Microsoft, citing the "realities of a deteriorating economy," will reduce by 10 percent the amount it pays employment agencies for many of its temporary workers -- and cut by 15 percent the target billing rate for future temporary work.

The decision is expected to ripple through the tech job market -- requiring the agencies to reduce their already slim profit margins or cut worker pay. Some say they will need to do both. The situation also creates a dilemma for many temporary workers in existing Microsoft assignments, who will need to either accept pay cuts or take their chances in an increasingly difficult economy.

The changes, to take effect March 2, were detailed in a Feb. 20 email from Duff Hall, Microsoft's U.S. Talent Source Program Manager. The email, obtained by TechFlash, also tells the agencies that they can expect Microsoft's business groups "to control overall demand for temporary labor" by reducing or eliminating overtime for temporary workers, and reducing the total hours they work.

"In response to the realities of a deteriorating economy, Microsoft is sharpening and deepening its focus on cost savings," Hall wrote, before introducing the series of changes. In addition to the reductions of 10 percent for current workers and 15 percent in the future, the company will require a higher level of internal approval for any assignments at billing rates that exceed preset maximums.

Microsoft, under pressure from Wall Street to cut costs, last month announced plans to lay off as many as 5,000 workers globally over the next 18 months. Those cuts didn't include temporary workers, although there have been reports of temporary contracts not being renewed. The company doesn't disclose the size of its temporary workforce publicly, but it easily numbers in the thousands.

The temporary workers affected by the latest changes are known internally as "a-dash" -- contingent staffers who work on Microsoft assignments for up to a year at a time but are technically employed and paid by outside agencies. These particular cuts don't affect "v-dash" workers, who are also placed by agencies but work at the company under different terms.

In an email exchange today, Microsoft spokesman Lou Gellos disagreed with the suggestion that the decision was heavy-handed and unilateral. He said the company made the decision collaboratively with the affected agencies in a series of conference calls last week, before Hall's email and a follow-up conference call this week.

"With them and with their suggestions, the group as a whole – Microsoft and the agencies -- came to the 10% figure," Gellos wrote. "This was not a surprise to them, nor was it heavy handed. We want to work with them and they certainly want to work with us."

At the same time, Hall's email said the agencies needed to sign an amendment to their deals with the company, binding them to the changes, to continue receiving requests for new temporary worker assignments. People at some of the agencies, speaking on condition of anonymity, said they felt little choice but to agree to the changes to preserve their business with the company.

However, a different perspective was offered by Pardeep Singh, founder of Aditi Technologies, one of the agencies that supplies temporary workers to Microsoft. Contacted today, he said he didn't know all the details of the changes, but he pointed out that reductions in billing rates are better than wholesale elimination of jobs.

He acknowledged that agencies will need to pass at least part of the cuts on to the workers in the form of lower pay. 

"There isn’t enough margin in the business to be able to do this without sharing the impact," he said.

Mary Ayala, Washington state's chief economist, said the effect on the broader job market and economy is difficult to assess without additional details. However, she said, "It will obviously not help."