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Microsoft Enacts 10 Percent Pay Cut For Temp Workers

February 27, 2009

As part of a greater initiative to cut expenses during the global recession, Microsoft is reducing overtime, total hours clocked, and pay for U.S. temporary workers, trimming what it pays the staffing agencies by 10 percent for current projects.

The company also said it would not increase the rate it pays for temporary workers who return following a mandatory annual 100-day break.

The Redmond, Washington-based company made the announcement in a statement on Thursday, saying it discussed the matter with some employment agencies before making its final decision.

The move, initially reported Wednesday by the Seattle Post-Intelligencer, comes after the company enacted its first-ever mass layoff along with other cost reduction measure such as freezing wages, trimming travel costs and scaling back expansion plans for its corporate headquarters.

Businesses and consumers have cut spending on new computers and software amid a deepening recession.  Since Microsoft sells the operating system that runs on a large majority of computers throughout the world, the company is feeling the pain. 

The crunch is particularly severe within the company’s lucrative Windows and Office desktop software businesses, with spending on online advertising also declining.  Indeed, its online search and ad businesses were already losing money despite heavy investments to enhance the underlying technology.  However, earlier this week CEO Steve Ballmer said the company would continue to invest into competing with Google Inc. on this front.

Analysts vary in their estimates of how many contract workers are in Microsoft’s employ, and the company does not disclose this information.  However, an Associated Press report cited McAdams Wright Ragen analyst Sid Parakh as saying he believes the number is between 40,000 and 60,000 worldwide.  Microsoft employs an additional 95,000 permanent workers throughout the world.

The company uses skilled contract workers for all types of positions, from Web design to developing and testing software to writing technical documentation.  The practice is not uncommon among other tech companies, such as IBM Corp. and Advanced Micro Devices Inc., who routinely hire temporary workers.  Indeed, as recently 10,000 contractors were employed by Google Inc.

Roughly 21.5 million U.S. workers are self-employed, find jobs through temp agencies or work as independent contractors, according to a 2006 General Accountability Office report.

The contentious distinction between permanent and temporary workers within Microsoft prompted a class-action lawsuit in 1992, in which contract workers claimed they were treated no different than permanent workers but offered fewer benefits.

Microsoft settled the lawsuit in 2001 and in 205 began paying $72 million to about 8,600 former contract workers.

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