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Employee or Contractor?

12/19/2008 10:43 AM

Hi,

What are the benifits for a company of hiring contract workers as opposed to permanent employees? After all, don't contract employees charge significantly more per hour? I am talking about engineers/designers etc.

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#1

Re: employee or contractor?

12/19/2008 11:11 AM

vscid,

There don't have to pay benefits, insurance (health, unemployeement, payroll)

The contractors have to provide a certificate of insureance, to make sure they are insured, minimum is about $2,000,000.00. And they can terminate you for any reason, (just like an employee) but they do not have to worry about the contractor filing a claim against the company, that being a wage, race, sexual or age discrimination with the state against the employer.

While an employee can. And when that happens, Atleast in Wisconsin, The employer is guilty, even if the employer finds that the emplyee commited fraud against its company.

Attorney's typical response is, don't fight it, it's cheaper to just pay it.

phoenix911

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#2

Re: Employee or Contractor?

12/19/2008 1:50 PM

For all the reasons phoenix911 put forth weighed against the length of time in which one would need the worker.

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#3
In reply to #2

Re: Employee or Contractor?

12/19/2008 2:10 PM

Ozzb,

Yes there are other reasons, thanks for bringing that forward. The length of the project may be limited.

Also,

When a dead line is due, and a company has its back against a wall, would also contract a previous employee as a contractor who is working elsewhere. On his/her off time.

Because of the shorten learning curve.

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#4

Re: Employee or Contractor?

12/19/2008 5:38 PM

Each company will have to create its own policy depending on what needs to be done. The best policy would be to just employ enough people on a permanent basis that would be needed for continues work. The cutoff point would be where the full time pay is equal to to the number if hours x the contract rate.

The worker also needs to decide on a policy and weigh options.

Contract work for several companies could mean a more than average income but a permanent job offers better stability. The company where contact work is done for may just decide to employ a newly trained family member in that position.

Another tricky situation for a contract worker would be when he does work for opposing companies.

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#10
In reply to #4

Re: Employee or Contractor?

12/20/2008 12:29 PM

Hendrik:

Contract work for several companies could mean a more than average income but a permanent job offers better stability. The company where contact work is done for may just decide to employ a newly trained family member in that position.

Another tricky situation for a contract worker would be when he does work for opposing companies.

That tends to work against you more.

good points,

phoenix911

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#5

Re: Employee or Contractor?

12/19/2008 6:48 PM

why

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#6

Re: Employee or Contractor?

12/19/2008 11:52 PM

Another benefit is there is less demand on the company to accrue sick leave and annual leave, and to pay into a superannuation scheme and/or medical benefits. The company purely pays a $ per hour and then doesn't need to worry about overheads and business matters the same way they do for an employee. But this does come at a high rate than that for the employee, as would be expected.

The benefit with engineers and designers being hired under contract, as mentioned, is that they are only hired for a project generally, and may flow into the next project with the same company. Another bonus is the engineer/designer has had more exposure to varied projects and will likely bring in more experiences that may benefit you project.

The negative in being on contract is job security, the company only needs to hire you for a period and can generally terminate the position easier than if you were an employee. As well as not have to pay larger termination packages.

Regards,

Trevor.

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#7

Re: Employee or Contractor?

12/20/2008 2:29 AM

Hi.....the issue of contract workers vs permanent workers is peculiar to India when you still have stingent labour laws . As per these laws which are relics of a bygone era i.e. a hangover from the socialistic economy of the Nehru-Gandhi-Soviet period the workers rights are highly protected making it difficult and costly to shed employees. Due to this reason many employers hire on contract basis.

Just for your information, there is nothing permanent about a private enterprise. It can easily collapse. How come they can have a permanent employee?

A K Tiwari

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#8

Re: Employee or Contractor?

12/20/2008 6:48 AM

Hi VSCID,

I can only speak from my experience in the States.

The difference, as the name implies, is the contract. A resource (person) is commissioned by contract to work on, or complete some specific task, or for some finite period of time, or both. The conditions are defined by the contract.

The expense is generally greater to the company for the contract worker, but it is assumed they are buying some particular skill set they didn't already own, or possibly just augmenting their own resources if they had a particular deadline to meet. But, although the expense is more, the expense is treated in accounting as particular expense to that project, and, once the contract is fulfilled, the expense is ended.

Considering employees, the total cost of an employee is far greater than just the wage, but usually not as much as the contractor. However, considering staff employment, there is both a long-term benefit to the employee, and a long-term obligation to the company. When it is possible to add resources just for a particular project, AND (a big 'and' here) the contractor can actually do what they committed to do, a company is much better off with a temporary expense.

That brings us to another issue, and that is in the vague category or "TEMPS". Many people are now hired as only temporary staff, albeit long-term, and often recurring, however a TEMP usually doesn't have to be afforded any benefits, and if a market of high unemployment, its becoming to see many more 'common' (non-specialized) jobs being let to temporary employees.

Well, sir (or madam) [sorry, I can't tell from the name], I've rambled on as usual, but I hope some of this helps.

Kind regards ...

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#9

Re: Employee or Contractor?

12/20/2008 9:45 AM

Thank you all for the wonderful insights!

From what I gather from these posts, some people are indicating that the cost of a contract worker is lower overall to the company, while some people are indicating the reverse.

Does anyone know of a single source/studies etc which can tell that the overall cost to the company (as against to a specific project) for a contract worker is lower or higher than a permanent employee? I am pretty sure there must have been atleast some studies.

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#11

Re: Employee or Contractor?

12/20/2008 12:36 PM

Generally, a contract employee (job shopper), costs less than a permanent employee. It is possible the reverse could also be true, depending on circumstances, but at least, the additional cost can come out of a different pocket and therefore doesn't have to be seen in the overall cost. In addition to the reasons given in the other posts, a company has an opportunity to evaluate contract help and hire them direct.

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#12

Re: Employee or Contractor?

12/20/2008 2:53 PM

One important point not mentioned here is that if a company desires to deal with as few unions as possible they can either utilize a labor broker or buy a company as a wholly owned subsidiary, and those people would be signatory to union labor agreements. It also provides a layer of legal protection and in some instances could affect the workmens comp rate for the hiring or buffered company.

Engineers are usually exempt salaried employees with generous benefits of vacation, sick leave, military makeup, 401K plans etc. These are hard to put a number on and depends on whether it is management discussing your pay increase or your rehire as a contractor. the values take on different meanings.

You can't lose monetarily with temp or contract workers, you do loose in continuity, dedication etc. unless the temp/contract worker is for all purposes permanent, then you have to ask yourself, am I being fair with this dedicated employee.

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#13
In reply to #12

Re: Employee or Contractor?

12/20/2008 4:31 PM

The first part I agree, your comment;

you do loose in continuity, dedication etc..................then you have to ask yourself, am I being fair with this dedicated employee.

it may be out of context, curious though,

what is your definition of a dedicated engineer or employee for that matter.

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#15
In reply to #13

Re: Employee or Contractor?

12/20/2008 7:01 PM

That is a lot tougher question than it appears at first glance. When I speak of a dedicated employee it has little to do with the employee themselves.

I personally beleive that a company should be managed in a manner that demands honesty and fair play. I think that if those are your core values then you set up an atmosphere where people can be inventive and industrious.

I am sure you or anyone else can give me instances of people that don't have the inclanation or ability to be dedicated employees of any value. That is another function of management, when you aren't a good fit with the employee then he has no reason to be there.

If the company is worth being dedicated to it will depending on the bottom line, provide benefits and salary that meets the industry standard if they are able to do this. Employees who are treated fairly usually will become part of the business and actually take pride in their work and company.

I am going to truncate this because I would have to write a book to cover my thoughts on the subject. Let me just say when you see a dedicated employee you will not have to wonder as to his allegance.

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#16
In reply to #15

Re: Employee or Contractor?

12/20/2008 11:56 PM

summing up;

its a 2-way street.

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#14

Re: Employee or Contractor?

12/20/2008 6:30 PM

Hire professionals and pay them their rate, and you will not go wrong either by salary or dayrate. The joke is: If you think a professional is expensive, wait till you hire an amateur. If your company core staff doesn't know the difference between a wannabee and an experienced professional, and isn't wise enough to hire up, then you are likely to limp to oblivion.

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#17

Re: Employee or Contractor?

12/22/2008 2:40 AM

Hi, What are the benifits for a company of hiring contract workers as opposed to permanent employees? After all, don't contract employees charge significantly more per hour? I am talking about engineers/designers etc. Having been both a contractor and a direct employee I can tell you that contractors are more expensive in the short term for the company, however the short term expense is recovered in the longer term by having extra manpower only when you need it and in the extended probation if they decide to hire the contractor to the company payroll, they may have had him on the job for a year or more with no benefits and accruing no vacation or sick time before he ever begins probation, and I believe that in some cases the company can write off or charge for the cost of paying for the contractor as he is not part of the regular labor pool. There is also the benefit of new employees learning by osmosis from a more experienced temp. In my case , there are 9 other people on my crew with a combined 4 years more experience than I have, I am the contractor and I have taught them things here and there just because they were struggling to to it the way they were taught, and sometimes they will watch to see how I do things differently just out of curiosity. Over all , it's a good way to get experience without having to pay for it.....from the company's point of view. A curious pile of atoms, blessed with self awareness looks upon its self And wonders why it wonders.

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#18
In reply to #17

Re: Employee or Contractor?

12/22/2008 6:57 AM

A lot of companies hire contractors for projects that may run 1 month to a few years. and when the project end they let you go. No strings attached, I did contracting for 5 years, some jobs 6 months, up to 2 years. In the engineering field many companies hire contractor just to try you out, and if they like you they try to hire you direct, if not they cut you loose, "No strings attached" no benefits, unemployment compensation, your basically are same as a copy machine and looked at as "the cost of doing business" If you do contract work don't get attached to a company you work for , Some companies are cold that way. for some it's a way to get your foot in the door. it is a way to get a lot of experience fast make the best of it.

Jim C

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#19

Re: Employee or Contractor?

12/22/2008 8:53 AM

I may have missed seeing it, but one of the added benefits to a company has to do with items such as safety training, which for engineering staff may be mandatory (depends on the job requirements).

If a company can deal with a contractor that is able to provide workers that have already taken such courses as electrical lockout/tagout, high voltage safety, etc. and passed certification, it's less lost time and cost to the hiring company since the contract company assumes that cost before putting the worker 'online'.

Merry Christmas & Happy New Year, everyone!

Logan

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#20

Re: Employee or Contractor?

12/22/2008 9:18 AM

I had to make this decision last year. I had been offered a contract position and a full time job. in that instance I merely asked that the full time position give the same hourly rate. Once they did, it was a no-brainer. As to the benefits for a company, see the above posts and add to it that the company doesnt have to have a large HR staff to handle its employees. They don't have to hire and evaluate talent. They generally hire a company to provide them with the best candidates and they select the ones they want based on who they think will fit the best.

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#21

Re: Employee or Contractor?

12/22/2008 9:53 AM

An appropriate answer can vary greatly depending on where you are in the world, and, if you're in the US, even what state you are located, and also what your business conditions are. In addition, local, state and federal laws (right to work state vrs union state, for example) can make the decision difficult.

I once ran a company in Michigan, USA, that contracted to the automakers for various services. We had three partners but all our "workers" were under contract. We moved people on and off jobs regularly depending on our needs from a pool of people willing to work with us.

Being a "small" but growing business, this suited our needs perfectly. However, had the company grown larger I was planning on bringing on full time employees to become project leaders as necessary.

Unfortunately, partnership problems ended the endeavour before we got to that point.

Hooker

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#22

Re: Employee or Contractor?

12/23/2008 9:07 AM

The contract arrangement is biased towards big corporate employers- they are not stupid. At the big pharma companies I know, most of the engineering departments are made up of temps from companies like Kelly. Besides not incurring the cost of benefits and being able to easily fire people, contractors do not count as headcount reported to Wall Street. It may seem like they are paying a premium, with a rate to the employee that may be 20% more than they'd get in salary, and a 20+% markup to the agency. But these expenses are not counted as salary overhead, it's taken out of capital project budgets. If you just need interim employment, flexibility, or don't need benefits, being a contract engineer is a good deal. Longer term, it's a better deal to be a "permanent" employee.

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#23

Re: Employee or Contractor?

02/24/2009 6:27 AM

The amount of administration to employ someone and sorting out NI etc weighs up nicely to contracting work out. If a nice profit can still be made using contractors then that is a good business model.

We Contract work out Brickwork Contractors

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