Standby pay in a B2B contract

Methods of remuneration in a B2B contract – hourly rate, daily rate, or perhaps a lump sum?

In B2B contracts, the parties have considerable freedom in determining the method of payment for tasks performed under the contract. They may agree, for example, on:

• an hourly/daily rate – in which case the final amount of remuneration for a given month will be the product of the number of hours/days worked and the hourly/daily rate specified in the contract;
• a lump sum rate – i.e. a fixed amount due to the contractor for a given month or a given project covered by the contract;
• a percentage calculated on the basis specified in the contract – e.g. a percentage of the monthly turnover or profit generated for the client by the contractor;

or use a combined method, i.e. combining two or more of these methods at the same time (e.g. lump sum + percentage).

It also happens that the selected settlement model contains additional arrangements, e.g.:

• In the hourly/daily billing model, you can, for example, guarantee the contractor a minimum number of hours/days of work each month. You can also set different hourly/daily rates depending on the number of hours/days worked in a given month (e.g., by reducing the unit rate after exceeding a certain threshold of hours/days worked in a given month – on a “scale effect” basis);
• in the lump sum model, the contractor can be guaranteed a specific number of days of “paid break in the performance of services” (similar to vacation) or a specific number of days of paid “sick leave”.

Remuneration in a B2B contract – is it due for the time spent on standby?

A problem with the settlement of a B2B contract may arise when the client does not have any tasks or projects to assign to the contractor at a given moment, but the B2B contract with the contractor remains in force. The parties therefore remain bound by the B2B contract, but in fact no tasks are being performed by the contractor (service provider).

This problem does not arise in principle only in the case of settling a B2B contract on a lump sum basis with a fixed monthly amount, without specifying a minimum threshold number of hours that entitles the contractor to receive remuneration. In such a situation, regardless of whether the contractor is performing any tasks at a given moment or not, they are entitled to remuneration in a fixed amount.

However, the above problem does arise in the case of B2B contracts with hourly/daily billing. In such a case, if provisions guaranteeing the contractor, for example, “bench pay” (“bench salary”) – i.e., a kind of “standby” remuneration for the time when no orders are performed – are not properly taken care of at the stage of drafting the contract, remuneration for the time when no tasks are performed under the B2B contract will not be due. There is no provision that would guarantee the contractor remuneration “for readiness” to provide services under a B2B contract. In order to receive such remuneration, it must be clearly provided for in the contract.

In practice, provisions regarding “bench pay” (downtime pay) are often found in B2B contracts concluded in the IT industry. Companies that hire programmers or developers on B2B contracts value their skills so much that they guarantee them a certain salary threshold (e.g., half of the hourly/daily rate) even if there are no orders at a given moment. The goal is simple – to keep a valuable employee “on board” despite a temporary lack of projects to assign to them.

Therefore, in the case of B2B contracts with hourly or daily billing, it is so important to properly formulate the provisions of the contract in the event of a temporary decrease in the number of tasks (contract hours) or their complete expiration for a certain period of time. In the absence of such contractual provisions, the contractor will not have any real legal tools to claim such remuneration for the “downtime.”