Permanent Direct or Contract Consulting Employment?
Have you got what it takes to be a contractor or do you believe that a direct career with a reputable company is simply more stable and rewarding?
To some people, the ability to move to different work environments within their chosen discipline has enabled them to hone their skills in the latest cutting edge technologies. At the same time, because of their specialty they have been able to command compensation far in excess of what they would have in a direct position.
On the other hand, other people have found that remaining with a company in which their skills are recognized and who have contributed to the company's success as a member of a dedicated team, can be rewarded in a variety of ways. They may receive stock options that yield valuable returns as the company's fortunes evolve or they may receive promotions to senior positions of authority and influence within the organization.
It is true to say however, that consulting or contracting is a trend that shows no sign of abating. In fact there is a massive consolidation going on today within the IT consulting industry in which large firms are swallowing up smaller firms across the globe and especially here in the USA. What is driving this phenomena and why are corporations hiring contract staff instead of permanent employees?
Let us look at a fictitious company by the name of Wellington Boots Galore International, or (WBGI). In the mid-eighties downturn of the economy WBGI had fired many of its employees including programmers within its IT department. Gradually the economy improved and the company began to do better. However the Board was in no hurry to hire new employees, and with cost cutting measures and more efficient use of existing resources they were able to improve their bottom-line. They also brought in the latest client/server technology and reduced their dependence on a mainframe computer system.
It quickly became obvious that cutting edge software and applications development was going to be needed to maintain the corporation's new found efficiency. However, instead of calling back their laid off programmers (who were mostly mainframe types and subsequently obsolete) they needed the special skills of programmers who had experience with the new software packages driving the client/server engines.
It was at this point that a paradigm shift occurred. WBGI felt it would be uneconomical to hire a team of programmers to develop a set of applications over a period of say 12 months and then have little or nothing for them to do after that. They sub-contracted instead, various programmers from 2 or 3 contract consulting companies who employed the programmers for the period of the project, in this case 12 months. The hourly billing rates were far higher than any salaries WBGI would have paid to regular employees but after the project was completed the programmers would be gone without further cost.
The programmers themselves meanwhile, were paid handsomely by the consulting companies. In some cases they were getting more than double their previous compensation when they were full-time employees. The contract programmers were responsible for their own tax and medical obligations and for getting to the client site.
Today the conractor is often a W2 employee of his own corporation and is sub-contracted to either the consulting company, or he contracts directly with the client on a corporation to corporation basis. Many consulting companies have medical, vacation, and 401K benefits for the period the contractor is engaged. Some contracts include paying for the contract programmer to be flown home every week-end and hotel expenses paid while at the client site.
Companies such as WGBI are not permitted to hire contractors on an individual 1099 basis due to a ruling (1706) by the IRS and they must therefore use contract consulting companies. This is done to ensure that contractors are employed as W2 employees and their withholdings are properly remitted to the Treasury. The penalty for failure to comply with 1706 is severe and has the potential for creating an opportunity for the IRS to investigate a corporation and put them under severe scrutiny.
Nevertheless, contract programmers are assured of legal conformity when employed by consulting companies and do not have to worry about General Liability insurance, Workers Compensation etc.
Over the past few years many corporations like WBGI have similar structures in place that enable them to develop products or applications on a project by project basis with a corresponding saving in permanent headcount.
Therefore, if you have solid skills in a discipline that's in demand and you have a desire to be more independent while earning significantly higher compensation, contracting your services could be the way to go.
On the other hand if you are more comfortable with what you feel is the security of a career position with one company, there are of course still many opportunities available. There are plenty of firms with stable work environments and excellent career paths. Many of these organizations offer attractive benefits and sometimes the added allure of stock options can lock in a person's loyalty with the promise of potential future value. The latter is particularly attractive if the company is a successful start-up and eventually goes public.
So, whether you contract your services to multiple clients or settle for a career position with one company, make sure that you maintain or enhance your level of skills to meet the current demands of shifting technology trends.