More Tech Professionals Pushed Into Contracting

Employment isn’t what it used to be, and for many tech workers it may never be again. As America slowly emerges from recession, employment growth isn’t following. Increasingly, workers find themselves with piecemeal employment, no benefits and what appears to be no way back into a full-time job.

“Will we all be freelancers soon?” asked a recent headline in U.S. News & World Report. The accompanying story reported how:

6 in 10 companies have plans to hire more freelancers in 2014. Companies report that they do so because it gives them the flexibility to rely on different skill sets as their needs change, and using temporary workers also allows them to spend less money on employee expenses.

Tech and other knowledge workers are among the most in-demand freelancers, the magazine said, though not all those freelancers are as happy as a buoyant market might make it appear.

Benefits Package“Employees who formerly relied on valuable benefits like health insurance are getting the shaft in this economy,” commented one reader. “You can put whatever positive spin you want on these new ‘opportunities,’ but the only people making out are the employers who save substantial sums of money.”

Those savings come from benefits including vacations and healthcare, which aren’t provided to contractors. Worse, contractors often compete in literally a global market, where they face others whose wages are much lower than what American workers made as full-time employees.

Overall, 10 to 12 percent of American workers have temporary or contract jobs, according to government statistics.  “In many cases, employers are not confident to bring in regular, full-time employees because it may hurt the entire firm,” James Sherk, senior policy analyst in labor economics at the Heritage Foundation, told Fox News.

“This is the most disturbing trend, due to the weak economy,” Sherk said. “It’s an economy and situation where employers aren’t seeing their shelves pick up, so they won’t commit to hiring a full-time employee.” He doesn’t believe hiring is likely to resume until full economic recovery is achieved.

Or will it? Might companies decide that hiring contractors at a discount is a more economical way to replace workers cut during the recession?

Contracting as the New Normal

In Silicon Valley, working as a contractor has become a new career for displaced workers. But being successful often requires an attitude adjustment.

First, would-be contractors must realize that their new role isn’t tantamount to failure, says Luther Jackson, program manager at NOVA, a federally funded employment and training agency in Sunnyvale, Calif. “I ask, ‘Why is that a failure?’ It’s just the new world. The idea of doing a number of contracts doesn’t mean defeat.”

Jackson says many of his clients have used contract jobs as an entry to full-time employment at their client companies. But, he adds, recovering from job loss can require major changes in how workers present themselves and their skills.

Some freelancers are hired by companies who resell their services to corporate customers. Occasionally, these workers actually end up at their former employers, only earning less money. On the other hand, many of the jobs last a year or more. The better of these contracting firms offer employees competitive salaries and benefits.

Of course, not everyone is able to turn their contract gig into a new career. “Freelancing is better than no income, but not by much,” says one veteran technology marketer who earned more than $120,000 a year before the recession.

The worker, who asked not to be named for fear of chasing off potential employers, still sends out resumes but doesn’t expect responses. Another truth: “Now that I am in my late fifties, companies aren’t even interested in talking anymore.”

Meanwhile, a contract programmer — who was once employed for a leading virtual machine company but has been out of work for more than two years – says his contracting income is a small percentage of what he earned as an employee. “Fortunately, my wife has a stable job and benefits and that’s how we survive,” he says.

One reason for the lower wages paid to contractors, especially through online hiring sites, is global competition fueled by cheap global communication. For employers, that opens up access to a widely flung workforce that lives in places where Western-style wages and benefits are largely unheard of.

The bottom line is the recession and globalization have wrestled power from many but the most specialized and in-demand tech workers. For the rest, even full economic recovery may not be enough to provide a traditional job.

7 Responses to “More Tech Professionals Pushed Into Contracting”

  1. Like the guy in his fifties, I also have a wife with a stable job who can extend health coverage. Last week I was totally idle and this week I will bill a total of six hours. The paying customer still expects me to jump when he snaps his fingers. Maybe I should go from semi-retired to fully retired. It’s too late for me, but I suggest that direct employees consider unionizing. It really has come down to that.

  2. I’m in a similar situation, but not down to six hours.

    Do you ever wonder if you’re only getting six hours of work because your’re being billed out at $200 an hour? My employment contract prohibits me from discussing money with the client, but I’m responsible for delivering that much value. The market for contingent workers is not “free” in any sense of the word and having staffing firms in the middle introduces a large conflict of interest and I’m concerned.

    (1) Staffing firms hide information–The recruiter will never tell you the client is desperate and won’t tell the client that you’re anxious to get out of the house. You will also never know that you’re the only qualified person available at this time, even if it’s true. His spread increases.

    (2) Staffing firms may collude–I’ve never gotten a contract where I was not contacted by a second “unrelated” staffing firm for the same position. I’m convinced that recruiters from different firms work together ensure that I won’t foul up the process by getting presented twice to the same client. I’m constantly told that employers hate that. I don’t think the employer cares one bit. I know the staffing firms do not want you finding out that another firm will work on a lower margin. Don’t tell me it’s multiple firms chasing the same position–the pattern has been too consistent, and the second contact only comes when there’s serious interest from the first firm, not those breathless cold calls you get for a “perfect fit” that’s a 65-mile commute over mountain passes. (I will admit to a rather small sample size on this point.)

    (3) I also think staffing firms WITHHOLD resumes of qualified, experienced workers while they present a series of higher-margin, less-qualified workers for interviews. “White-listed” firms have even more leverage to play this game. I once waited over two weeks to interview (and get) a job at a local Fortune 100 company that used white-listed staffing firms. My boss told me that they interviewed SEVEN unqualified candidates before I showed up. Guess how long it takes to almost lose your coveted white-list status?

    So why does this matter? Just business, right? Because while I’m trying to find work, I see “my” recruiter boasting in his public LinkedIn profile about a string of 100% markup placements he made last year. Then another recruiter who is “Linked” to me is hiring junior recruiters–at $250,000 a year. It doesn’t seem fair that the worse the economy, the better the brokers do.

    So I would like a law that says that staffing firms must disclose their billing rate and wage rate (or their percentage markup) to both the client and the worker in advance of the interview. I also would like a requirement that the real employer be required to forward the resume they received from a staffing firm along with the actual job requirements back to the applicant on the day it is received to avoid “misunderstandings.” I’m too timid, polite or realistic to demand this of a staffing firm. Maybe I need to be more assertive.

  3. in the trenches

    “but I suggest that direct employees consider unionizing”
    Jack, are you that dulided in your thoughts? UNION?
    Unions aren’t going to protect you if a company wants to get rid of you..
    Now you are paying someone to protect your job..
    so that way.. you might be the guy who comes in and gives 110%
    but your co-worker who is part of the same union only gives 60%
    but the raises and pay are the same..
    Plus now you got Union dues, and you are paying someone to tell you
    you need to strike and walk a picket line.
    While out there walking that picket line, you watch other people brought in to do
    your job. or watch them pack up the company and move it else where..
    Obviously you dont remember the 80’s when this happened to a lot of union shops..
    Being someone who was in transportation in the 80’s and 90’s one of the biggest things
    I remember about union workers are, they were the biggest bunch of whiners out..
    Yeah.. Unions! they are the answer!

    • Barbara W

      I disagree. Unions further the opposition of the professional class from management and create structures which don’ t fit modern structures. Professionals whether managers or technical should be enabled to be aligned with the mission of the company. Those who cannot support that mission *should* leave. I wouldn’t want to work with a company where I disagreed with management. Current management needs to have more breadth to make for a more effective use of resources. Unions defeat that strategy by inserting themselves between professionals and management.

  4. Michael somebody

    I went back to school in my 50’s and graduated this past december with two degrees and three certs all with high honors. I posted my resume everywhere and only get contacts that say they are in urgent need of someone who has lesser skills and they are out of the area I live in.
    I decided to leave the tech behind and just focus on a job and bingo I got one. I work from home, set my own hours and get paid weekly. Not the highest wage but not bad. I do no support or phone work and I never deal with a customer at all. I love it. All I need is my laptop and an internet connection and I can work from anywhere.
    I was into tech before all this craziness started back in the 80’s and I have been into it on my own but never wanted to work in it.
    I went to school because I was laid off and there were no jobs out there. I have a degree and cert in networking but I will probably never use it. I also have a degree in lib arts which is useless anyway. My point is the H1B visas are what the employers want in tech, so let them have it we can do other things or start our own. But I can tell you the people they are hiring cannot do the job very well and it is starting to hurt the companies so there is a price to pay for their fear of hiring.
    I am happy to be away from it and plan to never return or even try.