By John Andre
You just finished a consulting assignment, and now you’re looking for more work—that next big contract. You’ve updated your resume with all the major job search engines, and the calls have started to come in. However, the offers are a little different from what you had in mind: They want permanent employees, not consultants. Should you take a full-time job?
The perks of consulting
The whole IT industry has recently shifted its focus from outsourcing to insourcing. That is, they would rather have you as an employee than a consultant. As an employee you’re an asset, a human resource, a knowledge bank. As a consultant, you’re an expense, a hired gun who goes in blazing, accomplishes the goal, and then leaves, never to be seen again.
If you’ve ever worked as a consultant, you probably know many of the benefits:
- Higher pay rate than full-time employees
- “The billable hour,” so more hours worked means more money to you
- Freedom to leave when the contract is complete and try your hand somewhere else
These benefits can make a big difference. It’s typical for a consultant’s hourly rate to be twice that of an employee’s for doing the same job. Adding to that the fact that you get paid for every hour worked means that you could make three to four times what an employee makes. This can be very tempting, indeed.
And let’s not forget that all jobs—full-time and consulting—are temporary in nature. The only question is how long you will stay in one place. In reality, therefore, you have the same mobility options whether you’re a consultant or a full-time employee.
Dissecting the benefits of permanent work
Yes, we all know the benefits of “permanent” employment: vacation and personal days, health insurance, and your employer paying some taxes for you, as well as for your phone bills, computer repairs, equipment, and so on. All of these issues require money out of your pocket when you’re a consultant. You can start to see that changing from a $50,000 per year job to a $50 per-hour contract may not look like such a big leap forward.
Of course, there are lots more benefits of full-time employment. You may get 401(k) benefits that really help come tax time, you may get paid for training, and your employer will pay your salary while you train and travel. All of these items have financial benefit. The tax advantages of putting away $10,000 per year tax-deferred into a 401(k) are much better than putting away $2,000 per year into an IRA. That’s an $8,000 difference with a 40 percent tax rate. That works out to a $3,200 per year savings for the employee.
And let’s not forget training. As an IT pro, training is a huge issue for you. If you’re not up on the latest technology, you’re out of the running for that next contract. Most employers understand the importance of training their staff and are willing to pay those expenses. As a consultant, a week of training can cost you a lot. Here’s a hypothetical estimate for training:
- $2,500 for the class
- $1,000 for the traveling expenses (airfare, hotel, car, and so on)
- $2,000 in lost income (assuming $50 per hour and 40 hours per week)
So, one week of training just cost you $5,500. Two weeks per year costs you $11,000.
There are a few more issues to consider when weighing a permanent job offer against consulting:
- Protection: There are many laws to protect employees’ rights, yet few to protect consultants’ rights.
- Leniency: Your employer gives you much more leeway on your productivity. If you’re an employee and spend a little time at the soda machine chatting with coworkers, it’s “morale building.” If you’re a consultant and you’re making small talk, however, you’re “consuming resources” and most likely “overcharging.” The boss’s perspective is very different toward people in these two positions.
- Respect: Employees may get more respect and tend to be emotionally included. This may come from a consultant being seen as the hired gun who will not be around to pick up the pieces from a political or technical mess.
What if the potential employer is your current client?
If you already hold a contract position with the company that’s considering hiring you, then some additional dynamics come into play.
One of the most important issues is pay. This can easily work in your favor. If you’re charging $50 per hour, then any salary below $100,000 per year can seem like a savings to the company. However, as we know from all the hidden costs, a salary of $100,000 would actually be an increase in costs to the company, and an increase in income to you.
There is also the issue of image. It’s a simple, if cold, fact that employees view consultants differently than they view employees. When a consultant transitions into the role of employee, it can be taken two ways by the other employees:
- Why did you give up the money and freedom of consulting? Couldn’t you handle it? Why didn’t our company get someone stronger?
- Wow! You have seen so many companies, and you chose ours. You didn’t need a job, but you stayed here. Our company is fortunate to have such a visionary.
Certainly, option two is preferable both for you and for the company. If you play your cards right—and management should help you do so—you can boost your image and the team’s morale.
Another factor deals with negotiating compensation. It will be easier for you to convince your prospective employer that you need two weeks training and four weeks vacation every year. After all, that’s what you’re used to. You should also be able to skip the company’s traditional 30-day probation period or get a 12-month job guarantee. Since the company already knows the quality of your work, the arguments normally used against such concessions just don’t stand up.
Some pitfalls of permanent jobs
So, being an employee looks great, right? Where’s the downside, you ask? Watch the number of hours you put in—especially at a start-up. If you take a job at $100,000 per year and you work 80 hours per week, suddenly your hourly rate is down to $25 per hour. Think about this in your negotiations. Perhaps you’d like comp time or overtime pay when you work more than 40 hours per week. If so, make sure that you cover this before you accept the job. Once you accept, it’s hard to renegotiate.
One thing to remember when going from consultant to employee for a client: Get a letter of recommendation before you accept the job. If things don’t work out as an employee, this letter will help you reestablish yourself in the consulting world. You probably won’t have much luck getting a recommendation after deciding the world of permanent employment is not for you. There’s simply no motivation for the employer to help you.
It’s also important to watch out for “discount seekers.” Imagine that you’re on a one-year contract at $100 per hour. Six months into the contract, you’re offered a permanent position—say as Chief Something Officer—with a salary of $100,000 per year with a ton of options. You forego the last six months of your contract and take the job. You just gave up $50,000. Benefits may cover $10,000, but that still leaves $40,000. If the next six months go by and your new employer fires you (or squeezes you out), then you’ve lost a lot of money.
How could you have prevented this? One option would have been to stay on as a consultant for the term of the contract and then become an employee. Another option would have been to negotiate an “early-out” fee. For example, the prospective employer could give you a sign-on bonus of $40,000. The important thing here is to prevent the employer from taking advantage of the situation at your expense.
Which is best for you?
Only you can decide the best option for you. If you want to be a consultant—even though many companies are moving to in-house talent—there are still jobs out there. Make sure you’ve calculated your rate properly. There are many hidden expenses to being on your own. If you lose sight of any of them, you can easily end up making less than an employee.
If you can find the right full-time position, take it. If not, wait it out. It’s still a seller’s market, where you, the consultant, have more leverage than the client.
John Andre is CEO of Montgomery Software Inc., an Austin, TX-based consulting firm focusing on software team development and software project management.Have you ever found yourself in a position to choose between staying as a consultant or signing on as a full-time employee with a client? What did you decide, and what factors helped you make your decision? Do you have any regrets about your choice? We want to know. Post a comment below or send us an e-mail.