Outsourcing

Employee vs. contractor


Tom Mochal's post got me to thinking about the differences between the employee and contractor relationship.

As a consultant, I always work on contract.  That isn't strictly necessary, though.  "Consult" is what I do (i.e., provide expertise in my field of specialization); "contracting" merely describes the terms of my engagement.  It just so happens that most consultants are also contractors, whereas most (but far from all, increasingly) programmers are also employees.  Why is that so?  What differences in these two forms of engagement make one more appropriate than the other for a given role?

  1. Exclusivity.  Whether or not it's desirable, an employee is to some degree "owned" by their employer.  They usually have an agreement that includes not working for competitors (often even covering some period after termination).  Even taking on a second, unrelated job may be frowned upon.  Essentially, they've parked their career on the company's lot for the duration of their employment.  To be fair, an employer buys this exclusivity at the cost of FICA, worker's comp, health benefits (not so much anymore), and other employee perks; while contractors pay for their freedom by bearing all those costs themselves.
  2. Duration.  Employees are expected to work a set minimum schedule of hours as determined by their employer, and they're often expected to work overtime with no additional compensation.  On the other hand, they can usually count on holding onto their job until either they or the company screw up majorly.  This arrangement gets the most hours and most predictable production from people whose output is often measured (perhaps erroneously) in terms of daily or weekly goals.  A consultant, on the other hand, may only be required for brief, intermittent periods to ensure that the company is making the right choices at the right times.
  3. Direction.  Most companies have some form of management hierarchy that sets goals and measures performance for employees.  Contractors are generally expected to be more self-directed, since the company is their customer rather than their employer.  Focusing on customer satisfaction (rather than on the next performance review) means that contractors should think beyond their assigned duties, beyond the questions asked by the customer, to try to solve the real problems at hand instead of the ubiquitous imagined ones.

As I intimated in my comment on Tom's post, the sense of responsibility for the company as a customer should ideally be forefront in the minds of employees, too.  Anything that gets in the way of that will turn potentially creative people into less than they might be.  Unfortunately, the image of the (sometimes not so) benevolent, parental employer often leads employees to act more like adolescents: covering their tracks and focusing on perceptions rather than results.

That's a gross generalization on my part.  Some companies get this right.  But way too many still get it wrong.

So in light of the above, perhaps the worst case scenario (for the company) is the contractor who is expected to produce like an employee, but doesn't report to anyone in the company, and furthermore isn't dedicated to the company as a customer because they are employed by a consulting firm instead.  Their incentive is to make their employer think that they're being productive -- a perception that is only weakly linked to solving any actual problems for the company.  For the consulting firm to be really successful, they need to tightly couple their employees' evaluation to their customers' overall satisfaction, so they'll take ownership of the company's problems.  Or just find a hot niche market where they can charge big bucks for garbage work because there's plenty of it.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

25 comments
QualityIT
QualityIT

I have had both opportunities as an IT consultant and a full time employee. I prefer consultant over full time because of Consulting: 1. There are more tax advantages being a consultant 2. I get to set my own hours 3. You obtain alot of on the job skills that are marketable 4. The pay is far better being a contractor 5. I get to choose my own benefits 6. If you know how to market yourself you can land a job in no time, pining your resume to 120 plus recruiters, by sending out 1 e-mail. Full time: 1. The bonuses and raises don't always come thru 2. There is no such thing as job security in any industry 3. You do not get paid for working over time 4. I'd rather stay out of office politics, which they suck you into being a full time employee

ITLifecycler
ITLifecycler

Response to the question, "What differences in these two forms of engagement make one more appropriate than the other for a given role? Quick Response: Whether or not a programmer is engaged by a business as a contractor or employee is independent of whether or not a consultant is engaged by a business as a contractor or an employee. An engagement is based solely on the terms and conditions agreed upon between the services provider and the purchaser. The differences that make the most difference are the rules of engagement (express, implied) which may also include role. Service Provider Roles: Programmer, Consultant Type of Engagement: Employee, Contractor Rules of Engagement: Negotiations will address who assumes the risks associated with an engagement, who will be accountable for the results (if specified), and a host of other variables.

MikeGall
MikeGall

Well thought out. I agree a contractor is on a more immediate review process. Example, we contract occasionally for Sun server support (as we are mainly a IBM Wintel, or AIX shop with 300 servers, and only 2 Sun servers). Anyways, if we have a contractor come in for a SAN configuration for 8 hrs work, and we don't like it, they don't get the next contract. So this is almost like a daily review process, try going to an employee and saying yesterdays worked sucked, see ya.

aabare
aabare

I really hate paying for a learning curve and expertise that walks out the door when the project is over. I know that both employee and contractor (especially in I.T.) have questionable duration. However, if I work with a third party developing company rather than a private contrator, the chances of me being able to get the same person to work on a particular post implementation issue declines. If I had one of the company's top developers, he/she is surely on to another project by the time my issue crops up. Thus I will get someone else with different skills, abilities and throught patterns than the original developer. This is how my current company lived in the past. It is what is causing great difficulty in the present. The resulting system after 8-10 years of (one company but) multiple developers is code that is more patch than process. Trying to figure out the previous person's flow and though process, then make a modification that is in tune with the original development is a skill that not all developers have. Just remember as the employer, if you tie in with a development company, you are also tying into their hiring skills, their customer service, and how they treat their employees. If you don't treat your employees right and they quit, deal with it. You (the company) could have avoided the person leaving based on different factors (in many cases.) You make a business decision about whether this person's expertise is worth the trade off (more money, vacation, work conditions, etc.) It is much more difficult when your developer leaves the company you have contracted with because of how they treated him. Then you are 'stuck' with someone maintaining the code that may or may not understand the business, the processes, our your company. There are times for each (contractor and employee) but for longterm positions, I like having my future (somewhat) in my own hands.

Tony Hopkinson
Tony Hopkinson

I've seen empire building, sinecures, fraud. I'm a professional no matter what terms I've been employed under. Can't always say that about my colleagues, or my 'superiors' All the faulires you describe are not those of an employee or a contractor, but of management. Who employed the wanker in the first place? Who failed to manage them? I lways try to make sure I provide value for money, even to the point of warning my 'customer', that they are not employing me efficiently. The only difference I've seen in this regard is their perception of me, if I'm employee, it's a much less urgent issue.

Sterling chip Camden
Sterling chip Camden

OK, for every one of the categorical statements I made in that post there must be a million exceptions. Lay 'em on me.

whistl3r
whistl3r

"try going to an employee and saying yesterdays worked sucked, see ya." Then someone should have done their homework, before hiring someone. Also, provide technical details of what needs to be accomplished... and 'of course' the Employee is probably going to know all that technobable!

Sterling chip Camden
Sterling chip Camden

I guess that's part of the lower hourly rate -- some degree of job security. although it's really changed from the days of "once you get into IBM, you've got a job for life."

Locrian_Lyric
Locrian_Lyric

When you bring in ANYONE new, contractor or employee, there is going to be a learning curve because all code is not the same. When you take a contract, you have to learn who are the owners, the principles involved, who needs to be kept informed, who needs to be consulted, who is accountable for deliverables, all dependancies, policies and procedures, business rules, escalation procedures, Validation processes, blah blah blah.... Even if it's a straight coding procedures, you need to learn shop standards and conventions. If you don't want to pay for that learning curve, have a nice packet waiting for the consultant.

jon_baumgardner
jon_baumgardner

I've seen "permanent" employees let go when a project is done. The employee got $10 per hour worth of benefits and 50% of the salary of the contractor who stayed the same time. Also, many employees are given raises at a 2-5% per year rate while new hires come in at 10-15% more than last year's rate. When an employee is in upper 50% of the pay range of his classification but doesn't want to get promoted, the annual "Raise" can be less than inflation meaning that the person is losing wages by staying. The "security" of permanent employment is a myth in America. If you want to keep your income up in IT, you have to learn on your own and be responsioble for your own success. Consultant/small business owners who do corp-to-corp contracts get the best deal but have to maintain their expertise in their niche.

jbotma
jbotma

When both (employee and contractor) are proffesionals the difference is in the type of solutions they deliver. The employee knows that he will have to live with the solution, so he creates a solution that will last with the least maintenance. The contractor will be rewarded for a job done well and fast. Problems appearing after a few years is not his problem.

whistl3r
whistl3r

EDIT: Ok, this was suppose to be a reply to the main debate. --------------- A Gross misunderstanding! There are several types of 'Contractors' and the one you're defining most likely defines an 'Independent Contractor'. A ?Contractor? is labeled as Short or Long Term Contractor. An ?Independent Contractor? makes their own work or hired on to Complete a Specific Project as in Constructing a Parking Ramp, Road or Installing a DataCenter, etc?. I do agree with the education, but that doesn?t stop at a ?Contractor?. A 'Contractor' is paid far less than a Permanent employee. There are Benefits involved. A Contractor also needs to do the dirty work to even find a worth-while 401k & Pension plan, Health Fitness & Insurance, Dental. Non of which a 'Contracting' firm provide and 'IF' they do they are exorbitantly rates! What this country 'United States of America' needs to do is abolish 'Long Term Contracting'! It's no different than slavery. I remember in the day when an Employer actually hired a prospective worker they usually undergone a "Probation Period," usually lasting 6 - 12 months, then is hired on as a Permanent. These days Employers flinch at hiring anyone... in fact worrying about their 'Own' pockets and not about the American Culture and our Economy (no wonder this age is falling apart, no sense of dignity nor honor). It's also against our Constitutional Right... in a sense Long Contracting is a slave machine, made to hire workers for cheap and the head hunter receives the Premium. Take for instance an Employer (medical company) needed an increase in staffing for the helpdesk; they would request a staffing consultant to locate staff. This medical company has over 50% contractors and actually need the head count to accommodate the job, these jobs also ?dictate? the contractor?s occupation; there is legal definition to a dictated occupation. Some of these contractors have been around 2-16 years, plus, with no benefits or any type of encouragement to do better. The ?Permanent Employee? receives an incredible amount of benefits, beyond what is normally given, paid well, their voice heard and yet believe they are top of the heard. A ?Contractor? however, does not have a voice, nor do they get this special treatment? treated as scum viewed only as a ?fill in the need?. If that contractor displayed any concern about ethics or morality they usually are berated or let go. Contracting could fill in the void for the "Probation Period". This would be the sensible way of hiring. Once the Probation period ended and the Employer wanted to keep you, they would be forced to hire you as a Permanent employee.

SObaldrick
SObaldrick

.. in Washington at least, is that the company has to pay a certain amount to Social Security to cover their unemployment costs for each employee they let go. Otherwise a FTE has no more security than your average contractor - in fact less because the contractor can be extended on a short-term basis. Les.

Tony Hopkinson
Tony Hopkinson

How can the job be described as done well, if maintenance is unnecessarily expensive? Not the way I worked, and I've seen just as many inflatable dartboards come off an employees desk as I have a contractors. Most of the time, because that was the way they were told to do it. Quality has to be paid for, given equal competence the salary status of the person doing it is irrelevant. I've seen 3rd party development companys go down this route. Squeeze the quote to get the job, then go into max obfuscation mode so they can recoup their initial loss with a guaranteed maintenance contract. Again you get what you pay for, seen the same thing happen on in-house projects.

Sterling chip Camden
Sterling chip Camden

... as long as people think I'm a corporation, it's harder to get flamed ;)

Sterling chip Camden
Sterling chip Camden

The more government gets involved in the labor market, the more they screw it up. If you are willing to take a job in this "slave market" then one of the following must be taking place: (a) you have undersold yourself, (b) the market will not support better opportunities, or (c) there is a massive conspiracy among employers to rip off potential employees. Legislative action assumes (c) to be the case. I, on the other hand, do not believe that could happen on any meaningful scale, and I think what we have here is likely a combination of (b) and (a), where (a) may often be caused by not having enough information.

SObaldrick
SObaldrick

"What this country 'United States of America' needs to do is abolish 'Long Term Contracting'! It's no different than slavery." But I thought the US had eliminated this problem. You cannot work as a long term contractor for companies like Microsoft and Nike. You are forced to take time off after 12 months, otherwise you will gain the benefits that FTEs receive. I don't see who benefits from this legislation. I'm sure someone in government thought that they were helping eliminate this type of 'slavery', but all that happens is the company and long-term contractor become separated before the legislation kicks in. Les.

Tony Hopkinson
Tony Hopkinson

earth style, conditions on your planet are apparently different.

ITLifecycler
ITLifecycler

I guess that's the way it's done in the UK!

Locrian_Lyric
Locrian_Lyric

ah, I told you this one already, didn't I :)

Tony Hopkinson
Tony Hopkinson

initial developement at about 20% and maintenance / enhancement at 80. So you put in a minimum quote to get the job and then you make sure maintenance and enhancement are necessary and billable by the hour. Sound business thinking.... On the vendor's part anyway, and what other options are there if people keep on cheapest quote? You ever done and estimate for a job, and your boss has knocked it down and added six new features to get the sale ? Miss Natasia Bodge and Mr Horace Hacker have to get drafted in so it looks like you've met the customer spec. No need to intentionally code poorly, just don't refactor and patch every fault. Instant maintenance contract so their management can avoid admitting they f'ed up again.

Locrian_Lyric
Locrian_Lyric

A consulting group tried to squeeze my brother for this one. They proposed a solution that nobody in his company had the skills to maintain. Bro is not tech-savy, so I informed him that it was a scam and proposed 3 solutions that could be implimented and maintained by existing staff with existing skills.

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