To Contract or Not to Contract?

Contract positions can be appealing due to increased flexibility, higher pay (at times) and as a foot in the door at a company, among other reasons.

Before making the jump to contract, there are significant differences you should be aware of between being a contract and full-time employee.

Contract positions typically entail being employed by a consulting company who works with employers to fill positions. The typical reason is usually “staff augmentation”, where there is a temporary need for more employees for a particular job than normal. Since it is temporary, the employer will often add contract positions instead of full-time positions. A project installing a new software system, for example, would be a good example of staff augmentation because there is a defined temporary need for more people to do the work.

The consulting company then works with these employers — typically the consulting company is a “preferred vendor” for this kind of work — to place the contract employee into a position that meets the skills needed by the client.

Everything may be great if you’re working full-time hours with a defined contract period and you are getting paid some dollars to do so. But what’s the difference between you and a full-time employee at the client company?

1. Your benefits will be different from your client company

Typically, contractors are paid more money on an hourly basis than full-time employees, but their benefits are usually very different. There is no paid vacation time, though some contracting companies try to mimic paid vacations by cutting back your pay and applying it to “paid time off” as you build up time. But the paid time off is usually for both sick days and vacation.

The 401(k) programs will be different and the timing to gain access to the program will be different as well.

You usually don’t get the perks of the client’s firm, such as access to the company gym, programs, parking and other discounts found at many companies.

Plus, your health insurance will most likely be less subsidized by the employing company rather than your client company. You’ll often pay more for a less featured plan than your client company.

2. Layoff rules do not apply to your position

If you are under a contract, the contract usually provides for something simple to end it, such as a two-week notice to your consulting firm.

Most full-time positions have government regulations associated with layoffs, or performance terminations that must be followed. State laws, for example, usually need at least 3o days notice before a contract end date in the case of a layoff. Even if you are walked out the door on the same day, you get 30-days of pay. You also usually get all of your accrued vacation and sick time as well.

But a contract employee usually receives only two weeks notice. Depending on the company, you may know your time will be up earlier than that because your consulting company wants to know if they should start marketing you to other companies.

3. How contractors are treated is dependent upon the culture of the client companies

Some clients give contractors full access to company information — organizational announcements, pronouncements from the executive team on goals for the year, access to the online learning centers and daily announcements about the company. Others don’t.

Some clients are used to contractors and pay no attention to whether they are contracting or full-time; they just want to get the work done. Other clients treat contractors as second-class citizens and don’t give them the time of day to get their job done.

In other corporate cultures, contractors are seen as agnostic to the political side of corporations and are viewed as safe to gossip to about the company.

Is contracting right for you?

The same rules apply to contracting when looking for a full-time job: You should consider if the position will offer new opportunities to learn a job skill, broaden your business network and position you for employment security.

2 Responses to “To Contract or Not to Contract?”

  1. Pat Saison

    I would like to add that a defined term contract is no protection. I worked at two large companies–one through a staffing firm, on a six-month contract period, and at the other, directly with a written C2C contract, signed by the CFO.

    The six month contract ended in 2 months–the supervisor and I did not agree on future approach on the project–the supervisor said he only wanted to “pick the low hanging fruit” and “show a quick win.” I wanted to do the project the “right way.” Since he was the boss, I told him I was willing to do what he wanted. He had asked me to provide a plan of what to do in the third month; I gave him several alternative professional recommendations as to approach–one of which was to terminate the ongoing project. I mentioned that he said he had other projects, and he said he did not want to discuss other projects, just the current one. He gave me 3 hour notice, and told me to leave by the end of the day. I left within 2 hours, after I gave him the documentation of the work. Although we had a contract, it did not mean anything. The staffing firm was apprised of the situation, but they are mainly concerned with preserving the client relationship to get future work.

    The two month C2C contract was a fill-in-the-gap position. It ended early when the supervisor hired 3 young MBA’s, and thought that she would not need me anymore, since her new employees were starting the Monday after. I mentioned we had a contract, and she said it didn’t mean anything. She would pay me to the end of the week–one more day–but I did not have to work–thus one day notice. I told her I would still come in to do the documentation, since she was paying me. I was professional about it.

    So, in summary, a contract and defined length is no guaranty. It all depends on the professionalism of the supervisor, and the integrity of the company. Just because it is a major company is no guaranty either.

    The company on the C2C was in bankruptcy, and a sleazy outfit. They had reneged on an employment offer on a friend many years ago–she quit her existing job to take the new job, and then they reneged before she started, so she became unemployed. I should have remembered that and specified a notice period with pay in my contract with that company–which I neglected to do–I glossed over it. My fault, but I did not think they would be so unprofessional.

    Of course there are ethical and professional supervisors and companies that do honor contracts.

    In contrast, at a major CPG company, I was on a 3 month contract, but I finished the project 2 weeks early, and the supervisor told me she would pay me until the end of the contract, and I can just do some clean up work–basically sit around. But I used the two weeks to do some extra small projects for them. They called me back again subsequently.

    I also worked for a major financial institution on 3 separate contract periods, totaling over 3 years. For the first two contracts, the supervisors were nice, my contract was continually extended, and when I finished projects, they found other things to do to keep me around. They treated me like one of them. The third time I was there, the supervisor was a jerk–my contract was not extended, and I did not want to work there for him–but they did not break the contract early.

    So it all depends on the professionalism of the supervisor, and to an extent, on the company. However, in each situation, one should be professional in the parting of ways. In each of the two aforementioned early termination cases, I said fine, no problem, and did the documentation of the work. It was their loss, not mine. I went out with a smile.

    On another point mentioned. It is very true that some companies view contractors as valuable contributors and resources whereas others view them as second class citizens. In the two companies that terminated my contract early, they viewed contractors as second class citizens. In the two others I mentioned, they treated me especially nice, as part of the team. So maybe there is a correlation to be had.

    Treating contractors well and as part of the team is the smart 1+1=3 way to go. But some employers and supervisors don’t understand that–and that is why they are in the pickle they’re in. Always be a professional and a winner!

    • Pat — I agree, no layoff rules apply. Depending on how your employing company writes the contracts with the client, you may get no notice at all. Your list here is informative to others reading this and thanks for taking the time to share all of these examples.

      I also think what you have shown here is the need for “employment security” and not “job security.” You’ve successfully worked into other positions with your skills and performance, regardless of the circumstances. Contract positions *feel* less secure because of what you describe here, but there is no job security, contract job or not. Consequently, acquiring more job skills and having provable performance that show business results are critical in finding new gigs.

      One other point worth mentioning — when working with a consulting company for placement, getting to the culture of the client company is an important set of interview questions to ask. A good sales rep for the consulting company knows the managers he or she is dealing with. That person should be able to tell you what you are signing up for with the client. Not 100%, of course, but something close.

      And, by the way, some may view this list as a big flag for going contract. I’d offer a different perspective — what if you were just hired on as a permanent employee and then discovered your manager was one of those bad ones above. Sure, as a contractor, you’d be gone in a relatively short period of time and you’d probably know that pretty quick. But as a perm employee, you get the opportunity to deal with your nutty manager for eternity…