
A pay increase is not assured with a contract renewal, and you will want to communicate that expectation with sound reasons for the increase. If you don’t, then the client might assume that you are happy with your current pay rate and won’t offer you more.
Can I use a contract renewal/negotiation email template to convey my expectations?
You can use a negotiation template to outline your expectations to your client in advance of a meeting. This may be a good idea if you are nervous or unsure if you will cover all the right points. This is where an umbrella company can be very helpful if you don’t know how to negotiate contract salary and other terms.
How Contractor Taxation can help you on your contracting journey
If you are new to international contracting, Contractor Taxation can assist you through our network of umbrella companies. Our umbrella companies are in place and ready to act as a third-party intermediary to your contract. They will facilitate client payments, withhold taxes and handle any disputes. In some cases, they can help you in setting your rates with a new client.
An umbrella company is a valuable ally if you are working in a new country, or simply want administrative help with one or more clients. Please contact us if you want to learn more about international contracting through an umbrella company.